Adam Smith vs John Maynard Keynes vs Karl Marx
Classical economics and Keynesian economics are two contrasting economic theories that have shaped modern economics.
Classical economics is the older of the two theories, originating in the 18th and 19th centuries. The core belief of classical economics is that the economy is self-regulating and will always return to a state of equilibrium without interference. It is based on the idea of laissez-faire, which means “let it be” or “let it go.”
Classical economists believe that the government should not interfere in the economy, and that markets are always efficient and will naturally provide the best outcomes for everyone. Adam Smith, widely known as the father of economics, is a famous classical economist who wrote “The Wealth of Nations” in 1776.
On the other hand, Keynesian economics emerged in the early 20th century, and its core belief is that government intervention is necessary to stabilize the economy during times of crisis. Keynesian economics asserts that the economy is not self-regulating and that it can get stuck in a recession or depression without government intervention.
Keynesian economists believe that the government should use monetary and fiscal policies to boost demand and increase economic activity. John Maynard Keynes is the most prominent economist associated with this theory.
The main difference between the two theories is the role of government in the economy. Classical economics advocates for minimal government intervention and for markets to operate freely. In contrast, Keynesian economics emphasizes the role of the government in regulating the economy through fiscal and monetary policies.
There are some similarities between the two theories, however. Both theories believe in the importance of savings and investment, and both agree that inflation can be detrimental to the economy. Additionally, both theories emphasize the importance of economic growth and stability.
Real-life examples of the two theories can be seen in the Great Depression and the Great Recession. During the Great Depression, classical economics was the dominant economic theory. The government believed that the economy would eventually fix itself without intervention, and it took a hands-off approach.
This approach, however, proved to be ineffective, and it was not until the government intervened with massive spending during World War II that the economy finally recovered.
During the Great Recession, Keynesian economics was the dominant economic theory, and the government intervened with massive spending to stabilize the economy. This intervention helped to prevent a full-blown depression and allowed the economy to recover more quickly.
Both classical economics and Keynesian economics are opposed to Marxism, but for different reasons. Classical economics sees Marxism as an economic system that stifles individual freedoms and private property ownership, while Keynesian economics views it as an impractical and unrealistic economic theory that cannot account for the complexities of modern economies.
