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Three figures made significant contributions to the development of economic theory:
Adam Smith (1723-1790),
Karl Marx (1818-1883),
John Maynard Keynes (1883-1946).
Let us consider separately the approach of each of them.
Adam Smith’s theory
Adam Smith made an in-depth analysis of the world of business relations and came to the conclusion that each person in society acts in his own interest and can produce and buy the goods and services he needs. This mechanism of self-regulation Smith called the invisible hand of the market.
For example, a confectioner, a baker, or a furniture maker produces as many cakes, bread, or chairs as they see fit. And each customer buys as many cakes, bread or chairs as he or she needs. All this happens without consulting each other and without the permission of the state. The result is a free market economy in action.
On this conclusion Smith founded classical economics. The central idea of classical economics: the government’s attitude toward the market is based on the principles of justice and allows the invisible hand of the market to guide everyone in their economic aspirations, to create the greatest good for the greatest number of people and thereby stimulate economic growth.
Karl Marx’s Theory.
The German philosopher, economist, and political scientist Karl Marx looked at capitalism from a pessimistic perspective. With the free market, Marx saw instability, struggle, and decline.
Marx believed that when a capitalist (a man with money and organizational ability) creates the means of production, the value of goods is formed through the labor of oppressed workers.
In his work Capital, Marx stated that the capitalist profits through the exploitation of labor, without surcharging the labor force for the value it produces.
Marx saw the exploitation of labor as the foundation of the class struggle and the foundation of capitalism, but he also argued that exploitation could be the death of capitalism. The economist was convinced that division and struggle would intensify as businesses increased.
Marx was convinced that society would arrive at a two-class system with only a few rich capitalists and a huge number of destitute workers. In the future, according to Marx, capitalism would fall and society would begin to move smoothly toward communism. Under communism, workers would own the means of production and would not have to use their labor for profit.
John Keynes’s theory
During the Great Depression in the United States, millions of people lost their savings and their jobs, with unemployment rates reaching 25%. No one understood how the country could get out of the depression, many began to doubt Adam Smith’s invisible hand of the market and considered that time the end of capitalism.
John Keynes proposed a way out: the government should start spending money on the private sector to restore demand for goods and services. President Franklin Roosevelt tried to put this theory into practice and launched a massive public works program. At the same time, however, the U.S. entered World War II, which caused weapons production to rise to the highest levels, and the experiment ceased to be pure. Therefore, it is still impossible to unequivocally state what influenced the U.S. to emerge from the Great Depression, which lasted from 1929 to 1939.
