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Unformatted text preview: War of Ideas
There is an ideological war between the
French and the English.
You will be surprised to learn that most
conservatives side with the French. War of Ideas
economist is J.B.
Say. The English
economist is John
Maynard Keynes. Say’s Law
Tout travail cree
consommation 1 Ricardo traitor to the Crown
Agreed with Say’s
law that “supply
creates its own
Laissez Say’s Law at the movies Supply creates its own Demand! The challenger’s reply
Although the idea of laissez
I beg to differ. Supply
faire is admirable and might be
does not create demand. It
applicable in the long run,
please remember that we are all
is a tempestuous
dead in the long run!
interaction and sometimes the opposite is true. 2 Business Cycle
Economic Boom Real
(GDP) n om
Eco y is w
gro ing lo
ove ng i od
However in the short run it is erratic!
Time Two ways of looking at the Business
One could look at the long
One can consider the short
run erratic behavior of the
cycle as statistical noise
One can argue leave it
alone and applaud the
market’s long run
performance. One could look at the short
One can argue the macro
economy is unstable and
can lead to undesirable
One can argue some entity
(government) has to step
in and correct for this
erratic behavior! Laissez Faire
This is the long run view
These economist argue the market through
flexible prices and wages will correct itself!
They believe unsold goods and unemployed
labor can and will emerge,
but both would disappear as soon as people
have time to adjust prices and wages. 3 Keynesian View
Keynes asserted that a market driven
economy is inherently unstable.
He argued that expectation (psychology) of
consumers and business is determined by
the short run market performance.
Although he believed in the long run
performance of the market system, he
argued that we are all dead in the long run!
(remember he was trying to save capitalism!)
(remember Proving his point
Keynes attacked the idea of Say’s by
Prices do not correct for the
macroeconomic failure The Historical Record
20 Unemployment 16
–4 Inflation –8
1900 1910 1920 1930 1940 4 During the 1970s This Pattern
During the 1970s this pattern of high
unemployment and falling prices did not
Leading to the revival of laissez faire
schools of thought! The Historical Record
1930During war time Government Spending Increases
20 20 WWII 15 Reagan’s increased
Cold War spending Korean War 10
0 Vietnam War 10
0 –5 –5 –10
15 15 End of Vietnam War
Depression WWII Ends End of Cold War –10
–15 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 5 ...
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This note was uploaded on 01/13/2012 for the course ECON 101 taught by Professor Smith during the Fall '09 term at Harvard.
- Fall '09