Classical Economics vs. Keynesian Economics
analytical Essay
1187 words
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.
Classical Economics is a theory that suggests by leaving the free market alone without human intervention; equilibrium will be obtained. This theory was the first school of thought for economists and one of the major theorists and founders of Classical Economics was Adam Smith. Smith stated, “By pursuing his own interest, he (man) frequently promotes that (good) of the society more effectually than when he really intends to promote it. I (Adam Smith) have never known much good done by those who affected to trade for the public good.”(Patil) Classical Economic theory assumes three basic ideas: Flexible Prices, Shay’s Law, and Savings-Investment equality. Flexible prices in Classical theory suggests prices will rise and fall as needed but is not always true, due to, the interference of government agencies including unions and laws. Smith stated in the Wealth of the Nation (1776), “Civil government, so far it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” (Patil) Shay’s Law implies supply creates its own demand and demand is not based on production or supply.
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The last assumption is that savings will equal the investment which will lead to equilibrium; however, Classical theorist are realist and know this will not always happen, thus, they believe the flexible interest rates will help with the equilibrium.
Keynesian Economics was developed and founding by John Maynard Keynes. He believed and wrote in his book “The General Theory of Employment, Interest and Money” that it is essential for the Government to play a vital role in economic stability. Keynesian theorist believe Government spending, tax hikes or tax breaks are vital in economic success. Keynesian assumptions include: Rigid or Inflexible Prices, Effective Demand, and Savings-Investment Determinants. Rigid or Inflexible Prices suggest that wages increases are easier to take while wage decreases hits resistance; likewise, a producer will increase prices yet when needed will be reluctant to decrease prices.
In this essay, the author
- Explains that their research of classical economics and keynesian economics has given them the opportunity to form an opinion on this highly debated topic in economics.
- Analyzes the differences between classical and keynesian economic theories.
- Explains that they believe in the keynesian theory before they knew it existed and recognize the importance of this kind of economics for america.
- Explains that their research of classical economics and keynesian economics has given them the opportunity to form an opinion on this highly debated topic in economics.
- Analyzes the differences between classical and keynesian economic theories.
- Explains that they believe in the keynesian theory before they knew it existed and recognize the importance of this kind of economics for america.
- Concludes that keynesian economics will continue because the graphs showed a great gain in economic growth. they hope that america never has another economic catastrophe.
- Analyzes batra, ravi, mccoach, and nikaido's "transition from the classical to the keynesian."
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- Explains that economics studies human behavior as a relationship between end and scarce means which have alternative uses. it captures the essence of microeconomics, but does not convey much of the spirit of macroeconomic.
- Opines that most economists cannot agree on the definition of economics, but the preceding quote from l. robbins sums it up.
- Explains that adam smith was one of the first economists of modern times, referring to post 1700's and post-mercantilism. smith, of scottish origin, is best known for his book the wealth of nations.
- Explains that smith's time at glasgow was creatively and intellectually stimulating. after graduating, he earned a scholarship to oxford and stayed in the balliol college. he was about to reach the peak of his political science work.
- Explains that self-interest benefits society by encouraging individuals to employ their capital as near to home as they can to support domestic industry.
- Explains that personal profit motivates individuals who employ their resources or capital to seek the industry of greatest profit for their given resource.
- Explains that the concept of "the invisible hand" dictates that without external influence (most likely government), the market will find equilibrium.
- Analyzes how smith believed in the superior judgment of the capitalists. he was an optimist in his thinking of how people would react to economic freedom.
- Opines that smith was right for his time. although his theories were good, they do not hold the same relevance today as they did when first presented.
- Explains that the conditions under which men produce and exchange vary from country to country, and within each country again from generation to generation. political economy cannot be the same for all countries and historical epochs.
- Explains that karl marx was the oldest surviving boy of a family of nine children. his father heinrich was successful lawyer and active on the political scene.
- Analyzes how marx believed that capitalism exploited the working class and the bourgeois, and that the proletariat was a commodity in the eyes of their employers.
- Explains that marx's main idea was to get everyone together to work for what their work was really worth. he believed that all men, women, and children should be treated the same.
- Explains that marx's main argument was that of a moral and not an economic argument but an argument of social injustice for the working class.
- Analyzes marx's claim that the capitalist society would be dissolved purely because of the way in which it distributed income.
- Opines that ideas, not vested interests, are dangerous for the good or ill.
- Explains that john maynard keynes is the 20th century's most influential economist. not since alfred marshall has and economist wielded such influencal power.
- Explains that keynes became a civil servant and worked on pre-ww1 indian finance and currency. he accompanied former british prime minister lloyd george as an economic advisor to the versailles peace conference.
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- Analyzes keynes' argument that persistent unemployment might be caused by deficiency in demand for production or services, rather than by disequilibria in the labor market.
- Explains keynes' emphasis on demand as the key determinate was instrumental in the development of income accounting which measures the gnp.
- Opines that keynes' theories were right for his time, for he not only helped the american economy but also the british economy.
- Explains that milton friedman was born on july 31, 1912 in brooklyn, new york. he was a professor at the university of chicago and was awarded the presidential medal of freedom in 1988 and the nobel prize for economics in 1976.
- Explains that friedman is in direct opposition to keynes' theories. he believes that the government should also have less of a role in the economy.
- Explains that the government has three primary functions: it should provide for military defense of a nation, enforce contracts between individuals, and protect its citizens against crimes against themselves or their property.
- Argues that slow growth is not a remedy for higher unemployment. friedman believes that schooling plays an important part in one’s daily routine.
- Explains that friedman is known for being anit-kensian. he differs with keynes mostly in reference to the phillip's curve, which depicts the inverse relationship between inflation and unemployment.
- Opines that friedman is right for his time, although he "head butts" with keynes much, economics is a constantly evolving arena where we take in new data and compare to old theories to see if they still stand.
- Describes milton friedman and anna j. schwartz's a monetary history of the united states, 1867-1960.
- Explains graham bannock, r.e. baxter, and ray rees, the penguin dictionary of economics.
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- Explains that adam smith, a scottish moral philosopher, became the pioneer of political economy and advocated for the "free market" and "the invisible hand" concepts.
- Explains that john m. keynes advocated interventionist government policy, i.e., close monitoring (not controlling) of private business activities and the occasional use of fiscal and monetary measures to regulate the economic cycles for the benefit of all.
- Argues that the only surviving socio-economic system prevailing is the free economy system which generated fast economic growth and prosperity despite often ignoring social injustices along the way.
- Explains that adam smith, a scottish moral philosopher, became the pioneer of political economy and advocated for the "free market" and "the invisible hand" concepts.
- Explains that john m. keynes advocated interventionist government policy, i.e., close monitoring (not controlling) of private business activities and the occasional use of fiscal and monetary measures to regulate the economic cycles for the benefit of all.
- Explains that the origins of today's global financial crisis were born in chicago university where an american nobel prize winner, milton friedman, originally a keynesian in economic policies convictions started in the 60’s to preach ultra liberal theories, de-regulation, complete government hands-off and without any monitoring or intervention
- Explains that ronald reagan, margaret thatcher, and many other free-economy country leaders led to a worldwide spread of laissez-faire, advocated by the so-called chicago boys who were omnipresent within the imf, world bank and even later acted as consultants to ex-communist countries.
- Opines that major private financial institutions in the usa, japan, and europe ended up in hands of such executives who were greedily and unethically betraying the confidence of their customers.
- Analyzes how the financial sector, supposed to be a support to the real economy, has become the main reason of huge worldwide economic crisis and increased unemployment.
- Opines that the free economy system will prevail, with a lot of government regulations, government co-ownership, and interventionist policies.
787 wordsRead More - Hayek Vs. Keynesargumentative essayAlthough the idea of having low taxes is ideal, it cannot contribute to the growing economy debt that has been placed. With taxes being paid by well-informed citizens the economy can still continue to borrow money in order to spend money for the safety and well-being of the people. Keynes has been the theorist whose ideas we still use today.
In this essay, the author
- Analyzes the clash between hayek and keynes, which defined modern economics.
- Compares the views of the keynesians and the austrian school of economics. they both recognized problems, but disagreed on the importance of combining credit and credit breakdown into any serious economic examination.
- Explains hayek's 1929 prediction of a serious delay to trade since the us federal reserve board had continued for two years after it should have ended. this suggestion would initiate keynes argument on inflation.
- Analyzes the clash between hayek and keynes, which defined modern economics.
- Compares the views of the keynesians and the austrian school of economics. they both recognized problems, but disagreed on the importance of combining credit and credit breakdown into any serious economic examination.
- Explains hayek's 1929 prediction of a serious delay to trade since the us federal reserve board had continued for two years after it should have ended. this suggestion would initiate keynes argument on inflation.
- Explains that keynes proved that successful demand determined employment. traditional economists had previously believed unemployment occurred because real wages were too high compared to productivity.
- Explains keynes' view that cutting wages would reduce demand because wages were both a cost and an income. traditional economists assumed independence between the demand and supply sides of the economy.
- Compares hayek's study on the nature of the fall, which he saw as the expected result of over spending of credit.
- Explains hayek's view that government intrusiveness was the cause of bubbles. keynes thought that workers would not freely reduce their cost of labor, so borrowing money to pay for public works would encourage demand.
- Analyzes how the government borrows money from other countries in order to pay for viable things in the united states. keynes had thought of this in his debate with hayek explaining that to keep everything glued together you have to spend to make money.
- Opines that having low taxes is ideal, but it cannot contribute to the growing economy debt that has been placed. keynes was the theorist whose ideas we still use today.
728 wordsRead More - John Maynard Keynes Spark Notesexplanatory essayJohn 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.
In this essay, the author
- Explains that milton friedman, a supporter of free market, was born in 1912 in new york. he was interested in mathematics after graduation, but the horrible stare of the national income motivated him to take economics instead.
- Describes f. a. hayek as a modern austrian economist born on may 8, 1899 in vienna, austria. he won the nobel prize in economics in 1974 and died in 1992 in freiburg, germany.
- Explains that they are a keynesian thinker, but unemployment will still be high, which is one of the troublesome that governments face today.
- Explains that milton friedman, a supporter of free market, was born in 1912 in new york. he was interested in mathematics after graduation, but the horrible stare of the national income motivated him to take economics instead.
- Describes f. a. hayek as a modern austrian economist born on may 8, 1899 in vienna, austria. he won the nobel prize in economics in 1974 and died in 1992 in freiburg, germany.
- Explains that they are a keynesian thinker, but unemployment will still be high, which is one of the troublesome that governments face today.
- Explains that john maynard keynes, an economist and journalist, was born on june 5th, 1883, in cambridge, england.
742 wordsRead More - Compare And Contrast Keynes And Hayekanalytical essayKeynes and Hayek each approach the economy from a different perspective. In Keynes’ estimation, it is all about the flow of money. The economy is improving when money is moving, and thus, stability is achieved as much as is possible. Consequently, spending, and more specifically government spending, is the key to unlock the door blocking economic growth. By contrast, Hayek contends that money is not everything. What the money is used for, whether it be saved, invested, loaned, or spent, also plays an important role in the progression of the economy. Growth comes from saving and investing not consumption and spending. The stability of the economy, according to Hayek, is brought about by the forces of supply and demand.
In this essay, the author
- Compares keynes' and hayek's views on the economy, arguing that money isn't everything. growth comes from saving and investing, not consumption and spending.
- Analyzes how keynes argues that "animal spirits" control business and cause the "booms" and "busts," whereas hayek trusts the market to balance out through natural pressures of supply and demand
- Analyzes how keynes and hayek have different solutions to deal with recessions.
- Compares keynes' and hayek's views on the economy, arguing that money isn't everything. growth comes from saving and investing, not consumption and spending.
- Analyzes how keynes argues that "animal spirits" control business and cause the "booms" and "busts," whereas hayek trusts the market to balance out through natural pressures of supply and demand
- Analyzes how keynes and hayek have different solutions to deal with recessions.
- Explains that spending leads to more spending, which is foundational to keynes' plan. the fed can use expansionary monetary policy to increase the money supply, the federal government can apply fiscal policy and step up purchases or decrease taxes to boost aggregate demand and stimulate the economy.
- Analyzes how hayek's approach to a recession focuses on letting the market determine what works and what doesn't.
- Compares keynes' and hayek's approaches to the economy, arguing that the market can be directed by those with power to accomplish goals leading to a prosperous economy.
- Analyzes how the videos show that the keynesian view of economics is the mainstream opinion. keynes was treated with honor and respect while hayek was unknown and treated as a stranger.
1556 wordsRead More