This page covers information about Smith, Marx, Hayek and Keynes. This page is only relevant to the Edexcel board at A-Level, but I recommend that even students studying other boards should learn about Keynes.
John Maynard Keynes (1883 - 1946)
British philosopher and economist
Invented the theories of Keynesian economics
Spoke about full employment and government intervention as being a way to stop recession
"Demand drives production, not supply"
Contrasting beliefs to laissez-faire
To begin with, Keynes was a conventional believer in free market principles. However, with time, he became more acquainted with the idea of government intervention being utilised to control unemployment and recession. The idea of Keynesian Fiscal Policy was widely used in the mid twentieth century - policy which involved expansionary fiscal methods such as increasing government spending in hopes of achieving full employment and being on the inelastic end of the Keynesian LRAS curve.
Adam Smith (1723 - 1790)
Ideas formed traditional economic theory
Believed in the free market and talked about its 'invisible hand'
"Consumers and producers are driven by self-interest"
Wrote about specialisation and the division of labour
Smith's ideas of the 'invisible hand' of the free market claim that it allocates resources in society's best interests. He advertised that consumers seek to maximise utility (self-benefits) and producers seek to maximise profit. He argued that in the free market, consumer demand and producer supply leads to an equilibrium price which benefits both. This is the price mechanism. He said that this system had to be free of monopolies to have low barriers to entry and to maximise competition.
Karl Marx (1818 - 1883)
Critic of the free market
Ideas led to the rise of communism in the 20th century, but contained little on how these economies would function
Marx claimed that the free market would create a small ruling class of producers (the bourgeoisie) that dominate and exploit the larger wage-earning working class (the proletariat). The idea was that these bourgeoisie would, in seeking profit, give the proletariat few rights until they rose in revolution and took over production to give everyone a share in the ownership of resources. Though Marx's ideas are more popular now, many communist countries collapsed in the late-1900s which cast a shadow on the concept of communism.
Friedrich Hayek(1899 - 1992)
Supporter of the free market system, criticised command economies
Argued that price mechanism knew best as it considered the wants and needs of consumers and producers
"Price mechanism = signalling function for producers and consumers to communicate"
Hayek argued that governments should not intervene in the allocation of resources as they lacked information to allocate them according to society's wants and needs. He claims that consumers and producers have the best knowledge of their wants and needs, therefore the price mechanism is the best way of resource allocation, as it considers these and is much more efficient than government intervention, which could have adverse consequences.
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