Economic Philosophies

How much should we let the government interfere with our economy? Do we trust the government to take on the enormous responsibility of caring for our economy? Our economy is a precious thing and we must take great care of it, for it can make us powerful and prosperous or it could be the demise of our nation. Three economists – Karl Marx, Adam Smith, and John Maynard Keynes – all had opposing views on how much government interference should be present upon the economy.
Karl Marx believes that the government should control the economy. This means that every aspect of the economy is controlled directly by the government. Marx says that if the government plays no part in the economy, then the economy will collapse, and there will be a revolution of the working class. Karl Marx says that a wage-labor war will break down society and cause a downfall of the economic structure. He feels that after the revolution of the working class, each individual of society will hold an intricate part of the economy. Everyone is the same and no one has any special abilities or talents. Marx says that businesses will take fewer workers because when the businesses upgrade their technology by replacing out-dated machines with newer ones, the machines will do more work; therefore, it will allow for fewer people to do the same job.
Adam’s idea of society is that each person can do whatever they want to advance themselves and each person can pursue happiness in whatever fashion they believe to be the best. Technology creates new and better ways to do things which allows society to grow and become more advanced. Smith says that new technology creates new jobs by expanding the limits of manufacturing and science. With new technology people can do things they never could do or even imagine before. Adam Smith says that the government should stay out of the economy all together. The economy is like a boat – it goes up and down. Smith believed that the economy would fix itself; therefore, the government shouldn’t interfere with the economy. He said one has to have “faith” because the economy will fix itself. Things may not be going great right now, but the economy will rise on it’s own. The result is graphically represented as a vertical aggregate supply curve.
John Maynard Keynes believed that it was necessary for the government to intervene in
the economy. He felt the government played an essential part in maintaining the economy and
keep it from going into a depression. The Keynesian view sees the causes of unemployment and
inflation as the failure of certain fundamental economic decisions. Also, product prices and wages
are downwardly inflexible, meaning the significant declines in prices and wages will occur only
after extended and costly periods of recession or depression. Internal factors plus external forces,
such as wars and droughts, contribute to economic instability. John Maynard Keynes said:
The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.
The essence of extreme Keynesian is that product prices and wages are downwardly inflexible over very long time periods. The result is graphically represented as a horizontal aggregate supply curve. Keynes’s view is that the economy is like an elevator – goes up and down regularly, but it could stall.
There should not be total government control as in Marx’s opinion nor should there be no governmental influence as in Smith’s opinion. The Great Depression was a desolate time for the economy, and if it wasn’t for the government spending money on World War II, we may not be as prosperous as we are today. Keynes’s view was the most correct because the government should have some influence on the economy, but the government should step in only when needed.
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