Adam Smith Vs Say's Law Case Study

Great Essays
1.A. Adam Smith describes how productivity growth in economics can lead to economic growth. Smith being an optimist himself saw that the driving force of capitalism would be self-betterment, a yearn for profit, and the desire to make money. One method to increase productivity was to enhance the division of labor. Organization is one way to enhance the division of labor and thus their productivity of labor. Firms also seek to use capital, mainly in the forms of machinery, to aid in the productivity of their workers. Firms would then have the incentives and resources to continue to add on their productive capital as a way of growing their productivity. There is always room for slight improvement in Smith’s eyes, and as production methods improve …show more content…
Say’s Law provided John Maynard Keynes a framework for understanding the importance of investment and liquidity preference, however, that did not impede him on criticizing Say’s Law. Keynes focused on how investment decisions are made; usually based off present expectations which are formed under uncertain conditions of the future. Due to this uncertainty, there is room for doubt and fear on the part of the capitalists. Because firms were reluctant to commit, they might resort to short-term liquid assets. If firms preferred liquidity over long term investment, this then shows how insufficient demand reveals the vulnerability of Say’s Law.

3. Karl Marx’s theories of capitalism most intrigued me because he dissects Adam Smith’s theory for capitalism and presented the several contradictions of capitalism. He came from a different time period than Smith; he saw the class struggles and the capitalist society setting as something that is not ideal. Even though the standard of living increased thanks to capitalism, Marx witnessed laborers always tried to make ends meet.
Marx’s ideas of capitalism was the direct opposite of what Smith proposed. He wasn’t as optimistic as Smith, he was more cynical and pessimistic when it came to capitalism based off his critics of the economic theory that Smith defended. His system of reasoning involves two ideas, that capitalism is crisis prone, and that there is class exploitation in

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