Economic Theories essays

Economic Theories essays In attempts to control the economy, the Government has to rely on theories and beliefs about what they feel will have the best outcomes. This leads to the problem that there is no absolute proven way in which to guarantee a successful economy, and thus leaves open the debate about which policies would have the best effects. Adam Smiths The Wealth of Nations favors a laissez-faire mentality from the government, while John Keynes, Keynesian theory, requires the government to play an active role in controlling the economy. Adam Smith once quoted, The uniform, constant and uninterrupted effort of every man to better his condition, the principle from which public and national, as well as private opulence is originally derived, is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration. This is one of many instances in his book which reflects that human nature itself would propel an economy guided by each individuals Invisible hand. Smith noticed that when a business would become successful, others would notice and enter into the same field. As a direct result, growing consumer demand was satisfied while competition controlled rising prices. Adam Smith argued that an individual acting purely out of self interest would be a progressive force for the maximization of the total wealth of a nation. The role of the government should be permissive, creating a legal defensive setup sufficient to allow individual action. Interference with the free working of this natural order will reduce the growth of wealth and misdirect resources. Keynesian economics is based on a belief that the economy can possibly fall into a recession and not be able to pick itself up. Keynes felt that trends and fads could disrupt Smiths Invisible hand and lead it astr...