Keynesian Revolution
Classical economic theory assumed that a ‘free-market’ economy is a ‘self regulating’ system that continually tends toward a full-employment equilibrium, with optimum economic benefits for everyone. Therefore, the best government economic policy is to ‘excuse itself’ and give utmost freedom to individual enterprise. A key element of the ‘Keynesian revolution’ was its demonstration that these basic assumptions are false, both in theory and practice, and its assertion that, therefore, the most appropriate government macro-economic policy is to view the whole economy as if it were a single huge business enterprise which needs to be managed as one.
In any individual business enterprise, a basic tool of management is the accounting system, which enables management to analyze its operation and performance. Keynes rejected the view, (Adam Smith) that if left alone the ‘invisible hand’ will work on it’s own accord. Instead he argued that “in a barter economy, in a monetary economy, decisions to demand and decisions to supply were made by different persons-they are unlinked,” (Walker). Thus they might not be the same. There is a need for management of the decisions, and there might be a management failure that could result in excess supply.
Keynes saw the possibility of this arising from circular cycle such as this, where demand depends upon income. But income in turn depends upon expenditure. Thus, income is expenditure: in our market economy, every dollar of income comes from somebody's spending. But expenditure in turn depends on demand. Thus he imposed that this might tentatively account for depressions whereas: “low income produces low demand produces low expenditure produces low income.” This sounds like circular interpretation, but Keynes argued that it is the causation that is circular. Keynes plan was to explain unemployment in terms of circular cycle: “from income to expenditure and back to income.” Thus, Keynes’ theory is a model of equilibrium income and expenditure--model of ‘income-expenditure.’ But as in every great achievement, there is always opposition.
From the late 1950s, a group of economists known as the Monetarists successfully engaged their Keynesian opponents in a macroeconomic statistical race. Subsequently, faith in competition rose, while faith in Keynesian economics fell. “Although, one...
... middle of paper ...
... on incomes and on the level of output.
6. Keynesians believe that in conditions of economy-wide unemployment, idle factories, and unsold merchandise, price and wages will not adjust downward to their market-clearing levels-or that they will not adjust quickly enough. Monetarists believe that prices and wages can and will adjust to market conditions, and leading the Monetarists' to advocating for no governmental intervention. A market process that adjusts prices and wages to existing market conditions is preferable to a government policy that attempts to adjust market conditions to existing prices and wages,” (Walker).
Within the context of this income-expenditure analysis, it is appropriate to think of Friedman's Monetarism as being directly opposed to Keynesians. Although both Keynesians and Monetarists accept the same high level of aggregation, they have sharp disagreements about the nature of the relationships among these macroeconomic issues.
Bibliography:
Walker, Ken. Walker, Marcus, ed. A Crucial Review of Economic Theory. New York: Terian Publishers, 1991.
Will, Jeremy. Analysis of Historical Economic Policies. New York: Free Press, 1988.
Keynesian economics, developed in the 1930s by British economist John Maynard Keynes to understand the Great Depression, sharply differed from Supply-Side in its assessment of taxation, government spending, and demand, both in a stable economy and in recession. While Keynes stated that consumer demand, instead of producer supply, creates economic growth, Supply-side argues the opposite, saying that producer supply instead of consumer demand is responsible for economic growth. Furthermore, Supply-side says that in times of recession, government spending should decrease to stop inflation, while Keynes argues that government spending should increase, injecting more liquid capital to stimulate the economy and increasing aggregate demand. Supply-side economics argues in favor of deregulation, whereas Keynesian economics favors more government oversight. Lastly, both Keynesian and Supply-side economics argue in favor of tax cuts. However, Keynes argues for temporary tax cuts, only during times of recession, while Supply-side favors extended tax cuts in both recession and in stable
Public policy is enormously impacted by the importance of economic beliefs about the political world. Throughout history, there have been two prominent models of economic policy; Keynesianism and Neoliberalism. The increase of authoritarianism intermingled with the rise of communism essentially started World War 2. After this, the government instituted Keynesianism until the late 1970’s. After the stagflation of the late 1970’s, the political and economic movement of Neoliberalism began.
the doubts about Pluto being considered as a planet raised. Regardless of the amount of astronomers who agreed
Based on my recent learning, Keynes’ approach of a balance between free market and government interference makes a better and stronger economy. In a laissez faire market, the market does not self-correct to prevent the economy from sliding into a deep recession as its proponents suggested. In fact, if the market is left to its own accord, during difficult times the economy will further weaken because manufactures will cut production, which will lead to higher unemployment, which will then lead to less disposable income, which will lead to a drop in consumer consumption, which will lead to a drop in sales and eventually another cut back in manufacturing. This is known as the Multiplier
John Maynard Keynes, British economist, journalist, was born on June 5th 1883, in Cambridge, England. His father, Dr. John Neville Keynes, was an economist and a philosopher. Keynes attended Eton and then Cambridge University. At first he studied Mathematics but then turned his attention to Economics when he was offered the job at the British treasurer after the First World War when the British economy was at pressure. A man who gained a modicum amount of wealth during 1919 to 1938, married to Lydia Lopokova in 1926 and passed away in April 21st, 1946. Keynes believed that price level has to be stabled in order to have a stabled economy, and that is only possible if interest rates go down when prices rise. He also believed that the market forces alone will not deliver full employment but boosting government spending (main force of the economy in Keynes theory) will aim in his theory full employment or close to that. He believes by Governments intervening and spending will finally stop recession, unemployment and most importantly depression. For spending will increase the aggregate demand of the economy.
Many issues have arisen from the debate whether or not Pluto is a planet. Some astronomers say that Pluto should be classified as a “minor planet” due to its size, physical characteristics, and other factors. On the other hand, some astronomers defend Pluto’s planet status, citing several key features.
Heilbroner, Robert L. The Worldly Philosophers: the Lives, Times, and Ideas of the Great Economic Thinkers. New York: Simon & Schuster, 1999. Print.
Although most economists cannot come to agreement on the definition of economics, the preceding quote from l. Robbins, in my opinion, seems to just about sum it up. Since the beginning, when man first had to choose between hunting and sleeping, there was economics. Today economics is in everything we buy, use, and make, from the gas in our cars to the food on our tables, economics plays a vital role with the manufacture, distrubution and consumption of each. To help us better understand the economic trends, certain men have become economist. In this paper I will revisit four of the major economists’ theories. Starting with the theories of Adam Smith, a philosopher well as an economist, to the modern (relatively) day theories of Milton Friedman, a Nobel Prize awardee, we will chronologically review the theories of Adam Smith, Karl Marx, John Maynard Keynes, and Milton Friedman.
The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions. The ideas of economists and politicians, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." (John Maynard Keynes, the General Theory of Employment, Interest and Money p 383)
In contrast, the Keynesian Economic Theory was presented in the 1930's, during the Great Depression, by a man named John Maynard Keynes (Classical vs. Keynesian). It relies on spending and aggregate demand which makes this theory demand driven. These economists believe that aggregate demand is influenced by public and private decisions. The public means the government, and the private means individuals and businesses. Aggregate demand sometimes affects production, employment, and inflation. When the economy starts to slack, they rely on the government to build it back up.
The disparities between the two views of the economy lead to very different policies that have produced contradictory results. The Keynesian theory presents the rational of structuralism as the basis of economic decisions and provides support for government involvement to maintain high levels of employment. The argument runs that people make decisions based on their environments and when investment falls due to structural change, the economy suffers from a recession. The government must act against this movement and increase the level of employment by fiscal injections and training of the labour force. In fact, the government should itself increase hiring in crown corporations. In contrast the Neoliberal theory attributes the self-interest of individuals as the determinant of the level of employment.
My research of Classical Economics and Keynesian Economics has given me the opportunity to form an opinion on this greatly debated topic in economics. After researching this topic in great lengths, I have determined the Keynesian Economics far exceeds greatness for America compared to that of Classical Economics. I will begin my paper by first addressing my understanding of both economic theories, I will then compare and contrast both theories, and end my paper with my opinions on why I believe Keynesian Economics is what is best for America.
In addition to its moons, Pluto has a core, geology, seasons, and an atmosphere. Alan Stern is a planetary scientist with the National Aeronautics and Space Administration(NASA). According to Stern, “I can’t think of a single distinguishing characteristic that would set apart Pluto and other things that you’d call a planet, other than its size. So I like to say, ‘a Chihuahua is still a dog.’” Also from Discovery Education the text states, “Other astronomers have noted that their colleagues sometimes call Jupiter a giant planet. Why can’t Pluto be called a dwarf planet without being downgraded from planet status?” Another fact stated from Discovery Education was, “about 90% of the planets known to astronomers are outside Earth’s solar system. Some of these extra-solar planets do not fit the IAU’s definition of a planet. Yet IAU astronomers still refer to them as planets.” USA Today stated, “The debate among Gingerich, Williams and Dimitar Sasselov, director of the Harvard Origins of Life Initiative, took place Sept. 18 with scientists, teachers and civilians watching. Two of the three, Gingerich and Sasselov, said Pluto should be a planet. A vote among audience members agreed.” Another statement mentioned by USA Today was, “Harvard science historian Owen Gingerich, who chairs the IAU planet definition committee, argued at a forum last month that "a planet is a culturally defined word that changes over time," and that Pluto is a planet.” Finally from CNN they interviewed Alan Stern, a member of NASA, who said, “We're just learning that a lot of planets are small planets, and we didn't know that before” and “Fact is, in planetary science, objects such as Pluto and the other dwarf planets in the Kuiper Belt are considered planets and called planets in everyday discourse in scientific
Marco Polo, is probably the most famous Westerner who ever traveled on the Silk Road. He excelled all the other travelers in his determination, his writing, and his influence. His journey through Asia lasted 24 years with the help of his father, Niccolò and Maffeo. He became a confidant of Kublai Khan, and traveled the whole of China and returned to tell the tale, which became the greatest travelogue. Marco Polo was a great explorer, who wrote a book written about his travels which gave Europeans some of their earliest information about China and inspired many explorers including Christopher Columbus.
In order to understand how economics really work in today’s age we must think about how those economic ideas, revolutionary theories of many economists, that helped to shape the economic structure as we know it now, through many individuals and school of economic though that has existed through the ages. These schools are “the mercantilists, the physiocrats, the classical economists, Marxian economics, the neoclassical economists and the monetarist economics. For this essay I will only refer to the classical economists and the neoclassical economists.