Adam Smith’s work and influence on modern day economics mainly started after the publication of his book ‘The Wealth of nations published in the year 1776.This book which was compiled for a period of around ten years has come to be one of the most influential books in the field of modern economics. He appraised the idea of a free market system where he argued against government intervention in economic affairs. This is what came o be called as the laissez-faire economics
John Maynard Keynes is the father of modern day Keynesian economics. He introduced an economic theory that seeks to promote a mixed economy where both the state and private sector play an important role in order to bring the state close to full employment. In Keynesian economics issues of market aggregates (demand and supply) have been given much emphasis as the major driving factors of the economy. Thus in his General theory Keynes explained that the level of output and employment in the economy was determined by aggregate demand or effective demand.
Karl Marx on his part was the father of Marxism together with Friedrich Engels. This social economic perspective is based on the following beliefs;
• An attention to the material conditions of people’s lives, and lived relations between people
• A belief that peoples’ consciousnesses of the conditions of their lives are reflections of these material conditions and relations
• An understanding of “social class” in terms of differing relations to production, and as a particular position within such relations
• An understanding of material conditions and social relations as historically malleable
• A view of history in terms of conflict between classes with opposing interests
• A sympathy for the exploitation of workers
• A belief that the ultimate interests of workers best match those of humanity in general.
Marxism beliefs in a social state where neither the government nor the market takes control.
THEIR VIEWS ON GOVERNMENT’S ACTION TOWARDS THE ECONOMY
Although Keynes and Adams perspectives have a clear view on the governments’ role in the economy Marx’s perspective is not very clear on the issue. This is because Marx does not view a state as an external factor to the economy but instead as representation of a certain class within the state.
Adam Smiths view
According to Adam smith the role of the government was to complement the market and assist it to be more effective. One of the main points of The Wealth of Nations is that the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called “invisible hand” (an image that Smith had previously employed in Theory of Moral Sentiments, but which has its original use in his essay, “The History of Astronomy”). Smith believed that while human motives are often selfishness and greed, the competition in the free market would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services.
Smith was categorically opposed to government restrictions which he thought were hindering industrial expansion. One government policies that he was objected to was the use of tariffs to limit trade especially in the context of comparative advantage. He argued that these caused much inefficiency and also led to unjustifiable high prices. However Smith advocated for a Government that was active in sectors other than the economy: he advocated public education of poor adults; institutional systems that were not profitable for private industries; a judiciary; and a standing army. These he claimed were justifiable involvements by the central government in economic affairs.
A favorite quote, usually recited by economists from The Wealth of Nations is:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
Keynesian economists advocate for a mixed economy. In this view they consider an equally important role to be played by both the private sector and the government. . Thus Keynes believed that the government was responsible for not only helping the economy rise out of a depression by increasing aggregate spending but also it could increase general levels of investments by pumping more money into the economy, then the citizens are encouraged to spend more because more money is in circulation. Once this is done then People will start to invest more, and the economy will react by increasing productive ventures.
Thus Keynes argued that government investment in public goods that will not be provided for by the market will encourage the private sector’s growth. This would include government spending on such things as basic research, public health, education, and infrastructure.
Karl Marx’s view:
Karl Marx believed the state to be a manifestation of the ruling class, in many instances he claimed that the ruling class was the bourgeoisie (owners of the means of production) whose aim was self-enrichment under such a state developments of either the infrastructure or education would be done if it was to their benefit and not to the benefit of the workers (Proletariat). Thus in order to have a state where developments were made to the betterment of everyone then the proletariat were to take power either forcefully or peacefully. He believed that were the proletariat to seize the means of production, they would encourage social relations that would benefit everyone equally, and a system of production less vulnerable to periodic crises would emerge.
Regardless of their different views their theories cannot apply independently. This is due to the fact that governments and industries have different policies of their own. Since all countries do not have equal resource endowment trade is necessary and so there is always need to have some little protection for infant domestic industries that are emerging to the global village.
It is also obvious that people have different productive capacities and so communal production would be a draw back to more productive people since the share of the final cake would favour the less active in society. This would cause the Marxist approach to turn violent and become more individualistic (capitalistic)