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CLASSICAL AND NEOCLASSICAL INTERPRETATIONS OF INVESTMENT
ACTIVITIES IN THE STRUCTURE OF REPRODUCTION
Salamov Farrukh Fattoevich
Acting Professor of the Department of Economic Theory at the
Samarkand Institute of Economics and Service.
E-mail:
Abstract:
the article is devoted to the role of investments in the system of the reproduction
process in the theories of classical and neoclassical schools . Classical political economists have
a holistic vision of the construction of a socio-economic system, including the system of social
reproduction. Limited by the rigid framework of equivalent exchange, they proceed from the
principle of the impossibility of obtaining additional income through speculative operations.
Neoclassical theories were less critical of the importance of trade in obtaining profit.
Key words:
sphere of production , reproduction, investment, absolute rent, capital.
Classical political economists have a holistic vision of the construction of a socio-economic
system, including the system of social reproduction. Limited by the rigid framework of
equivalent exchange, they proceed from the principle of the impossibility of obtaining
additional income through speculative operations. If one of the sellers gains from the exchange,
this simultaneously means that the buyer suffers certain losses, since buyers and sellers easily
change roles, then within the framework of the entire society there will be equality in the form
of equivalent exchange, which does not allow for the receipt of excess funds in the sphere of
circulation. The only source of additional income remains the sphere of production, in which
the driving factor is labor
The concentration of both industrial and financial capital by the end of the 19th century led to
some contradictions in the studies of the classics of political economy, based on the principle of
equivalence of exchange. Thus, K. Marx in the third volume of Capital, discussing the nature of
rental income, in particular , absolute rent, believes that its origin is connected with the
monopoly of private property in land plots.
Absolute rent is interpreted by him as a part of the real value, as a monopoly premium, not
connected with the process of industrial production, but being a product of normative-value
judgments of participants in market relations. This once again emphasizes that K. Marx goes
beyond the framework of the study of competitive economy, which is based on the principle of
equivalence of exchange. His study of the false social value of financial capital does not fit into
the paradigm of the labor theory of value. Money, performing the traditional role of an
intermediary in the exchange of goods, begins to acquire more and more independence, the
financial segment is separated from the real sector.
Representatives of neoclassical theory were less critical of the importance of trade in obtaining
profit. They believed that it can be mutually beneficial, but not equivalent in the traditional
sense of this definition, which allows the parties to the transaction to gain a gain due to a higher
subjective assessment of the acquired good compared to the one given. The famous Austrian
economist O. Böhm-Bawerk believed that the price formed on the market is the price at which
the consumer will be able to purchase this good in the future, but since this future is uncertain,
1
M.M.Mukhammedov . , N.A.Kamilova // Economic theory / textbook. Samarkand 2023 pp. 288-289.
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it is necessary to constantly revise the assessment of the good. Changing the assessment of
future goods leads to constant fluctuations in the prices of capital goods.
Within the framework of the positive theory of capital, O. Böhm-Bawerk understands the latter
as a set of monetary resources, “productively used for roundabout methods of increasing the
quantity of goods in the future, which can take such forms as commercial, industrial and loan
capital”
. It should be noted that Böhm-Bawerk estimates the marginal utility of goods
available in the current period much higher than the marginal utility of the future volume of
goods. From his point of view, the refusal to consume goods at the present moment must be
compensated by a certain reward
The investment process described by O. Böhm-Bawerk clearly demonstrates that the ideas of
researchers of the late 19th century are based on fundamentally different approaches, according
to which the consumption sphere is given a leading role, including in the process of forming
investment sources. Authors increasingly argue that capital as a stock category and investments
as a flow category should be determined not by the cost method, but by assessing future income,
which is most clearly demonstrated in the works of I. Fisher. He is confident that income is the
excess of cash flow over the initially available stock. The key form of income is interest, which
permeates all economic relations, acting as a link between the present and the future. The main
incentive for investment is the difference between the rate of income and the market interest
rate. An increase in the rate of income, which contributes to the expansion of investment
opportunities, is a consequence of scientific and technological progress.
Fisher, studying the nature of capital and interest, believes that their emergence is connected
with the process of price formation, determined by the size of the money supply. Thus, it can be
concluded that, according to I. Fisher, investments can also arise in the sphere of circulation.
The idea that investments are a function of the interest rate, and that it is of a decreasing nature,
is also reflected in the works of A. Marshall. The founder of neoclassicism, the core of which is
J. B. Say's position on the equality of supply and demand
, considers the principle of
equilibrium through the categories of investments and savings. Accumulation in A. Marshall's
views is the source of the birth of savings
, which are formed as a certain excess of income
received from the sale of various factors of production. In his opinion, one can save from wages,
rent, profit. In the short term, savings lead to an imbalance between production and
consumption. But thanks to the financial market, the size of planned investments can be aligned
with the volume of savings. The interest rate is a balancing mechanism for savings and
investments, regulating their size. Thus, according to A. Marshall, investments can exist only in
the long term. Due to the use of economies of scale, firms will receive a positive quasi-rent ,
creating conditions that stimulate the investment process. Only equality between past and
current investment costs, on the one hand, and the discounted value of future income, on the
2
Böhm-Bawerk , O. Selected works on value, interest and capital / -M .: OOO Izd-vo EKSMO, 2009. P. 76-78.
3
O. Böhm-Bawerk relies in his theory of positive capital on the concept of abstinence proposed by W.N. Senior ,
who also defines interest as a compensatory income for the capitalist’s refusal of current consumption of goods.
4
Say's law , named so by J. M. Keynes , states that the supply of a product always creates demand for it, and,
therefore, production is equal to consumption, income is equal to expenses, prices are equal to costs. This model is
built by Say for a barter economy, money exists, but its functionality is very limited, money acts only as a measure
of value and a means of circulation. The neoclassical school tries to apply Say's law to a monetary economy, using
the interest rate mechanism.
5
“As the opportunities for investing capital expand, there is a constant increase in the surplus of production over
the necessary means of subsistence, which generates the ability to save” (Marshall A. Principles of Economic
Science / Moscow: Progress, 1993. (p. 302).
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other, will ensure a stationary equilibrium in the long term. It is clear that this is an ideal model
that is not feasible in practice.
Another representative of the neoclassical direction, A. Pigou, more closely links the
investment activity of economic entities with the amount of money in circulation. If, according
to I. Fisher, equality in the economy is ensured by the supply of money, then A. Pigou discusses
the demand for money as an equilibrium factor, which makes his theory more realistically
reflect the motivation of economic entities in the process of accumulating savings and
investments. The coefficient of liquidity preference, introduced into the exchange equation of I.
Fisher, clearly illustrates the degree of influence of accumulation on the investment activity of
actors .
Neoclassical theories are characterized by a synthetic approach to the study of the investment
process; they study not only the objective factors of the formation of real investments, but also
the subjective, often irrational motives for the implementation of investment activities by
macroeconomic agents, while using the methodology of equilibrium analysis.
Conclusion:
The active role of money in the system of economic relations necessitates its study
as a source of investment, but from completely different positions, reflecting the formation of
the industrial mode of production. The closest to understanding this problem were the
marginalists , and, subsequently, the neoclassicists, who formulated individual provisions of the
microeconomic theory of investment analysis. Dealing with the problems of pricing various
goods and benefits, representatives of marginalism conclude that prices affect the process of
capital accumulation and its investment. Having developed an algorithm for assessing the cost
of present and future benefits of the capital owner (investor), they show the mechanism for the
emergence of marginal capital efficiency. Applying a completely different research
methodology, namely, the tools of marginal value analysis, marginalists formulate the key
principles of constructing microeconomic investment models.
It should be noted that within the framework of the neoclassical approach, questions of the
formation of macroeconomic investment models are beginning to be raised (the theory of
general equilibrium by L. Walras, the social optimum by V. Pareto, the theory of cash balances
by A. Pigou , etc.), but they are based on microeconomic analysis. The authors, using the
method of analogy, transfer the ordinal functions of utility and productivity to the
macroeconomic level, completely depriving it of specific patterns
Bibliographic list:
1. M.M.Mukhammedov . , N.A.Kamilova // Economic theory / textbook. Samarkand 2023 pp.
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6
Thus, according to J. B. Clark, the natural distribution of income inherent to economic entities at the micro level
can also be used to substantiate conclusions of a social nature. Clark introduces two categories: "social capital" and
"social labor", which are the total functions of the marginal productivity of these factors of each economic entity.
A set of such functions on a plane form an "indifference zone", which characterizes the state of equilibrium in the
economy (Clark J. B. Distribution of wealth / M.: Helios ARV, 2000. pp. 345-380.), which is similar to the
reasoning of F. Edgeworth when describing a transaction between economic actors at the micro level.
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