Karl Marx was a German philosopher, economist, sociologist, journalist and revolutionary socialist. He published numerous books, the most notable being Das Kapital and The Communist Manifesto. He also put forward his views on Economics.

Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth. Economics can also be defined as a social science subject which focuses on the production, distribution and consumption of goods and services in a country or world.

Marx predicted things almost two centuries before those things actually happened. His work in economics laid the basis for much of the present understanding of labour and its relation to capital and subsequent economic thought.

Karl Marx was a socialist. He believed in socialism. He believed that capitalism is doomed and will cease to exist.  His work has had an everlasting impact on the arena of sociology in that his views and its interpretations opened the door to the study of how one’s social class has a direct influence on one’s life experiences and life chances and a plethora of perspectives on the issue of the wealthy and the poor in society.

According to Marx, the society was essentially divided into two classes, the upper/capitalist class and the lower/labour class. The capitalist class was also the bourgeoisie and the labour class was the proletariat. There was one social element on the basis of which it was decided where one would fit in the social class hierarchy – that of one who owns the means of production. Means of production were resources necessary to produce what people needed to survive such as facilities, machinery, tools, infrastructural capital and natural capital. Bourgeoisie, who were in minority, owed most (if not all) of the means of production and proletariat, who were in majority, owned an insignificant (if at all) share of means of production.

The wealthy would be the ones who owned land and factories and controlled all elements of society, including the livelihood of the labour class. The labour class owned nothing but their own labour that they would sell, for wages, on the land or in factories.

Marx gave answer to the most basic question – how can there be poverty on such a large scale in a world where there was an abundance of wealth. His answer was simple: capitalism.

In order to trace the outlines of capitalism, it is necessary to first say a few words about history – feudalism. It was a feudal hierarchy, in which the serf was protected by the lord of the manor, who in turn owed allegiance to a higher overlord. The system finally ended with the king. The stronger protected the weak, and charged a very high price. The hierarchy was based on a system of mutual obligations and services. The lord was obliged to protect the serf and serf was to perform extensive labour for the lord. Serf could not be parted from either his/her family or land. They were exploited in the extreme.

The Catholic Church was the supreme power and the largest owner of land during the Middle Ages. Religious lords had a primary loyalty to the church in Rome. The teachings of church had a very strong and pervasive influence throughout Europe. Serfs were living on bare minimum amount and they did not revolt for a very long time because the church said that it’s a sin to keep any extra amount and that all the surplus should be given to the king or the church.

With the onset of industrial revolution, Marx thought that now the working poor will rise financially and socially. However, this did not materialize.

In the industrial society, the lords and overlords were replaced by the bourgeoisie who owned businesses and were driven with the goal of earning profit. The serfs were replaced by the proletariat who laboured for wages.

According to Marx, this system was inherently unfair. He believed that the workers would become poorer and poorer and will be faced with the feeling of alienation. They will become more distanced from, or isolated from, their work and feel powerless. To replace this feeling of alienation and this extreme social class structure, capitalism had to end and be replaced by a socialist system where everyone had equal rights over the means of production and people’s needs were met.

In his work with Fredrick Engels, The Communist Manifesto, Marx stated, ‘The proletarians have nothing to lose but their chains. They have a world to win.’

Therefore, Marx had called for a workers’ revolution where proletarians would rise up against bourgeoisie and overthrow them. This will ultimately lead to the end of capitalism and rise of a new social structure, socialist system. Such revolutions did occur in various countries such as Russia and China, but did not occur in the more industrialized nations, like Britain and Germany.

The post Karl Marx Theories on Economics appeared first on Vskills Blog.

India is a diverse country and so are its needs. India lacks a growth model. But there are three major states that distinguished themselves with relatively high levels of human development – Kerala, Himachal Pradesh and Tamil Nadu. You will be surprised to learn that Kerala, Himachal Pradesh and Tamil Nadu are all states that were very poor not very long ago. Whereas, Punjab and Haryana were still among the relatively prosperous states since independence but they are still behind Kerala, Himachal Pradesh and Tamil Nadu.

Throughout the 1970s and 1980s official poverty estimates for Tamil Nadu were higher than the over figures of India, for both rural and urban areas. Social relations were extremely oppressive in Kerala.

Now how are these three states doing so well as compared to other states? Despite the stark differences, the three states managed to overcome all the social and political obstacles. The reason that these states are doing so well is that these states laid a strong foundation to overcome social disparities within the states, and encouraged the growth of human capabilities by providing midday meals to all children and focusing on building extensive social infrastructure such as schools, hospitals, roads, public transport, water supply, electricity connections, etc. Today, Tamil Nadu has some of the best public services among all Indian states, and many of them are accessible to all on a non-discriminatory basis.

Like Kerala, Himachal Pradesh launched ambitious social programmes, which also included a vigorous drive towards universal elementary education. Himachal Pradesh is on a par with Kerala as far as elementary education is concerned. Now gradually, other social indicators are also catching up.

We cannot (should not) expect a single growth model to be enough for the growth of all the states within a country. Because “one shoe doesn’t fit all”. But there are certain parameters that can be common to every growth model. Similarly, these states shared some common experiences in their trajectory towards development.

Active social policies

These states had an active social policy system that enabled them to do so well in human development index.

Universality approach

These states had a universalistic approach in the provision of essential public services. They made certain facilities, like midday meals for children, education for all, proper drinking water, sanitation, primary health care and ration cards, effectively available universally, instead of ‘targeting’ it to a specific section of the society. The provisioning of essential services had not only been made universal but also free.

Efficient administration

These efforts have been facilitated by a comparatively efficient administration. The heroes in implementing the policies efficiently were the ‘old-fashioned’ public institutions like schools, hospitals, government offices, and Gram Panchayats.

Social relations

Dealing with social inequality has also been an important part of these shared experiences. In Kerala and Tamil Nadu dalits were the depressed class for a very long time. But now, these states decided to deal with their social relations and provide facilities to everyone without discrimination. Himachal Pradesh, on the other hand, was relatively at a better position as it had a more favourable social environment.

Peoples’ participation

These experiences did not just reflect that they had constructive state policies and an efficient administration but also that people actively participated in democratic political decision making. The social advances, education to all, and the working of democratic institutions enable people to have a say in public policy and social arrangements.

Enhancement in human capabilities

Last but not the least, these states did not encourage the growth of human capabilities at the cost of conventional economic growth. In fact, these states managed to strike the right balance between the economic growth and growth of human capabilities.

The diversity of experiences within India itself helps us understand the complementarity between economic growth and state support for human wellbeing. Despite distinct social history and political culture, which were among the major hurdles, these states still managed to overcome all the barriers with their growth model. These three states – Kerala, Tamil Nadu and Himachal Pradesh – show that if the kind of model they adopted is followed by all the states, India can grow. This growth model will be inclusive of GDP per state, infant mortality rate, education, and standard of life.

Click here for government certification in Accounting, Banking & Finance

The post social good and economic growth in India appeared first on Vskills Blog.

Every economy in the world seems to be so concerned about its growth rate (GDP growth rate). Every economy is aiming for a 10+ per cent growth rate. But the question is, is that what we really need right now? Is growth sufficient for development?

Before we move further, we should first understand the difference between growth and development. We hear the words growth and development being used together so often that one can assume that they go hand in hand and happen simultaneously. But what is the difference?

Growth is a quantitative aspect and is shown as a quantitative improvement. When we talk about growth, we talk about something that increases in count. In an economy, growth can be witnessed in terms of Gross Domestic Product (GDP), fiscal deficit, gini coefficient, sectoral productivity, etc. These are the only things that are touted as a measure of success or as a measure of health of an economy.

Growth by itself, however, cannot measure development.

Development on the other hand is a qualitative aspect and is shown as a qualitative improvement of circumstances. This essentially means that as something develops the quality of the whole develops. Economic development leads to better overall living standard and opportunities to improve. An economy’s economic development is usually indicated by an increase in quality of life which is often measured using the Human Development Index (HDI).

Though growth and development may affect each other, they are not dependent on dependent on each other. Growth may take place despite little (or no) development. Development may take place but there may actually be little growth. Some may argue that for development, growth is necessary in certain area, like income, so that one has a base, one has enough money to start and think about improving overall situation.

Agreed (or agreed to disagree)! Growth is a necessary condition but not a sufficient condition for development.

Now that we know the distinction between growth and development, and we apparently value quality of life more than mere income, economies are still focusing on a 10+ percent GDP growth rate. Is growth all that we should be focusing on?

The model that all the economies follow fails to depict the grass-root level issues. GDP just reflects the total monetary value of goods and services produced by that country over a specific period of time. But what we (as an economy) need is to redefine this model of growth and development. The economic model should include essential factors like infant mortality rate, literacy rate, and life expectancy. It should include environmental aspect as well. This can be measured using carbon footprint of respective countries. Such model should include socio-political aspect of an economy as well, like appropriate reservation to the socially and economically backward class, sending girl child to school, protection of human rights, etc. This may be difficult to measure as one cannot really assign a quantitative value to it.

Some economists have been trying to come up with a model that could capture the development of an economy in true sense. One of the indicators that closely capture it is Human Development Index (HDI). It includes intrinsic personal factors that are not considered in economic growth, such as literacy rates, life expectancy and poverty rates, etc. It includes three dimensions of live which are – a healthy life, education and a decent standard of living. HDI captures these three dimensions through various indicators – healthy life is captured by life expectancy and birth; knowledge is captured by expected years of schooling and mean years of schooling; and, decent standard of living is captured by GDP per capita. After these statistics are combined for respective economies, they are used to rank them into four tiers of human development. According to the Human Development Reports by UNDP (2014 estimates for 2013), India is ranked at 135^th position out of 187 countries.

Although HDI has, to a great extend, been able to capture the development of an economy, it has failed to some of the important aspects that come under development, like inequality (within an economy), and environment.

We require a new model that could capture development in true sense. Growth (GDP) is just not enough to capture real development. So the trajectory followed by economies to achieve 10+ percent growth rate means incomplete development.

Click here for government certification in Accounting, Banking & Finance

The post 10% growth – What growth rate is good enough to escape poverty for India ? appeared first on Vskills Blog.

One of the most interesting concepts in microeconomics is Game Theory. It is “a study of strategic decision making”. It describes how people make strategies, calculate their pay-offs and then make decisions rationally. A game essentially has three elements – players, strategies and pay-offs.

Now I am going to demonstrate with an example how game theory works and helps in making efficient decisions.

Prisoners’ Dilemma

This is the most famous game studied in game theory and was introduced by A.W. Tucker in the 1940s.

Let us consider two suspects who have been arrested for a crime. The district attorney has little evidence and is eager to extract a confession. So she separates the suspects and tells each – “If you fink on your companion and your companion does not, I can promise you a reduced (two-year) sentence, whereas your companion will get 6 years. If you both fink on each other, you will each get a four-year sentence.” In addition, both suspects know that if neither of them finks then due to lack of evidence they’ll get a sentence of three years.

According to conditions given above, each player (suspect) has two possible strategies – fink or remain silent. Therefore, we write strategy sets as S₁= S₂= {fink, silent}. Here we will specify pay-offs as years of freedom. The matrix shown below thus, depicts the strategies and pay-offs of each player.

Now if you look at the table, most of you will predict that both will be silent. It may look like it’s the best prediction but it’s not. Let’s see how. Imagine that you are suspect 1. You do not know what suspect 2 will do yet. Suppose suspect 2 chooses to fink. The best move for you would now be to fink because then you’ll get two years of freedom as against none if you remain silent. Now suppose suspect 2 chooses to remain silent. Finking will still be better for you because it will give you four years of freedom as against three years of freedom. Now since suspects are symmetric, the same reasoning holds if you imagine yourself in suspect 2’s position. Therefore, the best prediction in this game, prisoners’ dilemma, is that both will fink.

The prediction has a paradoxical property – if both the suspects fink, they only enjoy two years of freedom, but if they both were silent, they’d enjoy three years of freedom. The paradox does not imply that the suspects are stupid or that the prediction is wrong. Though the outcome is inefficient for the suspects, if we were to shift our focus to society at large, both finking might be a good outcome for the criminal justice system.

In my next article, I’ll show how everybody wants the provisioning of public good but nobody is willing to pay for it – the problem of free riding in public good.

Click here for government certifications

The post The art of strategic decision making appeared first on Vskills Blog.

My apologies to the readers who were looking forward to the next article on Greece crisis; I had other commitments to fulfill.

My earlier article talked about the factors that were responsible for the Greece crisis. Here I am going to talk about how this financial crisis can affect India.

India does not have much exposure to Greece; however the Greece crisis might have ripple effect on many economies around the world, India being one of them.

Software and engineering exports-

India’s software and engineering exports may take a hit as European Union is the largest destination for such shipments. These industries may experience an indirect impact from the UK, Italy, Turkey and France.

Capital outflow-

Given the financial crisis, the Greece government is expected to increase the interest rate, which may trigger capital outflows from India. But how does an increase in interest rate lead to capital outflow? It’s a domino effect. Higher interest rate essentially means higher returns on investment. This makes the economy more attractive to the foreign investors (FDI). So, higher interest rates in Greece will make it more attractive to foreign investors to invest in their economy. This will divert/deviate foreign investors who have invested (or want to invest) in India to move to Greece seeking higher returns thus, resulting in capital outflow from India to Greece.

Depreciation of rupee-

Investors investing more in Greece would essentially mean that the demand for Greece currency, Euro, will increase and the demand for Indian rupee will decrease (due to capital outflow). This is where money-market dynamics will come into play. An increase in demand for Euro will make it costlier than Indian rupee. Thus, Indian rupee may depreciate.

India may not have major entanglement with Greece economy but the crisis will definitely hit India.

Now the next question is – how well prepared are we this time?

Click here for government certification in Accounting, Banking & Finance

The post Greece crisis – 2: Its affect on India appeared first on Vskills Blog.

We all know that Greece is going through a by 50Coupons” href=”#10003840″> financial crisis which so bad that nobody really knows how long is it going to take for it to overcome this crisis.

A crisis of this magnitude does not occur overnight. It started in late 2009, after the housing-bubble or by 50Coupons” href=”#71371922″> financial crisis of 2008. The major causes for the eruption of the debt crisis are:

• From 1960-73, Greece has a budget surplus, but since then it has had a budget deficit. The global financial crisis and the long period budget deficit made the situation even more precarious causing the debt level to grow rapidly above the maximum sustainable level for Greece.

• Greece ran a trade deficit, which essentially means that it imported more than it exported. So, it had to borrow to fund by 50Coupons” href=”#33514789″> its trade which is also known as foreign financial surplus. But the inflow of by 50Coupons” href=”#73695061″> money stopped during the 2008 crisis, so did the foreign financial surplus and Greece was forced to reduce its budget deficit substantially. A country facing such a situation would typically devalue its by 50Coupons” href=”#84345242″> currency to resume capital inflow, but Greece was unable to do this since it was a part of the European Union (EU). As a consequence, it suffered a significant decline in GDP.

• A persistent problem the Greece has suffered from is that of tax evasion. One of the major causes of this is corruption. Every year the level of government’s tax income is well below the expected level. According to a report, in 2010, the estimated tax evasion costs for the Greek government was well over $20 billion.

• Greece was the only member state that had forged the reports and misreported the country’s official economic statistics for years and years with the help of big by 50Coupons” href=”#2824705″> investment banks such as Goldman Sachs. This enabled Greece government to spend well beyond their means, while meeting the deficit targets set by EU and hiding the actual deficit from them. The actual government debt to GDP ratio was closer to 150% in 2010.

• The European statistics agency, Eurostat, since 2004 had sent 10 delegations to Athens to improve the reliability of Greece national account, but apparently to no avail, until 2010, when it issued a report containing accusations of falsified data and political interference of parties in power since 2001. It was discovered that Greece had paid hundreds of millions of dollars in fees to Goldman Sachs and other banks to forge the reports and hid the actual amount of debt.

In 2010, when the actual data was revealed, the rating agencies downgraded the Greece economy to junk status. This froze the private capital by 50Coupons” href=”#46574162″> market of Greece leaving no other option but to wait for the international bailout loans to cover its by 50Coupons” href=”#55259365″> financial needs to avoid sovereign default.

All these factors gave birth to and stimulated the by 50Coupons” href=”#24600235″> financial crisis that Greece is going though today.

Click here for government certification in Accounting, Banking & Finance

The post Greece financial crisis – 1 appeared first on Vskills Blog.

Our teacher taught this concept in class and I thought to myself that people are rational enough to figure this thing out and make a rational decision. But, to my surprise, about 85% people fell for the trick and ended up making wrong decisions.

Moneyillusion is a psychological matter, a notion that people appear to make systematic mistake in assessing money in nominal versus real terms. They feel that they think of their money, automatically, in real terms, based on the prices of things they see around them.

Let’s take an example. Imagine you work in a firm and as an employee you are offered three salary options:

#1- a raise of 6% in your salary, given 7% inflation

#2- a raise of 3% in your salary, given 2% inflation

#3- no raise in your salary, given 2% deflation

As a rational consumer (employee), please rank the three cases in terms of success of your salary transactions.

Most of us would choose the order:

#1>#2>#3

i.e., first case, 6% increase in salary being most favourable because it seems fair, and the third case, no increase in salary being the least favourable because it seems unfair. This order would be correct in nominal terms. But what is relevant is how well you did in real terms – adjusting for inflation/deflation. In real terms, the ranking is reversed – #3, with a 2% real gain, followed by #2, with a 1% real gain, followed by #1, with a 1% real loss. So, the order in real terms will be:

#3>#2>#1

Just because you too fell in the trap do not make you any less rational consumer (employee).

Hence, we conclude that the numerical/face value of money is mistaken for its real purchasing value. This is probably because the face value (nominal value) of money provides a convenient rule of thumb for determining value and real value is calculated if they seem highly crucial, like in periods of hyperinflation or in long term contracts.

The change in the real value over time is indicated by the change in the Consumer Price Index (CPI), which measures changes in the price level of the market basket of consumer goods and services. So, next time when you pitch your boss on a salary increase, keep an eye on CPI and don’t let money illusion do its tricks.

Click here for government certifications

The post Money Illusion – Is it making you delusional? appeared first on Vskills Blog.