Discussion-week 5
Jaspereric
Replies.docxAshley Brewster
Discussion
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1. Compare and contrast the major contribution made to the field of economics by three contending theories you have studied (Neoclassical, Keynesian, and Marxian) in this course, what specific theory has made a major breakthrough in addressing the economic crisis of 2008
Economic theories developed at different times enable us to know how economies work. Neoclassical economists followed the trait of Alfred Marshall. They believe that economy will be at the full level of employment; resources are utilized fully in the long run. Neoclassicals also in the favor of a self-regulatory market system in which demand and supply mechanisms are equilibrated to set the desired output and price level. “They developed the Quantity Theory of Money” and discussed the transaction demand for money (Dimand, 2020). At that time economics revolved around utility and profit maximization. Neoclassicals were not in the favor of government intervention.
Keynesian economics come to light after the Great Depression in the 1930s when market forces were unable to stabilize the economic system. It majorly focuses on aggregate demand theory to stabilize the economy. The theory posited that as aggregate demand increases it raises the price level and increases the level of production which creates employment in the economy. Keynesians were in the favor of government intervention to overcome the market failures (Anon, 2020). Besides this, Keynes developed the “Quantity Theory of Money” in a new way by introducing further motives other than transaction motives to hold or invest money.
The classical economist Karl Marx a philosopher, sociologist, and economist set the foundation of socialism. He was not in the favor of capitalism in which private ownership of capital goods widens the gap between the rich and poor (Gillies, 2002). According to him, society is divided into two classes of people; the rich and the poor, rich become richer at the cost of the poor. He suggested that there should be an economic system in which state-owned all the property rights and the state distribute the goods and services among people according to their need.
The U.S. experienced an episode of the economic crisis during 2008 when the credit markets collapsed. The growth of capital was restricted because banks stop giving further credit. Almost, this crisis was begun due to the mortgage-housing sector which was mostly owned by the private sector. If we see the above theories, according to Marx government should own property and if we see Keynesian economics then the government should intervene to stabilize the economy. Both emphasize the intervention of government but the degree of control is different.
1. How do you understand the theory of capitalism? How did the concept of capitalism has changed over time and in what direction to the stage of the economics of the 21st century? Give a specific example as part of your answer.
Capitalism refers to the economic system in which capital or property is owned by the private sector and the person who owned capital or property is called a capitalist. It restricts the intervention of government, employment security and leads to economic stabilization(Milanovic, 2019). The concept of capitalism started in the mid 19 century when there was the time of the industrial revolution. Firms decide how much to produces, what the price should be, and how much labor they should hire while deciding all of these things every firm wants to maximize its profits irrespective of the benefits of the society.
Karl Marx a well-known economist raised the negative impacts of capitalism as it divided society into classes: the rich and the poor. Increases the power of monopoly and hires the labor according to the desire of the firms. Marx argued that there should be no privately owned property of firms everything should be in the control of the government and the government solely decide how much to give each individual according to his work and need. This idea was prevailed in Russia and China for so long.
After the Great Depression, Keynesian economics came into existence which clarifies the need for government and also specifies the degree of government control (Mttick, 2020). Government should intervene when there is economic instability and market failure.
The structure of the economic system in the 21st century is the mixed economic system. In a system in which private and government sectors work together, the government decides policies and firms set their goals according to them. In today’s world, the developing and developed countries are examples of it as they used the system of mixed economy.
References
Dimand, R. W. (2020). J. Laurence Laughlin versus Irving Fisher on the quantity theory of money, 1894 to 1913. Oxford Economic Papers, 72(4), 1032-1049.
Gillies, D. (2020). The Empirical Success of Keynesianism. Economic Thought, 9(1), 24-43.
Mattick, P. (2020). Marx and Keynes: the limits of the mixed economy (Vol. 33). Pattern Books.
Milanovic, B. (2019). Capitalism, alone. Harvard University Press.
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Dezhao Chen
Week 5 Discussion
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Q1. Compare and contrast the major contribution made to the field of economics by three contending theories you have studied (Neoclassical, Keynesian, and Marxian) in this course, what specific theory has made a major breakthrough in addressing the economic crisis of 2008?
Neoclassical theory shows that individual’s well-being is equated to consumption. High consumption rates directly relate to high levels of well-being. Capitalism is the epitome of this theory. (p. 52). The contribution that this theory has made is the understanding of the forces of demand and supply. How these market forces determine, consumption, valuation of goods and services in a microeconomic environment.
The Keynesian theory’s contribution to economics is that it gave a picture of national economics. Wolff and Resnick (2012) say that, ‘Keynes’s focus of analysis became the economy as a totality — a structure of relationships — that shaped individuals’ behaviors.’(P. 107)
The Marxist theory on the other hand explained the issue of class and its effect to economics. ‘Marxian theory concludes that class exploitation occurs at multiple sites in modern society and that our politics, literature, family structures, sports, television programing, religions, and incomes are all complexly shaped by exploitation.’ (p.133)
The theory that has made a major breakthrough in addressing the economic crisis of 2008 is the Keynesian theory. This is because it proposed a direct involvement by government in the economy. The government has the tools to regulate markets. The neoclassical theory could not have worked because it proposed that the system will correct itself and the Marxist theory on the other hand was too idealistic to be used.
Q.2 How do you understand the theory of capitalism? How has the concept of capitalism changed over time and in what direction to the stage of economics of the 21st century? Give specific examples as part of your answer.
According to Wolff and Resnick (2012), ‘In the Marxist view, neoclassical and Keynesian economic theories celebrate modern capitalism (while differing over the appropriate interventions of the state in capitalist economies)’ (p. 134) Capitalism is a consequence of the neoclassical and Keynesian theory of economics. Capitalism is basically private entities making a lot of money and creation of class and wealth as a result. It results to inflation in a country.
In my opinion, capitalism has changed in that in the early 1900s in America, it favored a few in banking, rail road and other relatively new enterprises. They were able to make huge amounts of wealth and other people in the economy especially the working class continued to become poorer and poorer. In the 21st century, capitalism is still in most economies however it is being streamlined by government. Governments try to close the wage gap for example issuing COVID 19 packages to Americans who are unemployed.
References
Wolff, R. D., & Resnick, S. A. (2012). Contending Economic Theories: Neoclassical, Keynesian, and Marxian (The MIT Press). The MIT Press.
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