English economist John Maynard Keynes was one of the most influential people of the 20th century. As described in The General Theory of Employment, Interest and Money that he published in 1936, Keynes believed that the free market could not be trusted to determine fair prices and provide employment during recessions, but rather that during hard times governments should intervene and create artificial aggregate demand at the expense of a balanced budget. Primarily as a result of world events, his theories became the dominant economic policies in developed countries of the western world for almost three decades, especially in the United States and the United Kingdom. This essay will examine how the Great Depression and World War II led to rise of the Keynesian consensus in the early 1940s, and how the end of the Bretton Woods system, the oil crises of the 1970s, and stagflation led to its unravelling just thirty years later. The failures of economic policies employed during the Great Depression left the American government more open to the ideas of Keynes.
Banking laws, tariffs, internal-improvement legislation, and the granting of public land to railroads are only the most obvious of the economic regulations enforced in the nineteenth century by both the federal government and the states. Americans saw no contradiction between government activities of this type and the free enterprise philosophy, for such laws were intended to release human energy and thus increase the area in which freedom could operate. These tariffs stimulated industry and created new jobs, railroad grants opened up new regions for development. Public had fear of the industrial giants reflected concern about monopoly. If standard Oil dominated oil refining, it might raise prices inordinately at vast cost to consumers.
Many intellectuals during the Enlightenment explored new ideas in political economy; Adam Smith in his 1776 An Inquiry into the Nature and Causes of the Wealth of Nations was one of the most influential figures for the Americans. Smith admitted the mercantile system worked, yet criticized its principles. Expounding a doctrine of individualism, Smith was one of many voices stating that the economy, like the individual, should be free from detailed regulation from the state. Economic, as well as individual, self-interest and its outcome in the market should be allowed to function without state regulation. Although it was indeed approved by the First Continental Congress, the practice of mercantilism was replaced with a Smith-oriented form of liberalism in post-Revolutionary
Benjamin Powell a graduate from Hampden-Sydney College is featured in an article from the Library of Economics and Liberty. In the article contrary to most American and global views based on overall society stigmas of sweatshops, Powell is in defense of sweatshops. Powell supports his argument with logic and reason. His first example given is that sweatshop laborers dont have an alternative to earn money. The second example given is that the money earned daily by laborers is often higher than the average national wage.
When it comes to economics, Adam Smith and David Ricardo were two of the most influential writers in history. They both are credited with publishing the basic theories on why nations should trade openly with each other and abandon any mercantilism doctrine they might hold. The theories of these two men were paramount in kick-starting the system of international trading we use today. Adam Smith In 1776, Adam Smith’s published his most important book An Inquiry into the Nature and Causes of the Wealth of Nations, more commonly known as “The Wealth of Nations.” In this document Smith was credited with being the first to accurately describe capitalism. However, at the time, the term capitalism had not yet been created, and it was referred to by Smith as “a system of perfect liberty.” In addition to capitalism, Smith also outlined the theory of Absolute Advantage in “The Wealth of Nations.” Simply put, this theory states that a nation should concentrate its resources on the commodities that it can produce more efficiently than any other country.
On another note, something happened in our economy; between mortgage crises, failing bank assets, soaring unemployment rates, as well as the supply and demand, our nation became affected. This eventually led the U.S. Congress to pass the $700 billion “bailout” or “rescue plan”, to free the nation’s financial sector. However, has this plan altered the economic principles that were laid down over 200 years ago? During the late 1700’s, Adam Smith stated in his publication, An Inquiry into the Nature & Causes of the Wealth of Nations, “Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command” (Mason and Rauchet 585). Evidently Smith is defining Free Market, by
What was Keynes fundamental criticism of Neo-Classical Economics? The Neo-Classicals assumed that full employment would naturally occur guided by market forces. In equilibrium the economy would always be at full employment. Keynes argued that equilibrium was possible at less than full employment so that if unemployment occurred it would not always be automatically corrected. 4.
Adam Smith challenged the primary mercantilist doctrines as that the amount of the world's wealth remained the same and that a state could only increase its wealth at the expense of another state. Laissez-faire comes from the phrase meaning "let alone" and is a doctrine that advocates that governments should not in any way intervene with business. Historically laissez-faire was a reaction against mercantilism. Navigation laws,
Wealth and Poverty, written by George Gilder, is a depiction on how to increase wealth and curtail poverty. Gilder argues thoroughly throughout the book that society has been misled by popular economic theory and by general culture attitudes into only having a small percentage of wealthy people and having the majority of people in society living in poverty. He documents the ways in which the blighting of incentive has crippled productivity in society and shows how the essence of capitalism is not greed but giving by investing money and energy. Gilder states that the “golden rule” of economics is the idea that the good fortune of others is also finally ones own. The scientific basis of the golden rule is in the mutuality of gains from trade, in the demand, generated by the engines of supply, in the expanded opportunity created by growth, in the usual and still growing economic futility of war (Gilder, 9).
It is often thought that in times of utmost need, nationalization is portrayed as the government acting as ‘owner of last resort’. Immediately after World War Two, it is fair to say that Attlee’s Government become shareholders of many firms, mainly across three industries; transport, utilities and intermediate industries (e.g. coal and steel). Some reasons behind the nationalization within these industries can be seen as economic, but to take into full perspective, one must look at the ideological and political interests involved as well. This tripartite method helps show that while normative economic reasons played a crucial role in the push towards nationalism, they only did so in parallel with ideological and political reasons.