Maybe, humans' behaviors and mental states are one of the most unpredictable things in the world like Japan's earthquakes. Economics is the subject that predicts human's behaviors and choices and makes the theory useful in society. But, human's choice is so unpredictable that usual economists can't give sure answer. So, some people scorn economists always blow hot and cold. However, the great economists are different. They made sure their own answers and apply it in society. They contributed to the progress of society.
There are many great economists such as Alfred Marshall who invented supply-demand curve, Marx who is the start of the biggest experiment in human's history, Milton Friedman who founded the currency principle and etc. However, two great economists are most impressive to me, Adam Smith and Kenyes.
First, Adam smith, who is called the father of economics, is the most famous economists. Economics that we can call economics started from his book, “ the wealth of nations.” Adam Smith lived in the age of revolution that scientists tried to escape from Church’s rules. Rather than following Bible, they try to explain natural events with rational explanations. Adam Smith was influenced by it and he focused on people.
Many people know him as the economist, but he was the philosopher. He considered “The theory of Moral Sentiments.” which contains Smith’s observation of the ethical behavior as the greatest book of his. He searched for the origin of moral approval and disapproval. He contrived the concept of the imaginary observer’s advice which can control human’s behavior. It is related with Freud’s concept of “super-ego.” Anyway, Adam Smith emphasize this feeling, sympathy in the entire book. Therefore he can be free from the critic’s critique that economists ignore human’s noble side.
He was influenced by many people. Skepticism of David Hume, who Adam smith really admired, Francis Hutcheson’s declarations and Physiocrats’ ideas have an impact on Adam Smith. Adam Smith met physiocrats during the time of the tutor of the son of the Duke of Buccleuch. Physiocrats argued wealth comes from production not the amount of own gold and only agriculture can produce wealth. Adam Smith agree with the method of measuring nation’s wealth but disagree with the origin of wealth.
Finally, in March 1776, econimics started, “the wealth of nations” was published. The purpose of this book is uncovering the method to achieve wealth. Adam Smith found a “ desire of bettering our condition” and wrote in the book. According to the book, because of this desire or the self- interest, people work and contribute to the progress of the society unintentionally. He argued that “the invisible hand” control the market harmoniously. The price decided by demand and it bring profits to both producers and consumers. Because of the free market is complete, government’s role is just national defense or public security. This theory is the main contents of “the wealth of nations” and the base of the classical economics.
Not only he explained how the invisible hand control the market, but also he suggested the method to increase the wealth of nations. It is division of labor. Adam Smith proclaimed three advantages of division of labor. First, each worker could be more adroit. Second, workers could save their time. Third, specialized worker would invent machinery that makes work more convenient. He said it leads progress in productivity and augmenting nation’s wealth. He also warned division of labor differentiate the wage of workers. However, he justified it by giving some grounds like difference in work environment or training.
Adam Smith asserted division of labor should be used in not only factories, but also towns and countries. Between countries, there would be a difference in price of the certain goods. If one country can produce the goods more cheaper, it has an absolute advantage. Adam Smith claimed countries should trade according to absolute advantages.
Adam Smith criticized the theory of infant industry protection. According to him, this policy just make the industries dextrous at crying like babies to appetite themselves. It would lose competitiveness of the industry which lead the loss of the wealth of nation. And his critique and claim is still available today. Ronald Reagon’s government followed Adam Smith’s theory and succeed. This example show that how Adam Smith is a great economists.
The second economist is Keynes, who is the most influential economist in 20th centuries. Keynesians who strongly follow Kenyes’ idea believe to basic proposition. One is the fact that the private economy can’t accomplish full employment, the other is the role of government to spur the economy actively.
Kenyes was born in a Puritanical Victorian home. In Eton school, he got numerous mathematics award and entered into Cambridge. In Cambridge, he joined in the Apostles and enjoyed intellectual exchange. He was very smart, but he didn’t only floating in Academy. He also enjoyed many cultural activities like Opera or Musical. He first studied economics by reading Marshall’s Principles of Econimics. Later, he studied Economics by Marshall for 8 weeks. At the first time, Kenyes also followed classical or Marshall’s idea but after studying more and more, he change his economical sight.
Kenyes is famous for the savior of the great depression. Great depression is one of the worst period in 20th centuries. The rate of unemployment augmented from 3% to 25% and national incomes became the half than before. Furthermore, all the people were psychological daunted. Many economists analyzed causes of the great depression. Most reasonable reason is the series of absurd actions. At the end of the 1920s, investment opportunities dried up and people started to deposit and repay loans. Then nations started protectionism, and FRB execute tighter policy absurdly. These factors lead the great depression.
Kenyes criticized old men of treasury. They believe Say’s law which claims that production give enough incomes to buy all goods to consumers so there are no gluts. As a result, market would recover soon even though there’s some recessions. Because old officials of treasury believed Say’s law strongly, they didn’t do anything to resolve the depression. Kenyes criticized it and classical’s economist’s proposition. First classicists said that increasing saving means decreasing interest rate and it leads investment. Kenyes pointed out saving is directly related with investment because there are too many things affect investor’s decision. Second, according to classicists, recession causes decreasing wages of workers, so companies would reemploy them. However, Kenyes criticized it with difference between real wages and nominal wages.
Not only he criticized previous economists and incapable officials, but also he suggested the solution of the great depression. Kenyes invented the concept of the marginal propensity to consume(MPC), marginal propensity to save(MPS), and multiplier. Multiplier is the key to boost economy. 100$ can value 300$ . Multiplier is the concept that once consumption lead more and more consumption. Then, Keynes said saving interrupt the multiplier. Therefore, someone should spur the consumption not saving and Kenyes pointed the government. He claimed government’s vital roles in market. It should spur consumption by many methods like huge public engineering works. He advised it to Roosevelt and Roosevelt started New deal policy and it succeeded.
Kenyes’ theory had been useful until 1960s. However, Since 1970s, Keynes’ idea didn’t work well. Many people think Keynes’ theory is just old. But, still Keynes’ theory is reasonable because he also predicted future will be so complex that we can not predict it.
