Smith and Keynes
• Heilbroner says capitalism is a “ insatiable ,dynamic, disembedded, two edged sword”
- Insatiable: Humans always want more and more and no matter how well we are off
there is never more than enough- never satisfied, life is about accumulation.
- Dynamic: capitalism is all about change
- Disembedded: for the first time in history the economy becomes disembedded from
society and it takes on a life of its own- Heilbroner tries to convince us that there was
- Two edged sword: capitalism simultaneously produces wealth and the goods like
nothing we have seen before. Produces wealth and misery simultaneously.
- He refers to Locke as possessive individualism
- Karl Marx: “under capitalism all that is solid melts into air all the is holy is profaned”
- Keynes referred to economics as the dismal science
For Aristotle economic life is void of nobility
Unnatural acquisition: for profit, usury is a sin; lending money without interest is a sin.
Sin is natural
In feudal society the economy was embedded in society, it was limited, it was local it was
Liberal ideology challenged these ideas.
Mercantilism is tth target that Adam smith is aiming at- he disliked it.
- In the 19 century it is under attack
- It wasn’t until mid-19 century that Adam smiths ideas can be seen as legit
- Labour markets were still heavily used
- Jobs were regulated by guilds
- Economic activity was dictated under the alliance- all about enriching the centre
- There is a debate: who should government be aligned with
- The Wealth of Nations:
- Adam smith advocates a market society as the best way to maximize the wealth of
nations while at the same time limiting the cohersive power of society.
- Governments should not intervene in the market place
- Businesses should be permitted to fail
- Responsibility of governments to create and economic frame work
- Result: Society of perfect economic ( laissez faire)
a) Incomes: must be a relatively equal distribution of income among society
b) Labour: must be free, it is mobile
c) Investment: the economy will always return to equilibrium if the investment cycle is self-
d) Competition: must be a significant amount of this in an economy. A free market economy
must have this or else it will not function. Must be sure there is free and fair competition
= Laissez Faire
Business Cycle GDP: C+INVESTMENT+GOVERNMENT SPENDING+(EXPORTS-IMPORTS)=
Supply: most important in terms of De