School Of Business
Masters of Business Administration
Is laissez-faire dead?
The New Economic Thought of Ben Bernanke
Eyitejumade A. Sogbesan
The Feds failure to recognize an economy moving towards the choke-hold of a recession due to the immense pressures from the credit bubble, increase in number of mortgage foreclosure, the weak exchange rate of the US dollar and the higher crude oil trading might be the “invisible hand” that Adam Smith predicted to guide the economy back to its cradles afterall. Rather than the Feds, to stem the rising inflation continues to cut key interest rates in order to stabilize the economy from an impending doom called “the recession”. According to the National Bureau of Economic Research, the agency now officially defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months”. From history a recession is defined as two consecutive quarters of declines in gross domestic product. An example is reminiscent of the stock market crash in the early 1930s that not only brought America to her feet but also has the whole of Europe following suit. For someone like Bernanke, he has to choose between two evils. My report aims to shed some lights on the intentions of Bernanke, by contrasting the economic thoughts of early century philosophers with the man at the helms at the peak bank of the world’s freest economy. Proponents of free market economy knows exactly that laissez faire should be followed to the core, Laissez-faire which literally mean, "let [it] function" is the economic doctrine founded by Quesnay and the early Physiocrats and expounded by Adam Smith, which stresses absolute zero governmental interference in the operations of the market economy. (Heilbroner, 1953) In my report, I compared the metamorphosis of different economic thoughts from the philosophies of Adam Smith to that of Stiglitz, Keynes, Leacock and the man himself, Bernanke. Introduction
Dr. Ben S. Bernanke was born in December 1953 in Augusta, Georgia, but grew up in Dillon, South Carolina. He received a B.A. in economics in 1975 from Harvard University and a Ph.D. in economics in 1979 from the Massachusetts Institute of Technology. He was sworn in on February 1, 2006, as Chairman and a member of the Board of Governors of the Federal Reserve System. He was appointed as a member of the Board to a full 14-year term, which expires in January 31, 2020, and to a four-year term as Chairman, which expires January 31, 2010. Adam Smith and the Invisible Hand
Adam Smith (1723-1790), is a Scottish philosopher and economist, His books An Inquiry into the Nature and Causes of the Wealth of Nations was the first serious attempt to study the nature of capital and the historical development of industry and commerce among European nations. His' Wealth of Nations represents the first serious attempt in the history of economic thought to divorce the study of political economy from the related fields of political science, ethics, and jurisprudence (Microsoft, 2007). It embodies a penetrating analysis of the processes whereby economic wealth is produced and distributed and demonstrates that the fundamental sources of all income, that is, the basic forms in which wealth is distributed, are rent, wages, and profits. (Microsoft, 2007) The central thesis of The Wealth of Nations is that capital is best employed for the production and distribution of wealth under conditions of governmental noninterference, or laissez-faire, and free trade. In Smith's view, the production and exchange of goods can be stimulated, and a consequent rise in the general standard of living attained, only through the efficient operations of private industrial and commercial entrepreneurs acting with a minimum of regulation and control by governments (Microsoft, 2007). Smith trying to explain the role of government in maintaining a laissez-faire attitude towards...