Since the beginning of time, mankind has always used a system of trade from one individual to another, in order to acquire materials or goods. Economics, or the “science of choice,” was an area that only a select few took interest in and thought about consciously until around the eighteenth century. The eighteenth century was marked with revolutions in America and France, the progression of the Enlightenment movement, and the rise of industrial revolution in Great Britain. During this critical time period, the world would also advance to a more superior plateau of economic thinking with the emergence of one important individual — Adam Smith.
Born in the small village of Kirkcaldy, Scotland in 1723, Adam Smith was raised by his widowed mother until the age of fourteen, when Smith enrolled into the University of Glasgow. Smith continued his academic career at Balliol College at Oxford, graduating with a vast knowledge of the fine arts. After graduating, Smith returned home and continued to be an active contributor to the educational services of Glasgow, where he eventually became the first chair of logic in 1751 and the first chair of moral philosophy in 1752. The year 1764 marked the end of Smith’s academic career, when Smith decided to tutor the young duke of Buccleuch. Enjoying a lifetime pension he received for tutoring the young duke, Smith retired to his hometown, Kirkcaldy. Shortly afterwards came the year 1776—the year that would forever change the world. Many people would identify the year 1776 as the birth year of the United States of America; however, halfway across the world, a new economic theory was born. Smith published his book An Inquiry into the Nature and Causes of the Wealth of Nations, or The Wealth of Nations. Smith's book would become a new standard of economic basics and the foundation of modern economic theory.
Many economists who have read and analyzed Smith’s The Wealth of Nations believed that his work possesses two different approaches about to economic philosophy - a classical message and a neoclassical message. What is meant by classical economics is the approach to the studies of a theory that conveys the value, distribution, and growth of goods. Neoclassical economics focuses on the idea of the determination of prices, output, and distribution of income by the use of supply and demand. Smith’s classical message resides at the very beginning of The Wealth of Nations. Smith constructs two ways on how to create the “Wealth of Nations.” First, by enhancing markets to intensify the distribution of labor, the labor force of a nation will become more productive; and second, a nation needs to produce more goods and services by the means of the labor force, instead of being unproductive. Smith’s neoclassical message is the theory of the “invisible hand” of the market. This idea of the “invisible hand” means that the market itself possesses a self-regulating nature and should be “left alone,” according to Smith. This certain theory of leaving the market alone is called “laissez-faire,” which is French for “to leave alone.” According to the “laissez-faire” economic philosophy, if the system of the market is riddled with government intervention; then the market and the “wealth of that nation” will suffer dearly. Overall, Smith constructed a third thesis to his ideology of capitalism— people are naturally selfish. Smith theorized that the aggression of greed drives people to get what an individual wants. By this physiological drive, society as a whole will demand wants (items not needed for survival) and needs (items needed in order to survive). Therefore, this drive will always demand goods for the general populace. As the dominos continue to fall in line, by the demand of goods and services, some goods will be wanted more by the public than others, so the unwanted goods will eventually fall out of the market. In order to stay in the market, the suppliers must keep up with the public’s demand and this will in return cause different suppliers to compete with each other. Finally, as the competition grows the prices will decrease and the quality and efficiency of the goods and services will increase. This competition draws back to the point of the “invisible hand” of the market and serves as the logical logos of Smith’s argument by a simple domino effect. By the publication of The Wealth of Nations, the ethos of Adam Smith increased rapidly from being the first chair of logic to the “father of modern economics and capitalism.”
Adam Smith is an important individual in the economic field; however, a British economist, who would soon be known as the “father of modern macroeconomics”, would challenge Smith’s theories about 160 years after the publication of The Wealth of Nations — John Maynard Keynes. John Maynard Keynes was born in Cambridge, England in 1883. In his hometown, Keynes studied at King’s College, where he graduated in 1905. After he received his degree in mathematics, Keynes remained in Cambridge to study under the wings of Alfred Marshall and Arthur Pigou. Keynes left Cambridge to take a position in civil service in Britain. After leaving the town of Cambridge, Keynes was introduced into the British Treasury, where Keynes would eventually become the Treasury’s principal representative at the Versailles Peace Conference. Influenced by Adam Smith, Keynes engaged and studied the economic field of capitalism. During the Great Depression, Keynes founded a new economic philosophical approach to capitalism — “Keynesianism.”
In 1936, Keynes published The General Theory of Employment, Interest, and Money, which many economists agree constructed the fundamentals of “modern macroeconomics.” Keynesianism basically lays out three points: the federal government must move away from laissez-faire economic philosophy, the federal government should play an active role in managing the national economy, and the federal government must act to stimulate demand and maintain a high employment rate. The way the federal government should accomplish these three points, suggested by Keynes, was by manipulating interest rates to manage money, raise or lower taxes, and engage in federal spending (Keynes 19, 305). Back when The General Theory of Employment, Interest, and Money was first being published, the American population was scared and terrified about the market status and desperately looking for an easy way out of the national “depression.” Clearly, Keynes employed the prodigious power of pathos during this economic downturn to promote his “general theory.”
Most individuals are more familiar with Adam Smith rather than John Maynard Keynes; however, both of these men play a major role in how the current economic system operates today. In the political climate of America right now, the question of how much government intervention in the economic market should be allowed is highly debatable. On one side, typically the left-wing, believe that government intervention serves as an essential part of maintaining America’s democratic standards and helps regulate the powers a certain individual can possess. On the other side, typical the right-wing, it is believed that the government should only protect the rights of the citizens, provide a competitive capitalistic free market system, and provide a strong national defense. Both of these sides clash heads time and time again; however, in the topic of preserving capitalism, the two approaches serve different viewpoints. Of course, not all liberals or conservatives agree with the idea of capitalism, but the majority of conservatives and the minority of liberals would wish to keep the capitalism dream alive. Most conservatives and radical right-winged activists would support the ideas of Smith, while liberals and radical left-wing activists would support Keynes. Smith’s idea calls for no government intervention in the economic system, while Keynes’s idea calls for government intervention. Keynes’s idea is sometimes referred to as “socialistic capitalism” because of the need of government to step into the market. Today, the raising and lowering of taxes and federal spending are ideas of Keynes and are common in the economic system of the nation, while the ideas of Smith to establish free markets and preserve capitalism are still in effect. Both economic philosophies still are very strong in the market and sometimes are interconnecting foundations for many economists’ decision-making processes.
Both classical economics and Keynesianism affects our economic standpoint today and the combination of the different aspects of each theory helps attract more people into the positive aspects of capitalism. In reality, both classical economics and Keynesianism are two opposing sides of the same capitalism coin. If an uncertain individual had to choose between the two ideas, an individualcannot simply flip the capitalism coin, hoping to land in the middle. At the end of the day, both Smith and Keynes can be thanked for providing the opportunity to take advantage of the skill of trade that was neglected prior to their times.
