Keynes's rivals.. (1 Viewer)

[BackCountrySnow]

Where can i read about other schools of thoughts?
I know there's the austrian, orthodox and others but I'm not sure what they're on about.


edit:Also, who was the economist who said that the economy functions best when everyone acts to benefit themselves only. Or something like that.

 

[gnrlies]

Where can i read about other schools of thoughts?
I know there's the austrian, orthodox and others but I'm not sure what they're on about.


edit:Also, who was the economist who said that the economy functions best when everyone acts to benefit themselves only. Or something like that.

Well I suppose this depends on what you mean....

I would argue that keynes if he were alive today wouldn't be a keynesian.... Probably in the same way as I dont think that Marx would be a communist.

The Austrian school essentially advocates for the free market. They argue for limited government (other than for a few things like defining property rights) etc. They are purists and dont tend to compromise too readily on their way of thinking. Subsequently they inspire a lot of libertarians etc. Friederich von Hayek is the key guy to read up about but others include Ludwig von Mises etc. These guys are often refered to as classical liberals. If you want to read up more about them, check out www.cis.org.au The CIS is a large Australian think tank dedicated to classical liberalism. If you are super keen go and read the road to serfdom by Hayek (probably the most famous of his books but not necessarily considered his best).

A similar school is the Chicago School whose figurehead was Milton Friedman. Milton Friedman is the most influential economist of the last 40 years and is notable for inpiring Margaret Thatcher and Ronald Reagan to implement many free market reforms throughout the 80's. The Chicago school is also fairly free market based, but not as pure as the Austrian school. For example a key theory that came out of the chicago school was monetarism (that involves growing the money supply at a rate equal to the growth in goods and services). Monetarism is a free market theory in the sense that it is a non interventionist form of monetary policy (i.e. not aimed at stimulating economic growth) however the Austrian school would argue that having a central bank that issues currency is an example of the government overstepping their duties. Whilst monetarism is now a defunct concept (mainly because the velocity of money changes and it is too hard to achieve in practice) many of the concepts remain today. For example pursuing a low inflationary monetary policy is a consequence of Friedmans long run phillips curve. Miltion Friedman was a very influential man. A great book to read is Free to Choose (if you are lazy it is available as a television series but it was filmed in the early 1980's so its getting a bit old now). Here Milton Friedman provides an eloquent arguement for free market policies.

In england the main debates tend to go between the London School of Economics and Cambridge although neither tend to be refered to as a 'school of thought'. Cambridge tends to be the defender of keynes (as he came from cambridge) however in modern times keynesian theory has been provided with more context and it is less ideological than it may have been in the past. LSE is more in the vein of the Austrian and Chicago schools. Afterall Hayek was an academic there for a period (before going to chicago funnily enough).

That sort of ends the story of schools when it comes to influential modern day schools, but going throughout history there have been many different schools. Prior to Adam Smith there was the mercantalists in england who advocated against free trade and the pysiocrats in France. There was the marginal revolution (JS. Mill) etc but these are more kind of periods reflecting the evolution of economics rather than schools.

As for your edit:

Adam Smith was the man who said that.

Basically his statement was that the only way you can make yourself better off, is by making someone else better off.

Refering to the fact that if you want something, you need to do something for someone else in order to earn an income to buy what you want.

 

[BackCountrySnow]

Thanks gnrlies.
Your knowledge in economics is truely remarkable.

So the keynesian school believes in a lot of gov't intervention?
as oppossed to the austrian and chicago school which believes inmarket forces determining outcomes.

 

[gnrlies]

Thanks gnrlies.
Your knowledge in economics is truely remarkable.

So the keynesian school believes in a lot of gov't intervention?
as oppossed to the austrian and chicago school which believes inmarket forces determining outcomes.

Well no....

People who would call themselves keynesians may be a little more soft when it comes to government intervention, but being a keynesian doesn't mean you are an interventionist.

Essentially the key impact that keynes had was that he changed the way economists think about economics. Prior to Keynes economics was always thought about in the long run. Keynes changed this to provide a greater focus on the short run (one of his famous quotes is 'in the long run we are all dead'). In particular he challenged a basic tenet of economics - that markets will clear (all that is produced will be sold). Applying a short run approach he suggested that producers will decide to produce a certain amount of goods and services and have to pay incomes for those involved in the production line. Theoretically those people who are paid incomes will go and buy those goods and services. This is what traditional long run based (classical) economic theory would have suggested. Keynes said that it would be possible that not all goods and services would be purchased. Therefore you have an unanticipated build up of stocks. This is an example where supply does not equal demand as previously claimed.

(i.e. for example imagine a car manufaturer produced 1000 cars and all those involved in production are paid an equivalent income (interest, profits, wages, rent) worth the value of those 1000 cars. Lets say those people who earn the profits only buy 900 cars. There is now an unanticipated build up of 100 cars).

Basically this is a case where equilibrium is not achieved. More specifically savings does not equal investment (I wont go into the theory, but essentially in this case savings exceeds planned investment). I suppose the key difference between a keynesian and someone who would call themeslves a follower of the Austrian school is that keynesians think in the short run whereas the austrian school and chicago school tend to be more long run focussed.

Most keynesians will believe the government plays a role in stimulating economic (through the multiplier which you will have studied). They believe that governments can help an economy achieve equilibrium in the short run. this is in direct contradition to austrian and chicago beliefs but other than that, keynesians dont necessarily believe in regulation or other types of interference. Unfortunately however, much of keynes work has been abused. Keynes wrote specifically in a period of a sever economic glut (the great depression). He wrote in context to solving an economic problem, with the solution of increased government spending. A lot of politicians at the time latched onto this. Not only was there now a theory to increase government spending, but there was an arguement to do it without increasing taxes (i.e. borrowed funds instead). As you can imagine this was every politicians dream. Subsequently government spending has gotten way out of control ever since. Keynes died before he saw the irresponsible acts commited in his name. Its unfortunate he wasn't around to tell them otherwise. His last paper actually criticised the approach of governments in spending too much.

 

[BackCountrySnow]

Is this the quote by adam smith?

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."


i remember it being mentioned in 'a beautiful mind'. When the guys wanted to pick up girls.

But i dont remember it being anything like that.

 

[gnrlies]

Is this the quote by adam smith?

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."


i remember it being mentioned in 'a beautiful mind'. When the guys wanted to pick up girls.

But i dont remember it being anything like that.

There are many times within the wealth of nations where he says something like this. Another more succinct quote:

"By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it"

 

[BackCountrySnow]

how do these schools of thought (keynesian, Austrian and Chicago) differ in their theories on economic growth?

Is Austrian more supply side whereas keynesian is more demand focussed?

 

[gnrlies]

well it comes down to the short run / long run distinction that you draw.

Keynesians are more concerned with output stabalisation which evens out the rate of economic growth which is a demand side thing.

But economic growth is a long run thing. So a keynesians explanation for economic growth need not differ from a supply side perspective.

The Solow / Swan model (trevor swan was an Australian) is a growth model that includes the impact of technology and capital accumulation as a driver of growth. This is a neo-classical model.