Write an essay describing the contribution to economics of each of the following: •
John Maynard Keynes
“Many Economists have tried to establish why the economy performs as it does and want to have a basis for predicting how the economy will perform when circumstances change”. (Nagel, S pg 1 1999) Economists are just people after all, who have lived through different times and experiences in their lives, thus leading to different values and views. George Bernard Shaw once said that “If all economists were laid end to end they would not reach a conclusion”,(cited in Mankin, Taylor 2006) In this essay we will look at what contributions each of the above economists have made, keeping in mind the era in which they lived . Reputed to be the father of “The Classical School” of economics, the Scottish born Adam Smith (1772-1790) was a supply side economist. “He attributed economic expansion to expanding production and trade with expanding demand as a by-product and consequence”(Jacobs, J 1985 p12) He promoted the invisible hand of free enterprise, which showed that individuals in pursuing their own selfish interest could benefit society. In other words, if people wish to sell, they must produce what others require at a price that they are prepared to pay. (Palmer. N, 1990). He also advocated the “Laissez-faire” approach, which means that the government should only get involved in the economy in order to raise monies for the upkeep of infrastructure, to sustain the legal system and to defend the country. In Smith’s book ‘An inquiry into the nature and causes of the wealth of nations’ which was published in 1776, he covered the previous two concepts as well as the division of labour and the function of markets. Division of labour was not a new idea but Smith believed it to be very important as a way of increasing wealth. According to Delaney, Smith established the 4 canons of taxation. “Firstly, the tax levied on each person should be related to the person’s ability to pay. Secondly, the amount of tax which a person must pay should be certain and clear. Thirdly, the manner and timing of payment of taxes should have regard to the convenience of the tax payer. Finally, the cost of collection should be small relative to the yield”. (2008) Another belief of Smiths was the Labour Theory of Value, which means the value of a product is equal to the value of the labour involved in its production. (Delaney.N 2008). Smith believed that there was a distinction between productive and non-productive labour. Teachers, engineers and people with similar professions were considered to be non-productive as they did not produce goods for resale or create funds for reinvestment. Smith also introduced the “value in use” and the “value in exchange” of a product (the paradox of value). Twenty years after Smiths death his writings and theories were embraced by the next generation of writers and economists who established Smith as the founder of economic science. It has been said that before Adam Smith there had been much economic discussion, but with him it reached the stage of discussing economics. (Palmer, N) The classical school of thought was later developed and refined by Thomas Robert Malthus (1766-1834) and David Ricardo (1772-1823). Both were English born and were followers of Smith’s theories. Malthus is known for his famous “Essay on the Principles of Population as it affects the Future Improvements of Society” published in 1798. At this time in history the Industrial Revolution was taking place which meant more people were moving from rural areas into urban areas. Malthus saw many slums being created with food, water and sewage becoming a huge problem. In his essay, he laid out how the population would grow by a geometric progression, while food supply would only grow by an arithmetic progression. He identified that there should be a check on...
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