Adam Smith and John Maynard Keynes are two of the most famous and influential economists of all time. They both understood the fundamental economic insight that the key to economic prosperity is to keep money circulating. However, they are mainly thought of as being on opposing sides of most economic philosophies. It is essential to first analyze each economist for their own theories and practices. Then, to contrast the two in order to fully grasp their economic philosophies and to portray why their ideas are still considered important and relevant in today's economy. Adam Smith was a Scottish economist, author, and philosopher who pioneered the modern political economy, serving as a key figure in the Scottish Enlightenment era. Smith was
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He produced the theory of classical economics, which stated market economies were largely self-regulating systems that were governed by natural laws of production and exchange. Smith realized that the complex functions of society and economy unintentionally, but effectively, emerged from the self-interested actions of every individual. He specifically used the term ‘the invisible hand’ to describe the unintentional social, political, and economic benefits that stemmed from individual, self-interested actions. Smith is often regarded as ‘The Father of Modern Economics’ for these ideas as they compose the early roots of liberal economics. His famous book, The Wealth of Nations, published in 1776, is widely known as the fundamental beginning of modern economics. The book’s principal message is that people have a natural inclination to improve their own lives, and in turn, this self-interest propels markets to satisfy individual demands by producing the goods and services people want and need. Smith famously stated in The Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” This prominent …show more content…
During this time, The Great Depression had struck at lightning speed, massively affecting markets all around the world. Keynes worked toward understanding the underlying causes of the Great Depression and wanted to learn how to lessen its harmful blows against the economy and the people. Keynes argued that aggregate demand, or the total demand for final goods and services in an economy at a given time, determined the overall level of economic activity. He further equated the main cause of the Great Depression as a shortage of aggregate demand that led to a prolonged period of unemployment. To reverse this depression, Keynes suggested the use of monetary actions by the banks and fiscal policies that stimulated the government’s borrowing and spending. His idea was to encourage a self-sustaining economic expansion, suitable for all people to prosper, with the intervention of the government. In 1936, Keynes published The General Theory of Employment, Interest, and Money, forming a basis of Keynesian economics. Keynes's thought was that speculative bubbles had to be prevented in order to avert depressions, and to rid of speculative bubbles, it was necessary to prevent large amounts of money falling into the hands of a small percentage of people. In order to avoid this, high marginal tax rates on
He produced the theory of classical economics, which stated market economies were largely self-regulating systems that were governed by natural laws of production and exchange. Smith realized that the complex functions of society and economy unintentionally, but effectively, emerged from the self-interested actions of every individual. He specifically used the term ‘the invisible hand’ to describe the unintentional social, political, and economic benefits that stemmed from individual, self-interested actions. Smith is often regarded as ‘The Father of Modern Economics’ for these ideas as they compose the early roots of liberal economics. His famous book, The Wealth of Nations, published in 1776, is widely known as the fundamental beginning of modern economics. The book’s principal message is that people have a natural inclination to improve their own lives, and in turn, this self-interest propels markets to satisfy individual demands by producing the goods and services people want and need. Smith famously stated in The Wealth of Nations, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” This prominent …show more content…
During this time, The Great Depression had struck at lightning speed, massively affecting markets all around the world. Keynes worked toward understanding the underlying causes of the Great Depression and wanted to learn how to lessen its harmful blows against the economy and the people. Keynes argued that aggregate demand, or the total demand for final goods and services in an economy at a given time, determined the overall level of economic activity. He further equated the main cause of the Great Depression as a shortage of aggregate demand that led to a prolonged period of unemployment. To reverse this depression, Keynes suggested the use of monetary actions by the banks and fiscal policies that stimulated the government’s borrowing and spending. His idea was to encourage a self-sustaining economic expansion, suitable for all people to prosper, with the intervention of the government. In 1936, Keynes published The General Theory of Employment, Interest, and Money, forming a basis of Keynesian economics. Keynes's thought was that speculative bubbles had to be prevented in order to avert depressions, and to rid of speculative bubbles, it was necessary to prevent large amounts of money falling into the hands of a small percentage of people. In order to avoid this, high marginal tax rates on