What Contribution Did Adam Smi Essay Research — страница 2

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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 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. He 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. In conclusion Adam Smith made as much sense in the 18th Century as he does today. It was Smith the Father of Economics, who presented economics as a discipline all its own. He knew the producer and consumer are the vital elements of the economy, seeing the consumer as more important as they presented the need and controls the prices by deciding how much he or she is willing to spend. For people who believe in free markets, property rights, and individual enterprise, Smith laid the framework

three centuries prior. John M. Keynes on they other hand criticised the works of Smith. He believed that with output and prices constant, and there is no surplus in supply then they would be no deficit. Yes his ideas were seen as radical at the time but all he wanted to do was to make sure that people had enough money to invest and help the economy along. Even if this was true the monetarists argued that the analysis was fundamentally flawed and instead returned to the classical analysis. 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.