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Unformatted text preview: Adam Smith vs. John Maynard Keynes Economics was a subject of which few thought about consciously until the eighteenth century. It is true that since the beginning of time people have used economics, but it was seldom given any thought. When a caveman traded a buffalo for a new club he did not have the knowledge that he affected the entire caveman economy and their way of life. Adam Smith is accredited as being the most influential economist of the eighteenth century and for all practical purposes one of the first economists that anyone has ever heard of. Ironically, Adam Smith's great economic break-through is that no one should worry about the economy. The economy will take care of itself because it is driven by self-interest. Given that greed is a quality that drives just about everyone, this should not be a problem. Society has needs and wants, so the public will always demand goods. It is up to producers to supply the public with these goods and services. The goods that are demanded will be produced more and other products will not. It is the economic variation to natural selection. Competition in the market place will drive down prices and raise quality and efficiency. There is no need for government regulations because the market will always correct itself, eventually. The only elements needed are greedy profit driven producers and stupid people to buy their products. Adam Smith believed the economy would always adjust itself during an inflation or recession. During prosperity, consumers will have confidence in the economy and this will bring on inflation and cause prices to rise due to the increase in spending the demand in goods. When the prices rise too high, then consumers will stop buying the goods. Slowly the prices will fall as the demand decreases. When the prices drop to affordable levels, consumers will buy the goods again and the economy will be stable. Unemployment will act much like the prices in the situation. Unemployment will be low while consumer confidence is high. Once the prices rise to an inflationary level, companies will lay off people in order to make up for the over production of the goods that are not being sold at the high prices. Once the prices stabilize, the companies will for the over production of the goods that are not being sold at the high prices....
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This note was uploaded on 01/08/2011 for the course ACC. C-090786 taught by Professor Prof.bantua during the Spring '10 term at Xavier - Ateneo de Cagayan.
- Spring '10