Free Management or State Intervention?
Pictured here is Adam Smith, the father of modern economics
As a social science, economics has experienced many academic revolutions and conclusions. Regarding the reform and development of economics, the history of economic thought or the history of economic theory is set up in the undergraduate course to introduce and summarize it. If you copy the university textbooks in full, it will be too long and reduce the readability. Therefore, in this article, the author chooses the debate between free management and state intervention as a perspective to sort out the development context of economics, and interspersed introduces the three revolutions and three integrations in the history of economics.
In the development history of economics, the liberal management group and the state-interventionist group led the way. Both sides occupied the mainstream of economics for some time, and then they were challenged by latecomers. Today, microeconomics based on mathematical analysis has matured, but in macroeconomics, the dispute between free management and state intervention has not yet come to an end. The first confrontation between the two sides took place before economics officially emerged as a discipline.
Classical Revolution and the first synthesis
Mercantilism is an early doctrine of economics, which can be divided into early and late. The representative of early mercantilism is William Stafford, while the representatives of late mercantilism are Compeer of France and British Thomas Men. Mercantilism belongs to the faction of state intervention in free operation and state intervention. It advocates requiring the government to actively intervene in the economy to ensure that currency does not flow out of the country.
Mercantilism has a positive significance for the development of productivity in the early stage of its appearance, and it has effectively promoted the development of manufacturing. However, in the later period of mercantilism, due to its trade protectionism claims, free trade became impossible to realise, and economic development was hindered. (For how free trade can promote economic development, please refer to the theory of comparative advantage)
French classical school of political economy
French classical school of political economy in the 18th century made physio rats, founders of the Bouillabaisse by Ques nay spread Monism, in the hands of Monism reached completion status. Its policy propositions against mercantilism suggested that agriculture and handicraft industries should be vigorously developed. In terms of classification, the Physiography should be classified as a free-run school.
British Classical Political Economy and French Classical Political Economy are collectively called Classical Political Economy, and they also belong to the free management school in terms of classification. The academic circles generally believe that the originator of British classical political economy is the political economist William Petty, who has developed greatly in the hands of Adam Smith and finally reached its peak in the hands of David Ricardo.
Adam Smith’s "Study on the Nature and Causes of National Wealth" ("The Wealth of Nations") represents the emergence of economics as a formal science, and Smith’s discussion of free management in "The Wealth of Nations" is Recognised by most people at that time. The first of the three revolutions in the history of economics, the "classical revolution”, was the liberal management represented by Adam Smith, which overthrew the dominance of the state interventionist represented by mercantilism in economics tuition in Singapore.
The first confrontation between the state-interventionist and the liberal management ended with the victory of the liberal management, and the period from the classical revolution to before the Keynesian revolution was called the "classical era", and the liberal management started its field of economics. 160 years of rule (from the publication of "The Wealth of Nations" in 1776 to the publication of "General Theory of Employment, Interest, and Currency" in 1936).
Smith and Ricardo in terms of value theory are supported by the labor theory of value, while the Marxist foundation is also inherited from Smith and Ricardo's labor theory of value, so Marxism is also seen as the successor to David Ricardo. After Smith, Ricardo pushed the British classical political economy to a peak. Ricardo's book "Political Economics and Taxation Principles" elaborated on his theoretical system. The classical economists after Ricardo gave up the labor theory of value and were therefore criticized by Marx as a vulgar political economy.
The economist John Mueller wrote "Principles of Political Economy" (1848) during this period, marking the first synthesis of economics. As a textbook of economics, "Principles of Political Economy" focused on classical schools, and The theory of mercantilism was widely used at the time.
Marginal Revolution, Second Synthesis and the Great Depression
According to the different choices of value theory, the classical school can be divided into two different stages, namely the classical political economy stage and the vulgar political economy stage. During the period from the "Classical Revolution" to Marshall, mainstream economists were all supporters of free management, but the Swedish School always adhered to the theory of state intervention during this period. During this period, many important events occurred, and the most important of these was the "marginal revolution. "
Unlike the "classical revolution", the "marginal revolution" is not a replacement between free management and state intervention, but a revolution in economic research tools. The British economist Jevons, the French Economist Walrus, and the Austrian Economist Manager almost simultaneously proposed marginal analysis methods, which closely linked economics and mathematics. The revolution in research methods has brought economics and mathematics into contact, avoiding the fact that most economists' theories can only stay in words without mathematical foundations, and at the same time provide powerful tools for economic research. Before this, most economists' arguments for economic theories only remained at examples and verbal expositions, as was the case with Adam Smith in The Wealth of Nations.
Marshall is a link between the previous and the next
He inherited the classical doctrine and developed it at the same time. Marshall’s "Principles of Economics" is the second synthesis in the history of economics. It focuses on the theory of classicism and develops the theory of the classical school. Therefore, we believe that Marshall belongs to neoclassicism.
Another important theory of the classical school in this period is Say's Law, its core content is: supply can automatically create demand, which means that total demand and total supply are always equal. Before the Great Depression of 1929, although there were many economic crises, these crises were partial or temporary, so the classical school was able to justify itself. However, the Great Depression that occurred in 1929 posed a major challenge to the doctrines of the classical school: The Great Depression lasted for four years from its outbreak in 1929 to its end in 1933, and its spread was also the entire capitalist world. The prolonged and wide-ranging economic crisis has made it difficult for classical economists to justify that liberal management has been challenged like never before, that is Keynesian ism.
The Keynesian Revolution, Stagflation and the Third Synthesis
British economist Keynes, in his book "General Theory of Employment, Interest, and Currency" ("General Theory"), proposed that the cause of the Great Depression was insufficient effective demand, and pointed out the necessity of state intervention to stimulate demand. In the "General Theory", Keynes put forward three psychological laws to explain the reasons for the lack of effective demand, and made a very practical explanation of the Great Depression. In terms of policy propositions, Keynes proposed that the country should use demand management policies to stimulate effective demand and promote economic recovery. For a time, Keynesian ism was in the limelight. From the end of World War II to the early 1970s, Keynesian ism occupied a dominant position in economics. But this does not mean the complete disappearance of free management. The Austrian School and Chicago School represented by Hayek have always adhered to the view of free management.
The good times did not last long, and Keynesian ism also suffered huge doubts in the 1970s because of the emergence of "stagflation”. "Stagflation" refers to the phenomenon of economic stagnation and high unemployment and inflation. According to Keynes's theory, unemployment and inflation are substitutes for each other, and inflation must be accompanied by economic growth. The emergence of "stagflation" is inexplicable by Keynesian ism, which also brought the monetarist and rational expectations school of the liberal management school onto the stage of economics.
The representative of monetarism is the American economist Friedman. The main contribution of monetarism lies in its explanation of stagflation. The representative of the rational expectations school is the American economist Robert Lucas Jr. The rational expectations school is a triage of monetarists, and its main contribution is to explain why rational expectations make fiscal and monetary policies invalid.
The third synthesis of economics was carried out by the American economist Paul Samuelson. His "Economics" summarizes the current mainstream economic theories and is the most commonly used economics tuition. One of the textbooks exists. In the history of economic thought, Samuelson himself is considered to be the representative of the neoclassical synthesis school, which inherited most of the theoretical framework of neoclassicism and made certain amendments. In terms of classification, the neo-classical comprehensive school should be classified as a state intervention school.
At this point, economics has entered the modern era, and the author's combing of the development context of economics will end here.
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