9 Important Contribution of “Niccolo Machiavelli” to Political Science

2. Machiavelli’s separation of politics from ethics and assigning it an autonomous sphere is another contribution. Prior to him politics was considered the hand maid of ethics.

3. Machiavelli is the first to bring the aspect of realism in politics. Prior to him normative dominated the political thinking.

4. Machiavelli’s advocacy of power politics is another contribution that has been followed widely in the realm of international relations. Perhaps no nation can afford to rely exclusively on idealism.

5. Machiavelli’s method of history combined with commonsense observation has remained pragmatic till now.

6. Machiavelli’s denouncement of Church and its interference in the state places him as the first secular thinker.

7. Machiavelli’s analysis of role of the state to offer security of its citizens remains pragmatic as ever.

8. Machiavelli’s republican spirit (service to the nation) has been celebrated by nationalists of all ranks.

9. Machiavelli’s suggestion to the prince signifies eyesight of political psychologist. Every theorist in modern time seeks to base his argument on the basis of motivation and orientation of human beings towards political objects.

Under this background one cannot refuse to agree with Prof. Dunning that “Machiavelli was the first modern political philosopher”. He was indeed an intellectual manifesting the cross currents of Renaissance and Reformation and Scientific outlook.

Essay on “Social Contract” Theory of Thomas Hobbes

Individuals undertake not “to will their own will”

Individuals “accept to undertake limitation on their will”

They “submit the wills of all to the will of one”.

Social contract is the basis of Hobbes’s state whereby individuals .of their own impulse, unite and execute a contract among themselves without the ruler or sovereign being party to it. The origin of state lies in the transfer of all the natural rights of individuals (except the right to life).

The individuals agree to institute a third party—a common recipient—who himself is not a party has to protect the right to life. The contract creates one common superior out of the equally placed individuals. It represents the sum total of all the powers of individuals.

2. Features of Contract:

Chief features of contract are:

Firstly, individuals are the basis of contract. They are endowed with equal natural rights in the state of nature. It is neither a contract among groups, nor is a contract among unequal’s. Moreover, it is a contract resulting from the prudential calculations of individuals and not from fear.

Secondly, the sovereign is not a part but apart from and above the participants. However, it can never make a breach of the contract.

Sovereign cannot be unjust because ‘justice lies in adherence to the contract’.

Thirdly, the contract is irrevocable and finite. The individuals have no right without the consent of the sovereign.

Fourthly, the minority has no right to object to the dictates of the majority in selecting a sovereign.

Fifthly, although sovereign may be one person, two or many, but his preference is for monarchy.

Sixthly, the main motto of the contract is protection of life of individuals. Though the sovereign is supreme in all aspects, he cannot encroach upon lives of individuals.

Seventhly, there is no distinction between state and society and between state and government. For, it is the sovereign power which creates civilized political society out primitive state of nature.

3. Criticism:

Hobbes’s attempt, though novel in many respect has been subjected to following criticism:

1. Enslave the individuals at the hands of sovereign whose intentions are far from clear.

2. It is ironical as to how individuals guided by dictates of reason choose to create an all powerful authority with irrevocable powers.

3. Hobbes Leviathan is more of a coercive agency than a democratic artifice.

4. Fails to distinguish and differentiate between state, society and government which are distinct institution with varied competence.

5. The notion of permanent and irrevocable contract is questionable. Indeed, it was, as Vaughan points out “intended to support a particular system of government i.e. absolute monarchy”.

Despite serious shortcomings and inherent biases, one cannot refuse to acknowledge that Hobbes heralded a new era. His notion of contract as a basis of state is hailed in all liberal capitalist orders. But, an impersonal, artificial, all powerful sovereign has been with skepticism.

Useful Notes on the 4 Different Types of Money

(i) Limited legal tender and

(ii) Unlimited leagal tender.

(i) Limited legal tender:

Limited legal tender money is accepted as legal tender only upto a certain limit. For example, in India 10, 20, 25 paise are legal tender only upto a sum of Rs. 25/-. It means up to rupees twenty-five a person cannot refuse a payment through this small coins. So 10, 20, 25 paise coins are examples of limited legal tender.

(ii) Unlimited legal tender:

Unlimited legal tender is that money which has to be accepted as a means of payment upto any amount without any limit. For example, in our country, 50-paise coins, one rupee coin and currency notes of all denominations are unlimited legal tender.

In our country, we have a concept of optional money. Optional money is that money which may or may not be accepted as a means of payment. There is no legal sanction behind them. Different credit instruments like, cheques, bank drafts, etc are examples of optional money.

(B) Money of Account and Money Proper:

1. Money of Account:

J.M. Keynes has distinguished between money of account and money proper. Money of account is the description or the title and money proper is the thing which answers to the description. Money of account is that in which accounts are maintained.

Prices of goods and services, general purchasing power, debts etc are expressed in terms of money of account. Rupee in India, Dollar in USA, and Yen in Japan etc are the examples of money of account.

2. Money Proper:

Money proper is otherwise known as actual money. Money proper is the money which is in circulation in a country. It is the medium of exchange and means of payment.

Rupee note and rupee coin are the actual money because transactions and payments are affected through them. Money of account may change but money proper does not change.

During economic crises money of account and money proper may not be same. After First World War, in Germany, the money proper continued to be the German Mark (like rupee in India, it is German Mark in Germany), but the money of account changed to the American Dollar because of its stable value as compared to depreciating Mark (Mark – The Germany Currency).

(C) Metallic Money:

The development of money from one form to another has been historically traced. Money has passed through different stages with the passage of time and growth of human civilisation. Initially, metallic coins were made of metals like gold, silver, copper, nickel etc. Metalic money is of two types:

(i) Standard or full-bodied money and

(ii) Token money

(i) Standard or full-bodied money:

Any money whose face value (exchange value) is equal to its intrinsic value (the worth of the metallic content of money) is called standard money. Full-bodied money requires the fulfillment of two conditions:

(a) Money can be shifted from monetary to non-monetary uses without any cost; and

(b) The metal can be coined into money without limit and without cost. There is free coinage of standard money and the mint is open to the public. It is unlimited legal tender and money of account of a country. Standard coins are generally made of gold and silver.

(ii) Token money:

The money whose face value is more than its intrinsic value is called token money. They are made of cheaper metals, like, copper, nickel etc. It is minted by the government and there is no free coinage of it. Token money is limited legal tender.

(D) Paper Money:

It consists of notes and coins issued by Central Bank (or Reserve Bank) of a country and Ministry of Finance, Govt. of India (one rupee note is issued by Ministry of Finance, Govt. of India). Paper money is of four types: (a) representative paper money, (b) convertible paper money, (c) inconvertible paper money and (d) fiat money.

Representative paper money is fully backed by gold and silver reserves. The paper money which is convertible into standard coins is called convertible paper money. In this case the individuals can get their paper money converted into cash.

Here the value of metallic reserves is less than the value of the notes issued. In this case the reserves consist of some amount of gold, silver and standard coins, approved securities.

The paper money which is not convertible into standard coins or valuable metals is called inconvertible paper money. There is no guarantee to convert the paper currency into gold and silver.

Fiat money is one variety of inconvertible paper money. This money is neither backed by metallic reserves nor by fiduciary reserves. Under this there is a danger of over-issue.

3 Most Important Functions of “Money” as Classified by Kinley

3. Contingent functions.

Primary functions are known as original functions. They are medium exchange and measure of value. Secondary functions include standard of deferred payments, store of value and transfer of value. Contingent functions cover distribution of income, measurement and maximisation of utility.

1. Primary Functions:

(A) Medium of Exchange:

We have seen the difficulties of barter system of exchange. In the modern society with multiplicity of human wants double coincidence of wants is difficult to achieve. Under barter system, exchange takes place when wants of two persons coincide. It means, exchange of goods must be settled simultaneously.

We can take an example to explain the working of double coincidence of wants. For example Rama wants to exchange rice for cloth. So he has to search for a weaver say Hari who is interested to exchange his cloth for rice. If this happens, the exchange becomes easier. Rama will give his rice to Hari and in exchange Hari will offer his cloth to Rama.

Here the wants of both coincide and exchange becomes easier. The matter becomes complicated when Rama wants cloth offering rice but Hari wants vegetables in exchange of his cloth. Here the wants of Rama and 1 lari do not coincide. Exchange through barter system is not possible.

To avoid such a difficulty a common medium of exchange was sought. This led to the invention of money so as to enable and facilitate exchange without any wastage of time. Money finally came with the advent of time.

The difficulty of double coincidence of wants removed. Money acted as a common medium of exchange. Then commodities were exchanged for money and with money one can go for anything he requires”.

The exchange became indirect. It is known as C-M-C system of exchange (it means commodities will be offered for money and then with that money one can fetch commodities he requires). Similarly, money acting as a medium of exchange could facilitate the exchange of services also.

(B) Measure of Value:

Usually it is told that money can measure the value of anything and everything. But, under barter system there was no common measure of value. A fundamental problem arises pertaining to exchange of one good for another good.

How much of rice is to be offered to fetch a goat in exchange? It is difficult to settle the exchange between rice and goat. Further, now-a-days we come across several goods differing from each other in value, size, quality, colour, design etc. Can barter system survive and can it settle exchange?

The answer is clearly ‘no’. Money has been designed to serve as a common measure of value. The values of various commodities are expressed in terms of money. So each good gets a value in terms of money and we call it price.

Similarly the value services of teachers, doctors, layers etc. can also be expressed in terms of money and accordingly we can pay a price for their services. Money acts as a measuring rod like the meter that measures length or the kilogram that measures weight. We can give some examples in this connection.

Suppose 1 kg wheat = Rs. 10/-, 1 Pencil = Rs. 2/-. So by offering 1 kg of wheat we can get 5 pencils. Here the rate of exchange between wheat and pencil is settled in terms of money. So money is treated as a common measure of value. As such, money also serves as a unit of account.

Unit of account is one through which prices, income, wealth, debts and other payment obligations are expressed. In India, the unit of account is the ‘Rupee’, in USA the ‘Dollar’, in Japan the ‘Yen’ etc. Let us make one point clear here that the value of money changes with the change in prices.

2. Secondary Functions:

(A) Standard of Deferred Payments:

We knew that money serves as a medium of exchange. It facilitates current buying and selling of goods and services. Transactions are of two types, namely, cash transaction and credit transaction.

As a medium of exchange, money facilitates cash transaction of goods and services. This medium of exchange function of money has attained more importance with the extension of trade based on credit.

Deferred payments imply future payments. When we do not pay in terms of cash for any kind of buying and selling immediately but promise to pay in future, we call it credit transaction. It means payments are deferred to a future date.

A borrower who borrows a certain sum in the present undertakes to pay the same in future. Similarly, a person who purchases on credit agrees to pay in future when his date becomes due.

So money enables both current buying and selling with immediate cash payments and current and present transactions to be discharged in future.

In case of deferred payments, some problems may come in the way. The value of money may change leading to a rise or fall. This may be due to fall and rise in the price level.

Creditors gain when there is a rise in the value of money (or fall in the price level) and creditors loose when there is a fall in the value of money (or rise in the price level).

(B) Store of Value:

Classical economists recognised only the primary functions of money. J. M. Keynes recognised and laid stress on store of value function of money. People know that future is uncertain.

People keep a part of their present income to meet unforeseen future. It is widely recognised that it is convenient to store money than to store goods and commodities.

Storage of goods not only involves certain amount of costs but also involves loss of value. Further, perishable goods cannot be stored for a long period of time. There is also the danger of theft and fire.

With the introduction of money, all such difficulties were removed. There are some advantages to store in the form of money for future. The advantages are:

1. Now-a-days, we use paper money. Paper money does not require much space to be stored;

2. By storing in the form of money, people can take advantage of the changes in the rate of interest;

3. Money as a store preserves value through time and space;

4. When we store in the form of money, we shift the purchasing power from the present to the future. So money acts as a link between the present and the future;

5. Money is an asset or form of wealth, and

6. Money is the most liquid of all assets. It means, money can be readily exchanged for goods and services without any difficulty.

So, money acts as a good store of value.

(C) Transfer of Value:

1. Money has general acceptability as a means of exchange. So it is easier to transfer money from one place to another.

2. At present, money is stored in the form of bank deposits. Depositor can transfer the amount of money deposited in his bank account to the account of another man. It means, it is easier to transfer value in the form of money.

3. Money is a means through which transfer of value from one place to another has been easier and quicker. So transfer of value in the form of money through space continues to be important. For example, a businessman of Orissa who sells his property and goes to Delhi and settles down there is a case of transfer of value through space.

4. Money is portable. It can be easily taken from one place to another place without any difficulty. On the other hand, it is difficult and costly too to carry goods and commodities from one place to another.

3. Contingent Functions:

With the passage of time, the functions of money got diversified. Besides, the primary and I secondary functions, professor D. Kinley lays stress on the contingent functions of money. Contingent functions of money include distribution of income, measurement and maximisation of utility, basis of credit, liquidity to wealth etc.

(A) Distribution of Income:

The contribution of all factors of Production like Land, Labour, Capital and Organization constitutes our national product. This product is the result of their joint efforts. So this product belongs to all of them.

This national product is also known as national income. So, this national income is to be distributed among the above stated factors of production. Money makes the distribution of this joint production among the various factors of production easy. The relative shares of factors are also calculated through money.

It means the share of labour in the national income, the share of capital in the national income and so on so forth. Labourers get wages, landlords get rent, capitalists get interest and the organizers get profit.

Without money it is impossible to settle the share of each factor of production from the national income. It is, in fact, very difficult to calculate the factor income without money.

(B) Measurement and Maximisation of Utility:

Utility is measured in terms of money. A consumer measures the utilities of different consumer goods with the help of money. Similarly, a producer measures the utilities of different factors of production with the help of money. A consumer tries to get maximum satisfaction by adjusting his expenditure on variety of commodities with the heap of money.

A producer maximises his returns by substituting one factor in the place of another for productivity gain. It is done through money by comparing the marginal productivity of each factor. To get maximum satisfaction from consumption, the consumer equalises the national utility of last unit of money spent on all the items.

(C) Basis of Credit:

Money constitutes the basis of credit. Banks create credit with the help of money. Any increase or decrease in money supply leads to a commensurate increase or decrease in the availability of credit money in the economy.

Credit instruments like bills of exchange, cheques etc cannot be put to use without the existence of money. Professor Halm remarks that money is an indispensable condition for development of a credit market.

(D) Liquidity to Wealth:

Money gives liquidity to various forms of wealth. So it is convenient to store wealth in the form of money because money is the most liquid of all assets. Money can be put to any use readily. As we know all capital is wealth.

Money is the most liquid form of capital. Capital in the form of told that money imparts mobility and liquidity to capital. Money helps in transforming other forms of capital into the most liquid form of wealth which have strong bearing on the process of development of a country.

Barring the above functions, money acts as an effective instrument in controlling demand and supply in the market. As we know, price in the market is determined by the interaction between demand and supply. When the value of a good is expressed in terms of money, it is called price.

There is no disagreement among economists that price in the market acts as a signal. It will indicate the divergence between demand and supply. It means, price can show excess demand or excess supply.

As we know price is the money value of a good. Analysing the price level, the policy makers can go for necessary corrections in the economic parameters.

From the above discussion, we learnt that money is equally important to those who have it and those who don’t.

However, evils of money are many.

1. We find ‘inequality in the distribution of income and wealth (which are the outcome of distribution of national income among factors of production through money) in the society. So invention of money is not an unmixed blessing.

2. Rise in the general price level or fall in the general price level is bad. This occurs due to faulty monetary policy of a country. As we know money is a good slave but a bad master. Money should be handled with care.

3. Instability in the value of money affects various sections of the society differently. Especially during the period of general rise in prices (that is inflation) or fall in the value of money, poor people are adversely affected (or hard hit).

4. Many social disadvantages are associated with the use of money. Money has been responsible for large-scale corruption. According to Ruskin, “the devil of money has come to possess our souls”.

Von Mises, remarked: “Money is regarded as the cause of theft and murder, of deception and betrayal.” J.M. Keynes says that the love of possession of money as “disgusting morbidity, one of those semi criminal, semi pathological propensities which one hands over with a shudder to the specialist in mental disease.”

However, money has been treated as a basic institution of the modern industrial economy. In spite of dangers of money we are aware of its enormously important role in our economic life.

Short Notes on the Keynesian Theory of Income Determination

He published his book entitled ‘The General Theory of Employment, Interest and Money’ in 1936. He pointed out that full employment is not the normal feature of the economy.

Underemployment and unemployment may exist in an economy. In his book entitled ‘The General Theory of Employment, Interest and Money’ and this book popularly known as “General Theory” he presented the theory of employment.

Keynes held that the level of income and output depends upon the level of employment. So his theory of employment is same as his theory of income and output determination. However, to cure unemployment he suggested some policy prescriptions which well responded to recover from the depth of depression.

Now let us analyse the basic elements of Keynesian model of Income determination. He has developed two concepts like aggregate demand and aggregate supply (or aggregate income and aggregate expenditure) to determine equilibrium level of income and output.

Aggregate demand is aggregate expenditure of final goods and services produced for use in an economy during a given time period. Keynes has strongly recommended for increasing the aggregate demand to bring a change in employment and level of income.

Short Essay on the Origin and Growth of Banks

In 17th century London goldsmiths began to accept deposits from merchants for safe-keeping of money and other precious metals. Prior to that, in ancient Rome and Greece, this practice was also prevalent.

However, banking in true sense of the term appeared in Italy in 1157 when the Bank of Venice came into existence.

According to Crowther, merchant banker forms the earliest stage in the evolution of modern banking. Then London goldsmiths began to deal with this business. Goldsmiths became the custodians of money and other valuables and later on began charging for this safe-keeping service. Then the goldsmiths became the money-lenders.

By virtue of his experience he realised the daily deposits and daily withdrawals. Keeping a part of the deposits as reserves, the goldsmiths loaned out the rest amount on interest. Goldsmiths turned into a banker.

However, some people believed that the German word ‘Bank’ means a heap or pile while others believed that the Italian word ‘Bank’ means bench. But Crowther says that modern banking has three ancestors: (a) the merchant, (b) the goldsmiths and (c) money-lender.

We know that goldsmiths in course of time turned into money-lenders. Keeping a part of the deposits, goldsmiths loaned out the rest on interest. Virtually, he became a banker like receiving deposits and advancing loans.

Crowther says that, “the bank as a provider of circulating money is almost entirely an English invention.”

Short Essay on “Money” (275 Words)

Now-a-days, commodities are exchanged for money and with that money we can have the commodities (or services) we require (it is known as C-M-C exchange system).

However, direct exchange of goods for goods (barter system) continued for a pretty long period of time. People experienced the difficulties of barter system. The difficulties of barter system like;

1. Lack of double coincidence of wants;

2. Lack of common measure of value;

3. Difficulty of sub-division;

4. Absence of store of value and

5. Difficulty in transfer of value paved the way for the invention of money.

Money plays a crucial role in the determination of income, output, employment, general price level and it is significant in the field of consumption, distribution, exchange, public finance etc.

So it is worthwhile to know the meaning of money. To have a clear-cut idea on money, let us examine some of the definitions given by different economists from time to time.

10 Major Differences between Micro and Macro Economics – Explained!

2. Microeconomics is a study of particular households, particular firms, particular industries, particular commodities, particular prices etc. On the other hand, Macroeconomics deals with aggregate of these quantities, not with individual incomes but with the national income, not with individual prices but with the price level, not with individual output but with the national output.

3. The objective of microeconomics is to maximise utility or maximisation of profit or minimisation of cost. But the objectives of macroeconomics are full employment, price stability, economic growth, favourable balance of payments etc.

4. The basis of microeconomics is the price mechanism which operates with the help of demand and supply forces. These forces help to determine the equilibrium price in the market.

On the other hand, the bases of macroeconomics are the national income, output, employment and the general price level which are determined by aggregate demand and aggregate supply.

5. Microeconomics is based on the assumption of ‘ceteris paribus’ (It means other things remaining constant) to explain the various laws. It means microeconomics uses the technique of partial equilibrium analysis which explains the equilibrium conditions of an individual, a firm or an industry.

But macroeconomics uses the technique of general equilibrium analysis that studies aggregate economic variables and their interrelations.

6. Microeconomics is a static analysis while macroeconomics is a dynamic analysis. Microeconomics does not take into account the time element while macroeconomics is based on time-lags, the rates of change and past and expected values of the variables.

7. The variables of microeconomics are taken as given (or constant) in macroeconomics and the variables of macroeconomics are taken as given in microeconomics.

Microeconomics assumes full employment, optimum allocation of total resources and general price level as given. But macroeconomics assumes a situation of less than full employment. It studies under employment. It takes general price level as variable and assumes price of a particular product or factor as given.

8. Microeconomic problems are many. It possesses maximum generality and applicability to a wide range of situations. But macroeconomics seeks practical understanding of an economy. So macroeconomic problems are relatively few and so are their specific solutions.

9. Under micro study the main problem is of price determination. But under macro study the main problem is income determination.

10. Micro study is based on the objective of optimum allocation of resources while macro study is based on the objective of full employment of total resources.

The difference between micro and macroeconomics is a difference of degree and not of kind.

Understand the Meaning of National Income Analysis

1. It measures the market value of annual output. So national income is a monetary measun.

2. For calculating national income all goods and services produced in any given year must if counted only once.

3. National income only includes the market value of all final goods and ignores intermediate goods as intermediate goods can further be used to produce final goods.

Definitions:

Alfred Marshall has defined national income as follows: “The labour and capital of a country, acting on its natural resources, produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds and net income due on account of foreign investments must be added in.

According to A.C. Pigou, “the national dividend is that part of the objective income of the community including income derived from abroad which can be measured in money.

Fisher adopts consumption instead of production as the basis of national income. To him national income consists solely of services as received by ultimate consumers, whether from their material or from their human environment.

Simon Kuznets defines, “national income is the net output of commodities and services flowing during the year from the country’s productive system in the hands of the ultimate consumers.”

From the above definitions we knew that National Income = National Product = National Expenditure.

So there are three measures of national income of a country.

(a) The sum of values of all final goods and services produced.

(b) The sum of all incomes, in cash and kind, accruing to factors of production in a year.

(c) The sum of consumers’ expenditure, net investment expenditure and government expenditure on goods and services.

The sum of all income, the sum of values of all final production and sum of all expenditures will be the same. But they reflect three basic activities of the economy like production, distribution and expenditure.

The concept of national income has undergone considerable improvement in the hands of J. M. Keynes. He suggests three approaches to income concept.

1. The first is from the stand point of total expenditure on consumer goods and investment goods. This is called income-expenditure approach;

2. The second is from the stand point of the incomes of the various sectors of production. This is called factor income approach;

3. The third is from the stand point of aggregate sales minus the costs of production. This is called sale proceeds minus cost approach.

However, all the above approaches lead to same result.

According to National Sample Survey (NSS), “National income is the money measure of net “aggregate of all goods and services accruing to the inhabitants of a community during a specific period.” So national income is the aggregate value of commodities and services turned out during a given period, counted without duplication.

Useful Notes on the 3 Important Elements of Gross Profit

To illustrate suppose a producer produces bicycles. Each bicycle sells at Rs. 2000/- and he produces 100 bicycles. His total revenue will be Rs. 2000 x 100 = Rs. 2 lakhs.

For producing bicycle the producer bring raw materials, pays interest on borrowed capital, rent of the building and wages and salaries to labourers. Suppose all these costs amount to Rs. 1 lakh.

So, gross profit will be 2 lakh – 1 lakh = 1 lakh.

Gross Profit consists of the following elements.

(1) Implicit Cost:

Sometimes the entrepreneur contributes his own capital, own building to the business. He may be the owner of the business premises and he may be also working as the manager of his concern.

Had he not been the entrepreneur, he would have interest on his capital, rent for his buildings and some salary as a manager of some other concern. He has lost these incomes when he himself becomes the entrepreneur. All these constitute the implicit cost.

(2) Depreciation Cost:

The depreciation undergone by plant and machinery during the course of production is an item of expenditure which are included in gross profit.

(3) Tax:

As we know, the Govt. imposes some taxes on the profit of the business concerns. The amount of tax paid must be deducted from gross profit to arrive at the net profit.

From the gross profit, when above three elements an deducted, what we get is net profit. Net profit is a pure profit. It is part of gross profit.

Net Profit = Gross Profit – Implicit Cost or Net Profit = Total Revenue – (Explicit Costs + Implicit Costs) Economists generally emphasis on Net profit. Because, it is a pure profit which is a reward for entrepreneurial functions like, efficiency in organisation of business Risk-bearing function and (iii) Innovation.