Download 6. john maynard keynes (1883-1946)

1
Adam Smith The
Father Of
Economics
-Economic liberalism is the ideological belief in organizing the economy
on individualist lines, meaning that the greatest possible number of economic
decisions are made by individuals and not by collective institutions or
organizations. It includes a spectrum of different economic policies, such
as freedom of movement, but it is always based on strong support for a market
economyand private property in the means of production. Although economic
liberalism can also be supportive of government regulation to a certain degree,
it tends to oppose government intervention in the free market when it inhibits
free trade and open competition. However, economic liberalism may accept
government intervention in order to remove private monopoly, as this is
considered to limit the decision power of some individuals. While economic
liberalism favors markets unfettered by the government, it maintains that the
state has a legitimate role in providing public goods.
Economic liberalism is often associated with support for free
markets and private ownership of capital goods, and is usually contrasted with
similar ideologies such as social liberalism and social democracy, which
generally favor alternative forms of capitalism such as welfare capitalism, state
capitalism or mixed economies. Economic liberalism also contrasts
with protectionism because of its support for free trade and open markets.
Historically, economic liberalism arose in response
to mercantilism and feudalism. Today, economic liberalism is also generally
considered to be opposed to non-capitalist economic orders, such
as socialism, market socialism and planned economies.
Ideological basis
Theories in support of economic liberalism were developed in
the Enlightenment in opposition to mercantilism and feudalism, and is believed
to be first fully formulated by Adam Smith, who advocated minimal
interference of government in a market economy, though it does not necessarily
oppose the state's provision of basic public goods with what constitutes public
goods originally being seen as very limited in scope.[4] Smith claimed that if
everyone is left to their own economic devices instead of being controlled by
the state, then the result would be a harmonious and more equal society of
ever-increasing prosperity.[5] This underpinned the move towards
a capitalist economic system in the late 18th century, and the subsequent
demise of themercantilist system.
Private property and individual contracts form the basis of economic liberalism.
The early theory was based on the assumption that the economic actions of
individuals are largely based on self-interest (invisible hand), and that allowing
them to act without any restrictions will produce the best results for everyone
(spontaneous order), provided that at least minimum standards of public
information and justice exist, e.g., no one should be allowed to coerce, steal, or
commit fraud, and there is freedom of speech and press.
Initially, the economic liberals had to contend with the supporters
of feudal privileges for the wealthy, aristocratic traditions and the rights
of kings to run national economies in their own personal interests. By the end
of the 19th century and the beginning of the 20th, these were largely defeated.
Today, economic liberalism is associated with classical liberalism,
"neoliberalism", "propertarian" libertarianism, and some schools
of conservatism.
Position on state interventionism
Economic liberalism opposes government intervention on the grounds that the
state often serves dominant business interests, distorting the market to their
favor and thus leading to inefficient outcomes. Ordoliberalism and various
schools of social liberalism based on classical liberalism include a broader role
for the state, but do not seek to replace private enterprise and the free-market
with public enterprise and economic planning. For example, a social market
economy is a largely free-market economy based on a free price
system and private property, but is supportive of government activity to
promote competitive markets and social welfare programs to address social
inequalities that result from free-market outcomes. Economic liberalism also
includes support for equality of opportunity (also known as social mobility),
due to the belief that a lack of equality of opportunity will lead to an increase in
private monopoly and therefore infringed liberty of individuals.
Position on public enterprise
Economic liberalism can be supportive of public enterprise for the provision of
public goods. For instance, Adam Smith argued that the state has a role in
providing roads, canals, schools and bridges that cannot be efficiently
implemented by private entities. However, he preferred that these goods should
be paid proportionally to their consumption (e.g., a toll). In addition, he
advocated retaliatory tariffs to bring about free trade,
and copyrights and patents to encourage innovation. Robert Cox's further
research highlighted the importance of innovation and its deeper implications
on the free market.
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THE CRITIQUE VIEWS OF KARL MAX
AND JOHN MAYNARD KEYNES ON
ECONOMIC THOUGHT AND
THEIR DIFFERENCE
Karl Marx, who spent much of his life in London (and is buried
in Highgate Cemetery), developed theories to explain why
capitalist economies - which he opposed - have fluctuations
and crises
OK, Marx might now be remembered as a revolutionary advocate of
communism - he co-wrote The Communist Manifesto - but he was a
leading 19th-century economist in the 'classical' tradition. Indeed, in
many ways he is the father of Economic History, having developed
explanations for the evolution of the economic structure from
feudalism to capitalism. The German philosopher, sociologist and
economist, who spent much of his life in London (and is buried in
Highgate Cemetery), developed theories to explain why capitalist
economies - which he opposed - have fluctuations and crises.
However, despite his belief in capitalism's self-destructive tendencies,
much of his economic thinking stands up to scrutiny. Had it not been
for The Communist Manifesto, I think Western commentators would
recognise more readily today his role in advancing economic thinking.
Much of Marx's (left) economic thinking stands up to scrutiny.
Bengal-born economist Amartya Sen (right) wrote that famine
originates in a shortage of income rather than food
John Maynard Keynes insistence on the central role that
uncertainty plays in economic decisions foreshadows much of
the current interest in behavioural economics
6. JOHN MAYNARD KEYNES (1883-1946)
The greatest economic thinker of the 20th century, Keynes (a Liberal
incidentally) challenged fundamentally the idea that market
economies will automatically adjust to create full employment. After
working at the Treasury during World War I, he was its chief
representative at the post-war Paris peace conference, but resigned
in protest at the harshness of the planned reparations. In the
Twenties he developed radical plans for dealing with unemployment
through deficit financing and state intervention. His insistence on the
central role that uncertainty plays in economic decisions foreshadows
much of the current interest in behavioural economics. While his basic
economic framework - in which short-term economic growth (and
employment) depends on 'aggregate demand' (consumption,
investment and net exports) is built into many of our forecasting
models today. Later on, he participated in the Bretton Woods
conference (which looked at how to establish a post-war monetary
system that would avoid further economic crises) that led to the
creation of the International Monetary Fund and the World Bank.
Admittedly, he went out of fashion in recent decades when inflation
was a bigger worry than unemployment. However, the present crisis
has led to something of a revival in Keynesian thinking, and his
insights into how international imbalances should be tackled remain
highly relevant.
The history of economic thought deals with different thinkers and
theories in the subject that became political
economy and economics from the ancient world to the present day. It
encompasses many disparate schools of economic thought. Ancient
Greek writers such as the philosopher Aristotle examined ideas about
the art of wealth acquisition, and questioned whether property is best
left in private or public hands. In medieval times, Scholastic
scholars such as Thomas Aquinas argued that it was amoral obligation
of businesses to sell goods at a just price.
Since medieval times, economics was developed almost exclusively in
the West until the 20th century.
Scottish philosopher Adam Smith is often cited as "the Father of Modern
Economics" for his treatise The Wealth of Nations (1776).[1][2] His
ideas built upon a considerable body of work from predecessors in the
eighteenth century, particularly the Physiocrats. His book appeared on
the eve of the Industrial Revolution, with associated major changes in
the economy.[3]
Smith's successors included such classical economists as Thomas
Malthus, Jean-Baptiste Say, David Ricardo, and John Stuart Mill. They
examined ways the landed, capitalist, and laboring classes produced and
distributed national output and modeled the effects
of population and international trade. In London, Karl Marx castigated
the capitalist system, which he described as exploitative and alienating.
From about 1870, neoclassical economics attempted to erect a positive,
mathematical, and scientifically grounded field above normative politics.
After the two world wars of the early twentieth century, John Maynard
Keynes led a reaction against governmental abstention from economic
affairs, advocating interventionist fiscal policy to stimulate economic
demand and growth. With a world divided between the capitalist first
world, the communist second world, and the poor of the Third World,
the post-war consensus broke down. Others like Milton
Friedman and Friedrich Hayek warned of The Road to Serfdom and the
unworkability of socialism, focusing their theories on what could be
achieved through better monetary policy and deregulation.
As Keynesian policies seemed to falter in the 1970s, there emerged New
Classical Macroeconomics, developed by prominent theorists
including Robert Lucas, andEdward C. Prescott, who tried to provide
neoclassical microeconomic mechanisms to help analyze macroeconomic
issues. New Keynesian economists including Paul Krugman, Edmund
Phelps, John B. Taylor and Huw Dixon responded to their critiques,
eventually leading to the New Neoclassical Synthesis in macroeconomics.
Meanwhile development economists like Amartya Sen, and information
economists like Joseph Stiglitz introduced new ideas to economic
thought.
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CONCEPTUALIZATION OF THE WORD MERCANTILISM
Mercantilism is also called mercantile system. Which was a theory prevalent in
Europe during the 17th and 18th centuries asserting that the wealth of
a nation depends on its possession of precious metals and there fore
that the government of a nation must maximize the foreign trades.
An economic doctrine that flourished in Europe from the sixteenth to the
eighteenth centuries. Mercantilists held that a nation's wealth consisted
primarily in the amount of gold and silver in its treasury. Accordingly,mercant
ilist governments imposed extensive restrictions on their
economies to ensure a surplus of exports over imports. In the eighteenth
century, mercantilism was challenged by the doctrine of laissez-faire.
Note : The European quest for colonial holdings in Asia, Africa, andNorth and
South America was partially a product of mercantile economics.