Economic Ideas of Sismondi

The following points highlight the top ten economic ideas of Sismondi. The economic ideas are: 1. Aim and Method of Political Economy 2. Overproduction 3. Class Conflict 4. Population 5. Machinery 6. Distribution 7. Capital 8. Competition 9. Peasant Farming 10. Reform Projects.

Economic Idea # 1. Aim and Method of Political Economy:

Sismondi accepted the theoretical principles of Adam Smith but strongly criticised the aim, method and end of economics as put by classical economists.The classical economists believed that political economy was the science of wealth or chrematistics. Sismondi felt that economics was not the science of wealth but its main object was man or the physical well-being of man.

To classical economists, it is the increment of wealth which spells the well-being of the society and its members.But Sismondi points out that the object really is to increase happiness of the members of the society. He advocated the way of increasing human happiness. He gave importance to distribution more than the theory of production.

Ethical considerations played a large part in his thought and he aimed to put economics upon a new basis and laid down that it should teach how to increase national happiness. Sismondi says that “Political Economy at its widest is a theory of charity”.

Happiness can be promoted by increase in consumption and it is the sole end of accumulation, and in it lies the true wealth of the nation. Credit goes to Sismondi for regarding economics as a study of man in relation to wealth and not of wealth as such.

With regard to the method of economic analysis, Sismondi was in favour of studying economics by historical method of seeing every fact in relation to its social environment. He disapproved the abstract generalisation of Ricardo and Say but he considered Adam Smith and Malthus sufficiently historical and realistic in their methods.

For him the study of economics was to be based on experience, history and observation of the social setting, because it was “a moral science where all facts are interwoven and where a false step is taken whenever a single fact is isolated and attention concentrated upon it alone”.

In advocating the historical method of study and rejecting the classical method of abstraction, Sismondi was the forerunner of the Historical School. Sismondi can be considered as the first economist to have started the battle of methods.

Economic Idea # 2. Overproduction:

The classical economic theory had established an automatic equilibrium between production and demand. Over-production was considered by classical economists as indicative of general prosperity. But Sismondi believed it to be a great evil caused by maladjustment. He could not assume automatic equilibrium as it was unrealistic. Sismondi did not believe in Say’s law of markets or the deductive method of Ricardo in which there was no possibility of over-production.

According to Sismondi, over-production resulted when annual production was in excess of annual revenue. He said that even if prices fell, production would continue. He condemned over-production as it created unemployment, reduced the purchasing power of people, and caused an acute distress.

Sismondi believed that over-production was mainly due to:

(1) The competitive character of the economy.

(2) Production is determined by the supply of capital and not by demand and the separation of labour and ownership of means of production.

Competitive character of the economy brings in two types of maladjustment. On the one hand, it brings about uncertainty regarding the demand and on the other entails lack of mobility of factors of production. As the businessmen are unable to judge correctly the market demand, production is based on the availability of capital. This accentuates the problem of over-production.

Workers have weak bargaining power and therefore, they are forced to accept low wages. This is the result of the divorce between labour and the ownership of means of production. Sismondi thus describes the increasing concentration of wealth in fewer hands along with increasing numbers of poor workers.

Economic Idea # 3. Class Conflict:

Through his theory of over-production and crisis, Sismondi was able to lay his finger on the basic conflict of interest between different classes. Sismondi did not believe in harmony of social interests. He was one of the early economists to speak the existence of two social classes, the rich and the poor, the capitalists and the workers.

He thought the interests of these two classes were opposed to each other and they were in constant conflict with one another. The workers are not able to share the fruits of increased productivity. The profits go to the businessmen in the form of profits. Thus the gulf between the rich and the poor keeps on widening. It may be pointed out that, “Marx’s idea that labour alone created value, and that consequently profit and interest constituted a theft, is entirely foreign to Sismondi.”

He believed that exploitation of labour meant that labour was getting less than its due. The concentration of capital in the hands of a few persons ruined the small scale producers. The society has been divided into two classes – the owners and the proletariate Property and labour are separated.

Economic Idea # 4. Population:

Sismondi wanted population to be in such proportion to wealth as would ensure the maximum human welfare. He never suggested a large population. He believed that affection which created an urge for marriage, and egoism and calculation that place a check on the growth of numbers were the two forces that determined the size of the population by their interplay. He also pointed out that the labourers did not marry unless they were employed with an assured earning.

Since the poor were exploited and their wages could not be fixed permanently, they do not wait, get married and multiply beyond the natural limit. Sismondi disapproved the Malthusian theory of Population. He criticised the arithmetical and geometrical ratios of Malthus saying that the latter contrasted with reality. According to him, it was the inability to get work and not the means of subsistence that limited the rise of population.

Economic Idea # 5. Machinery:

The classical writers considered the introduction of machinery beneficial because it increases production and as a result, prices fall, demand for goods increases, which in turn means an increased demand for labour and expansion of employment. Thus workers thrown out of the work at the time of the introduction of machinery will now find work. Sismondi was against inventions and machines because they lead to evil consequences. His view was that the introduction of machinery reduces consumption and slackens demand.

Machinery produces beneficial results only when those who are unemployed as a result of its introduction are ensured employment elsewhere. He also held the view that all inventions and machines were not bad. The use of invention and machines was justified only when the demand for consumption had surpassed production, so that increased production might benefit the poor people.

These inventions and machines would benefit certain nations at the cost of others. In order to save people from the exploitation of inventor countries he suggested that inventions should be made known to all countries at the same time.

Economic Idea # 6. Distribution:

Sismondi strongly criticised the distribution theory of Ricardo. He said that the end as postulated by the then economists, the largest possible production, did not necessarily coincide with the end to which all activities should be desired.

The end was the achievement of greatest possible happiness of the people which could be attained even with a small production which was well distributed. Thus, Sismondi emphasised the need for proper distribution.

Sismondi recognised the existence of three classes of society – landed proprietors, capitalists and day labourers. They could receive for their services rent, profits and wages respectively. Sismondi made an illogical distinction between the annual revenue and annual production and explained that the revenue of the preceding year was spent on the purchase of the annual production. He wanted an equilibrium between production and consumption and effective laws for the regulation of distribution in the interests of the community.

Economic Idea # 7. Capital:

Sismondi considered that a capitalist industry was necessary for the material happiness of the people. But he opposed concentration of wealth in the hands of a few. Everybody should be enabled to enjoy capital. He admitted that the nation’s capital was amassed by the capitalists and their hirelings and the proletariate was left to suffer. He gave a comprehensive exposition of the law of capital concentration which led to pauperism; and the separation of property from toil created evil consequences.

Economic Idea # 8. Competition:

Sismondi criticised the classical view that competition, in general, was beneficial to the people. Competition is useful only when it provokes the producers to increase production in response to an increase in demand. With stationary consumption, competition means race among the producers for increasing sales by lowering prices. Prices can be lowered by reducing costs and in their bid to reduce costs, the producers are inclined to cut wages and to employ children and women workers and to lengthen the working hours.

Economic Idea # 9. Peasant Farming:

Sismondi was of the view that the benefits accruing from farming should go to the peasants alone. He praised the efforts of the French peasants to improve the standard of cultivation after their lands had been freed from the feudal lords. Sismondi favoured a small scale cultivator who could cultivate his land according to his choices and skill and enjoy the full benefits of his labour and industry.

Economic Idea # 10. Reform Projects:

Sismondi’s aim was to lay down the abuses of the capitalist system in actual life and to demonstrate the necessity of state intervention. He thus became the first of the interventionists. He advocated state intervention to correct the immediate evils of the wage system and worker’s misery. Workers should be guaranteed the right of forming trade unions, there should be legal limitation on working hours and guarantee of holidays and restrictions on the employment of children.

The employers should be made legally responsible for “Professional Guarantee”, a system of insurance for workers, including unemployment, accident, sickness and old age benefits. The financial burden was to fall wholly on the employers and not on the public exchequer. The rapid multiplication of invention was opposed by Sismondi because he feared that it created unemployment and economic crisis. He also opposed mechanised production and the large scale production.