The Classical Economists and Keynes: the Debate on Government Policy Activism

Topics: Keynesian economics, History of economic thought, Alfred Marshall Pages: 4 (1189 words) Published: May 9, 2012
The activist-nonactivist discussion, and the role the government should play in forming economic policy, has been a long running debate among. It is common thought today, in the general populous, that the burden of unemployment and inflation should fall on the government, and that the government should play an active role in combating such economic stresses. However, there are those who believe government intervention should be avoided. This controversy first became popularized over 50 years ago with the famous economist John Maynard Keynes, and the classical economists of his time, whose economic foundations lay in Alfred Marshall’s seminal work, the Principles of Economic. The purpose of this paper is to discuss the classical economist’s non-activist view on unemployment, and Keynes’s critical response to the classical economist and his belief the government should play an activist role in combating unemployment. One of the most important tenets of classical economics is that market economies automatically tend toward full employment. This belief is largely based on the principle Say’s Law. This principle assumes that a rational individual will spend their money expediently and not hoard money. What this idea has to add to the classical economist view that the economy tends towards full employment is that if a business want to produce $1,000 worth of goods to sell to household, they must acquire the resources to produce such goods or services. The owners of these resources are the households who desire payment. Thus, $1,000 in income goes the household and as rational agents the household will spend all the income they received. This means that everything produced is bought. The classical economist believing that because of this the economy would always expand to full employment, because individuals would work for the wage of their productivity, and business would continually be hiring, and therefore there will always be demand for the output of...
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