The Contributions of Adam Smith and John M Keynes to the Study of Economics

The Contributions of Adam Smith and John M Keynes to the Study of Economics

Length: 1493 words (4.3 double-spaced pages)

Rating: Excellent

Open Document

Essay Preview

More ↓

Adam Smith was the founder of economics, as we know it today. His thoughts have shaped modern ideas about the market economy and the role of the state in relation to it. Smith laid the intellectual framework that explained the free market (which still holds true today) and laissez-faire. Both are connected with the underlying theme of economic growth. Smith's analysis is not confined to showing the interrelation between the different elements of a continually maintained system. It also explains how the system can generate the continual accumulation of wealth. And since, according to Smith, this process is most successful when left to the play of natural forces, his analysis leads him to urge governments to let well alone.

Laissez-faire government believes commerce and trade should be permitted to operate free of controls of any kind; there should be no tariffs or other barriers. The direct translation from the French language is “leave alone to do”, which is self-explanatory.

He is most often recognized for the expression "the invisible hand," which he used to demonstrate how self-interest guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product. It simply encourages businesses to provide what consumers want and at the same time it discourages government involvement. He believed that the only responsibilities of the government should be to define property rights, set up honest courts, impose minor taxes and subsides to compensate for well defined and narrowly specified “market failures”. To underscore his laissez-faire convictions, Smith argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces.

Adam Smith explained that a monopoly charges any price that it chooses, robs consumers and makes countries less efficient and poorer. Competition, he said, means that businesses try to charge the lowest price possible, so consumers get maximum value for money. If they can buy more, they support more jobs in the economy and the country grows richer. Without the police stopping competition, he said, monopolies cannot survive for long. Around the world today, government monopolies and other bad practices are under major assault from Adam Smith's ideas.

Adam Smith believed that strong government was a great necessity, particularly to create and enforce laws and to ensure justice. He believed in a democratic partnership between government and the people, but knew that each should do what it does best - businessmen should not control the justice system, nor should government try to run businesses.

How to Cite this Page

MLA Citation:
"The Contributions of Adam Smith and John M Keynes to the Study of Economics." 123HelpMe.com. 20 Apr 2019
    <https://www.123helpme.com/view.asp?id=48094>.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Adam Smith's Contributions to Modern Free Market Economics Essay

- Among economists, it is said Adam Smith is one of the main contributors to modern free market economics. His thoughts attacked mercantilism which was the prevalent form of government at the time. His works provided systematic rationales in the subjects of capitalism, free markets, and limited government intervention. His most popular books changed history because without them, many of these thoughts and ideas would not be so prevalent. Smith is regarded and cited as the father of modern economics....   [tags: Economics ]

Research Papers
2262 words (6.5 pages)

Adam Smith : The Father Of Modern Economics Essay

- Adam Smith is notably known to be the father of modern economics, and many of his work have been implemented today. His major work was “An Inquiry into the Nature and Causes of the Wealth of Nations” where his economic views are seen. He was exceptionally known as a classical economist not only for his principles but for how he presented them. His anthropological principles for the distribution of labor and resources made him known as the “first economic historian” (Sociological Theory in the Classical Era, p....   [tags: Economics, Adam Smith, The Wealth of Nations]

Research Papers
983 words (2.8 pages)

Adam Smith And The Bible Of Capitalism Essay examples

- Adam Smith, an economist, a journalist, an educator, and a philosopher. A man who singling shaped many political economy that we see today. Also a well know author of the books, The Wealth of Nation, which is none as “Bible of Capitalism”. In this paper I will inform you, the reader much more than just the few books he wrote. Today you will be informed on Adam Smith personal life, how he changed economic policies, and how his policies still impact today everyday economy. Adams Smith, an economist that wrote the “Bible of capitalism” all started in the city of Kirkcaldy in Scotland....   [tags: Adam Smith, Economics, Capitalism, David Hume]

Research Papers
882 words (2.5 pages)

Essay on The Wealth Of Nations By Adam Smith

- Adam Smith is known as one of the fathers of economics. He is most known for his profound ideas and theories on capitalism presented in his book the Wealth of Nations. Around ten years prior to him finishing the Wealth of Nations he released the Theory of Moral Sentiments, less referred to in relation to political economics, but equally as important. Both books should be read together to have a deeper understanding of Smith’s economic theories and his understanding of humans as social beings. Although the books have a somewhat lengthy time separation and are sometimes referred to as younger Smith and later, more mature Smith; it is necessary to read both books....   [tags: Adam Smith, Economics, Capitalism]

Research Papers
831 words (2.4 pages)

The Division Of Labour By Adam Smith Essay

- The division of labour described by Adam Smith in The Wealth of Nations is a product of individual self-interest. This is representative of Smith’s methodological individualist interpretations of human nature. Adam Smith deduces that the division of labour is beneficial to the individual, as it is in one’s own interest to work less whilst still engaging in tasks that are to their own specialities. Highly specialized work is beneficial for nations to grow economically whilst allowing individuals to further pursue their own rational self-interest....   [tags: Economics, Adam Smith, Individualism, Labor]

Research Papers
1192 words (3.4 pages)

John Maynard Keynes and His Contribution to Economics and America Essay

- Introduction With the recent recession John Maynard Keynes and his theories are being debated by millions of Americans, though likely without their knowledge, as his theories have become integral to America’s economic policy. A search of “John Maynard Keynes” on Google news, limited to just the past week, yields more than 200 results, illustrating the scope of Keynes’ continued influence. Fueled by concerns over unemployment and inflation the debate rages over government’s role in the economy, including regulation of industry, tax rates, and government spending to stimulate the economy....   [tags: Economics, Economy]

Research Papers
1091 words (3.1 pages)

Economics : A Study And Understanding Of The Economy Essay

- Economics is the study and understanding of the economy such as the governmental system, money marketing, trades such as production and financial market. The traditional economic system is based on customs, beliefs, and ways that people have been doing things for century’s. when the government has control over the aspect over the production and makes all the decisions and ways to control the economy. With the market of the economic system an individual owns the production and they will make economic decisions through free communications and this will keep the government from interfering in their production....   [tags: Debt, Economics, Loan, Credit]

Research Papers
736 words (2.1 pages)

The Importance of Adam Smith's Work to Economic Thought Essay

- The Importance of Adam Smith's Work to Economic Thought Adam Smith is widely regarded as the father of economics as a social science, and is perhaps best known for his work The Wealth of Nations. Throughout this work Smith states and informs towards his belief that society is not at its most productive when ruled over by rules and limitations with regards to trade, and that in order for markets to maximise prosperity, a free trade environment should be made accessible. In this essay I intend to asses the way in which many of Smiths theories taken directly form his works can be applied to past and current situations, first from an economic then social, and then a political point of view....   [tags: Adam Smith Economy Economics]

Research Papers
1609 words (4.6 pages)

Essay about Economics, And Economic Theory

- Economics, and economic theory, is solely based on the ideas and predictions of how specific events will affect a country 's economy in the near future. Not only this, but these theories also help to predict how each group, or class of people, will be affected. There have been plenty of theorists throughout time; however, two of the more influential theorists, Adam Smith and Karl Marx, have left an irrefutable impact on economic theory as a whole. Though both theorists were equally as influential and revered economists, Smith and Marx have differentiating views, especially on the capitalist market economies effects on the working poor....   [tags: Capitalism, Economics, Karl Marx, Adam Smith]

Research Papers
1625 words (4.6 pages)

Economics Essay

-      Definition of Topic: Economics is the study of supply and demand. It defines the ways that human beings allocate resources and how resources are distributed amongst a market. It allows you to see trends in current market places and predict what may happen in the future. Many different subjects were once regarded as a part of economics. Political science and even sociology were once considered part of the field. These subjects still play a major role in understanding economics but are also completely separate disciplines today....   [tags: Understanding Economics Essays]

Research Papers
1694 words (4.8 pages)

Related Searches

Thus he was the real father of privatisation and other 20th century reforms based on market economics under rule of law.

And what drives this flow of goods and services: I quote Adam Smith from his The Wealth of Nations:
"Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.
...
"He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
...
"In civilized society he [man] stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-love, and never talk to them of our own necessities but of

The heart of Keynesian economics consists of an analysis of the determinants of effective demand. If one ignores foreign trade, effective demand consists essentially of three spending streams: consumption expenditures, investment expenditures, and government expenditures, each of which is independently determined.

John M. Keynes attempted to show that the level of effective demand so determined may well exceed or fall short of the physical capacity to produce goods and services: that there is no automatic tendency to produce at a level that results in the full employment of all available men and machines. This fundamental implication of the theory came as something of a shock to exponents of the traditional economics who had been inclined to take refuge in the assumption that economic system tend automatically to full employment.

He argued that it was demand that created supply. If aggregate demand rose, firms would respond to the extra demand by producing more and employing more people. But a fall in demand would lead to less output and rising unemployment. His central point was that an unregulated market economy could not ensure sufficient demand. He therefore rejected the Adam Smith/classical economics belief, which held out the promise of material progress in a laissez-faire environment. Keynes was convinced that market-based economies do not produce full employment automatically. He argued that there would be unemployment and depression from time to time in the absence of corrective government policies. In his view, government action was essential to stabilize an unstable economy. It was necessary for the government to intervene, to 'fine-tune' the economy by running demand-management polices; these were to counter current trends in the trade cycle - to speed up activity when there is too little, to slow it down when there is an excess. He believed that Governments should abandon laissez-faire and instead they should intervene to control aggregate demand. This might well mean running a budget deficit : in other words, the government spending more than it receives in taxes.

By keeping his attention focused on macroeconomic aggregates, like total consumption and total investment, and by a deliberate simplification of the relations between these economic variables, Keynes achieved a powerful model that could be applied to a wide range of practical problems. His system subsequently underwent considerable refinement, some have said that Keynes himself would hardly have recognized it, and became thoroughly assimilated into the body of received doctrine.

Keynes on the ownership of resources and property:
Keynes specifically rejected the need for public or government ownership of the means of production. He was concerned with the aggregate outcomes in the economy. He therefore did not direct his attention in The General Theory to the issues of what should be produced and how.

Keynes on the distribution of income:
Keynes was critical of the inequalities in income and wealth but argued that some inequality is necessary to provide incentive to entrepreneurs to undertake investment. There are valuable human activities, which require the motive of moneymaking and the environment of private wealth-ownership for their full fruition.

Later career.
The General Theory was Keynes's last major written work. In 1937 he suffered a severe heart attack. Two years later, though not completely recovered, he returned to teaching at Cambridge, wrote three influential articles on war finance entitled How to Pay for the War, and served once more in the Treasury as an all-purpose adviser. As the war drew to a victorious conclusion, Keynes turned his thoughts to the design of international financial institutions calculated to limit the spread of depression. At the Bretton Woods Conference in 1944 he played a prominent part. But the institutions that resulted from the conference, the International Monetary Fund and the World Bank--two agencies that survive into the 1980s--bear much stronger marks of the orthodox theories of the United States Treasury of that time than of Keynes's thinking.
Return to 123HelpMe.com