Classical Theory : An Investigation Into The Causes Of The Wealth Of A Nation

Classical Theory : An Investigation Into The Causes Of The Wealth Of A Nation

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In the world of economics, before the Great Depression, there was only a single idea of capitalism which was known as classical theory. It is to believe that the steps to developing the idea of classical economics started with Adam Smith’s book, “An Inquiry into the Causes of the Wealth of a Nation.” One of the ideas of the book was the concept of the economy being controlled by “an invisible hand.” Classical theory is a idea in which the market is at its most efficient when the government does not interfere, following the term “laissez faire,” He preached that government need only preserve law and order, enforce justice, defend the nation, and provide for a few basic services that could not be met through the market.(serrano) This allowed the individual to work based on their self interest. As a result, this would ensure that the economy allocations are more toward the business’ and consumer’s desire. the metaphor used to describe the fluctuation of the economy one to equivocate it to a rocking ship. The idea was that if the economy were to suffer from inflation or recession, the market would rejuvenate itself. . The system in which most classicalist use to determine the price of an item is called labor theory of value, a system in which the value are a reflection of the commodity’s assistance to the labor of the buyer. In Adam Smith 's book, “The Wealth of Nations,” he states,“The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” Although this can be misread as the value being based on the labor by the workers he goes on to clarify, “What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for s...


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...velt would close all the banks to enact the Emergency Banking Act, an act that would only reopen bank that were financially sound, while also including federal loans if needed. This assured many people, but did not assist in the depression significantly. Later on in the New deal’s life span, FDR created laws and policies that assisted in lowering the unemployment rate. one of these would be known as the Public Work Administration, or the PWA. This administration created 34,599 government projects, and thus creating government jobs for the nation to enjoy. Over three billion dollars were soaked up by the PWA and successful in somewhat lowering the unemployment rate. Although the New Deal had implemented government spending, the employment rate would not reach full employment, suggesting that Roosevelt did not spend enough money in order to follow the Keynesian cross.

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