For our first assignment, we are tasked with comparing andcontrasting the viewpoints and theories of Milton Friedman, John MaynardKeynes, Friedrich Hayek, and Adam Smith on their views on economic theory. Thesescholars laid the groundwork for modern thinking and understanding about allthings in the economy from debt/credit, government intervention, and production.Adam Smith, considered the “founder of modern economic theory”, helped developthe work for which Friedman, Keynes, and Hayek developed their own theoriesupon.
The first on the list is John Maynard Keynes, who is thefather of his own economic principles called “Keynesian Economics”. KeynesianEconomics is an economic theory that is centered upon total spending in theeconomy and its effects on output and inflation (Investopedia). Keynes believedthat if an economy’s total investment exceeded its total savings, it will resultin inflation. On the reverse side, if its total savings are higher than its totalinvestment, it will result in a recession. This was the underlying principle ofKeynes philosophies that an increase in spending would result in a lowering ofunemployment and help economic recovery.
Keynes also believed that demandactually drove production and not supply, as during his time, the flip side wasactually believed. Keynes also believed in heavy government intervention duringtimes of crisis and recession, as he thought that they best way for the economyto thrive was for the government to borrow large sums of money and increasedemand in the markets so that people would have more capitol to spend with (thewallstreetpsychologist).Milton Friedman, on the other hand, completely opposed Keynesand his Keynesian economics. He strongly went against many of the policies putforth by the Keynesian thinkers, arguing for deregulation across most areas ofthe economy and free market economical practices.
He challenged the ideas ofdeficit spending and said that only discoordination and inflation could resultfrom expansionary fiscal and monetary policy (Investopedia). He also argued forfree trade, smaller government and a steady increase of the money supply in theeconomy. His ideals and theories on monetary policy and the quantity theory ofmoney became known as monetarism. “In his seminal work, “Capitalism andFreedom,” he called for floating exchange rates, a voluntary military, negativeincome tax, education vouchers, and abolition of medical licenses” (thewallstreetpsychologist).