Classical Economics Uses The Value Theory

The United States of America’s economy is the most powerful economy in the world, and its currency is often interchangeable with foreign currencies. This economic power is a major part of what makes the United States of America a world power, coinciding with its military might. But with that being said, in recent years, it has also shown to be one of the most unstable economies as well, with the housing crisis of 2008, and the Government Shutdown in 2013. The American Economy is filled with constant corruption, bad practices, and constant threat of total collapse if the status-quo is kept.

People are retiring later, adolescents are finding it difficult to get employed, and poverty rates are through the roof. Surely, these are not signs of a booming economy, but rather the opposite. Top notch economists have debated whether or not the American economy has improved over the years, but when one dives deep into research, he can see that the cornerstone of the United States’ economy is about to fail. Not only should the government take a step back from further disrupting the economy, but they should rather help find ways to grow it through producing goods in America and by supporting new businesses to decrease the unemployment rate. A team working for Goldman Sachs states that America is the best working economy in the world, but they didn’t do enough research. If the stock market is a success, it only shows big companies are doing well, not the new and smaller businesses. Furthermore, America should pay more attention to manufacturing goods in its own country in order to decrease the unemployment rate and help lower the amount of debt the United States owes.

For example, when a good is scarce, the prices goes up, so consumers try to avoid buying and therefore conserving the resource. Then, the suppliers want to find more of the source as to get a better profit. The reasons behind their actions are selfish, yet they benefit all of society. Smith identified that the pursuit of profit and the power of self-interest would increase motivation and result in more advances in technology. His model of capitalism was on the basis of freedom and selfishness as a motivator for society. It was also on the basis that the economy would go through recessions and expansions but fix itself. Recessions are periods in the economy in which unemployment goes up, while profits and spending goes down; a slowdown of the economy. An expansion is essentially the exact opposite. The classical model of economics states that the economy will continue to go through these fluctuations over time and will fix itself with no help, thus not needing a government to give influence.

The relationship between economists John M. Keynes and Friedrich A. Hayek is quite complex. Both had influential roles in economic studies, emerging after World War II and during the Great Depression era (BBC). It’s important to note that both of these economists had opposing views when it came to economic theories and policies. Briefly summed up, Keynes theories were in support for government involvement in the economy (EconedLink). In contrast, Hayek argued that the government should have a lesser role in economic decisions in order to achieve greater economic freedom (EconedLink). These two opposing arguments are what have primarily stirred the Keynes versus Hayek debate. Of course, both Keynes and Hayek’s theories

The United States has always faced its fair share of economic ups and downs. Financial upturns can quickly lead to downswings, and there have been plenty of theorists who believe they can solve the great divide. No one ever plans for a recession to last more than a few months, let alone watch the economy crumble into a deep depression. How can this happen, when the economy is supposed to be able to self-correct itself as one theory suggests? Moreover, when self-correction does not triumph, does a new theory take effect to explain this conundrum? This week’s readings have introduced the concept of how classical economics have been taught since 1817, along with John Maynard Keynes ideologies (Rittenberg & Tregarthen, 2012).

Keynesians model says that economic cycles cannot be dealt with the use of monetary policy, The Classical model says the economics will trend to equilibrium by itself.

The economy, mainly in the capitalist system, is made by cycles. Over the history, the booms and busts faced by countries have called the attention of academics, who have tried to predict certain patterns and understand the economical behavior. Would the great depression of 1929 have the same effect if the presence of the government in the economy was greater? Was it possible to prolong the effects of the baby boomer generation? Could the mortgage bubble which started in the United States and resulted in the recent global financial crisis be avoided? While several questions stay open for discussion, history shows that economies will eventually face a downturn, but the fact is that the depth of the consequences will depend on their ability to respond to these shocks, or, how resilient they can be.

In The Road to Serfdom, Hayek argues that war leads to centralized planning in the government and then the people who gain the power from the planning want centralized planning to remain. Central planning is able to remain because of how the people in power make it appear attractive to all different types of people. Yet, the planners are unable to make their promises reality because they all have a different idea of what the perfect plan would look like, and the citizens do not agree on the same plan as well. As the planners are unable to get support, they lose confidence from the citizens, and thus one powerful leader is selected to create a single plan and lead the centralized planning. Then, that party gains control of the government and that party is able to gain support by getting everyone to come together for a single cause. They use force to make sure no one is able to speak out against their party, and no one is able to choose their own occupation, their own wage, speak their own thoughts, choose what to do in their free time anymore. In the end, one makes a mistake and the choice of what is done to them is chosen by the state, freedom is gone and the road to serfdom arrives. Hayek was recognized for his ideas on capital, money, and the business cycle. These ideas can be found in Prices and Production (1931) and Monetary Theory and Trade Cycle

In conclusion, the Keynesian theory should remain imperative to a country’s economy. The economy is fickle and unreliable but not uncontrollable. It is the country’s job to ensure the safety of their economy. The Keynesian theory is one way to protect this. This policy was introduced decades ago, remains relevant to the stimulation of the economy, and even extricated the economy from a global financial

Keynes sought to answer these questions and inform the general public, as well as influence policy in governments. Someone familiar with the study of economics cannot think “Keynes” without also thinking “Hayek”. F.A. Hayek was another economist during Keynes’ time, and Keynes used Hayek’s work, as well as the work of other “classical economists”, to be able to refute laissez-faire economics.

Economists were wrong: "Something is badly wrong with the state of economics," Quiggin writes on page 4. Even though a "massive financial crisis" was happening right before the eyes of the profession, most economists "…failed to see anything wrong," Quiggin explains. But Quiggin asserts over and over that something is desperately wrong with economic policies.

Neoclassical Economics is an attempt to restore some of the principles that Adam Smith, a pioneer for capitalist markets, advocated for in his Classical Economic theory. Smith suggested that minimal intervention should be required regarding government policy as the laws of supply and demand will be self-correcting. John Maynard Keynes was an important figure that worked to apply fiscal policy that would remedy an economic depression. Keynes’s idea of fiscal policy is the means by which government adjusts its spending levels and tax rates to monitor and influence the economy. Further, Keynes is known as the father of “Mixed Economy”, in which both the private sector (households and privately owned businesses) and public sector (government) have an active and important role in the economy. He argued that in a capitalist economy, the government would have a direct response to where in a business cycle the economy was at any particular time—Borrow to spend in a Recession or Bust, and spend only to the level of revenue collected during a period of growth or Booms. Milton Friedman, an American economist, believed strongly in a neoclassical, one-directional approach to monetary policy, where the Federal Reserve should limit monetary policy to increasing M1 (primary money supply) at a consistent rate, slightly higher than the birth rate, in order to keep economic growth at effective levels. Moreover, he believed the federal government should tax minimally in order to

Critically examine the debate between Keynesian and classical economists on the efficiency of the market mechanism and the efficiency of government policy intervention. What lessons can be drawn from the 2007-2009 global financial and economic crisis

Economics would be better described by a variation on the term ‘chrematistique’ rather than our current discipline’s name, which stems from ‘oeconomica’ because there is a “natural” way of making money and the “unnatural” way of making money. In the book Teachings From The World Philosophy it states that there are the elements of true wealth but there is also another art of acquisition, which is commonly and rightly called the art of making money (Heilbroner 8). I believe that there is a merit in splitting economics into Marginalist and a Classical approach to economics because the classical system was a circular process between production and consumption and Marginalism is a one-way avenue from production to consumption. If these did not spilt then I believe no one would agree on anything because they are two different views which also I believe gave us the best possible set up because it allowed to perspectives for people to think about.

The period from 2008 through today has been a highly difficult one, with countries struggling to support their national economies, to reduce costs and guarantee the living standards of their populations. At a general level, the recent years have manifested an economic crisis of a gravity unwitnessed since the Great Depression of 1929-1933. At a more particular level however, a deeper analysis would be conducted through the analysis of four economic indicators in four important global economies. The four economic indicators are the gross domestic product (GDP), the consumer price index (CPI), the unemployment rate and the interest rate, and the countries are the United States of America, the United Kingdom, Canada and Japan.