The British economist John Maynard Keynes (1883-1946) and the Austrian economist and philosopher Friedrich August von Hayek (1899-1992) are two of the most prominent figures in history of the economic science. Their economic thoughts not only had huge impact in the past, but, along with their debate, will continue to shape the future. Their ideas contributed to the vicissitudes of the world economy by influencing generations of policy-makers. During the Great Depression, US President Franklin Roosevelt’s New Deal popularized Keynesianism, and Keynesian economics was embraced by many economies thereafter till the 1970s. When the world was engulfed by Stagflation due to the oil crisis, a trend of neo-liberalism based on the Washington Consensus
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In classical economics, it was stated that aggregate production and supply entails an equal level of aggregate demand. Say (1834, p.121) contended that a widespread excess of supply cannot occur in the market; if it does, and then there must be an unmatched demand for other goods that are produced, so the economy would naturally tend toward full employment and prosperity. Frequently, it has been a proponent of the laissez-faire approach. According to Hayek (1978, p.180), Say’s Law is a principle of market organization: it explains the logic of how demand is determined and competition in the market would stimulate demand by informing individuals of various existent resources. Therefore, in Hayek’s view, Say’s Law is correct in its basic form and productivity entails demand and thus output, so job creation is also attained. Keynes (1936, p.27) summarized the Law of Say as “Supply creates its own demand”. He stressed the role of money in refuting Say’s Law: a portion of the money is not spent on consumption because of hoarding, thus this increase in net savings requires extra earnings in excess of supply. Thereupon, Keynes pointed out the invalidity of Say’s Law and acknowledged that it was spending that drives the economy. Moreover, the Keynesian School insisted that saving was undesirable at times of recessions because it reduced stimulus when it was imperative (Keynes, 1936,
In classical economics, it was stated that aggregate production and supply entails an equal level of aggregate demand. Say (1834, p.121) contended that a widespread excess of supply cannot occur in the market; if it does, and then there must be an unmatched demand for other goods that are produced, so the economy would naturally tend toward full employment and prosperity. Frequently, it has been a proponent of the laissez-faire approach. According to Hayek (1978, p.180), Say’s Law is a principle of market organization: it explains the logic of how demand is determined and competition in the market would stimulate demand by informing individuals of various existent resources. Therefore, in Hayek’s view, Say’s Law is correct in its basic form and productivity entails demand and thus output, so job creation is also attained. Keynes (1936, p.27) summarized the Law of Say as “Supply creates its own demand”. He stressed the role of money in refuting Say’s Law: a portion of the money is not spent on consumption because of hoarding, thus this increase in net savings requires extra earnings in excess of supply. Thereupon, Keynes pointed out the invalidity of Say’s Law and acknowledged that it was spending that drives the economy. Moreover, the Keynesian School insisted that saving was undesirable at times of recessions because it reduced stimulus when it was imperative (Keynes, 1936,