Chris Klene December 12, 2011 AP MicroeconomicsMs.

McCorkle Adam Smith Often considered the founder of modern economics, the Englishman Adam Smith (1723-1790) published the first complete work on political economy, An Inquiry into the Nature and Causes of the Wealth of Nations (commonly abbreviated as The Wealth of Nations), in 1776, during the beginning of the Industrial Revolution. Smith is not remembered for original work, but instead his ability to synthesize all of the ideas into one book, because many of the ideas appearing in The Wealth of Nations were taken from other authors, including Locke and Hume. The revolutionary book expounded the merits of laissez faire, which literally translates as "let [it] function and the invisible hand of the market in a time when mercantilism, the policy in which wealth was measured by a countrys accumulation of gold and silver, dominated political philosophy. Two basic principles explained why a market was able to function without government regulation: 1) People will act in their own self-interest and 2) competition between people acting for themselves benefits society. In order to buy objects that they desire, people need to work to make money, and the more money they make from working, the more wants that they can satisfy. Another important point that Smith makes is that it is much more efficient for workers to specialize in a specific task rather than try to do multiple things. This revelation allowed factories, which were abundant during this time, to generate more profit without paying the salaries of many employees, and is still used today. Many of Smiths ideas were not brought into prominence until later. The government of England continued to control almost all sectors of the economy until the nineteenth century when

mercantilism was abolished, allowing the country to become the most prosperous in the world. Eventually capitalism spread throughout the world after the practice of colonization was eliminated. It also replaced Communism in the 20th century as more counties were liberated form totalitarianism. Although no country today has a completely capitalistic market, most have a mixed economy, in which the ideas of Smith are incorporated with government regulations and the socialized services. Governments have learned that pure free-trade markets are not always fair. For example, there is the incentive for large corporations to produce the cheapest goods at possible, which can lead to the exploitation of poorly-paid labor and the use of dangerous materials. Also, people who choose to pursue lower-income careers, such as laborers or social workers, can be at a loss when it comes to purchasing the items necessary for comfortable living, or even survival. To prevent this from happening, it is essential to have some regulations in place, as well as public goods and services. Karl Marx In The Communist Manifesto, published in 1848, the economic and political thinker Karl Marx (1818-1883) pointed out the flaws of capitalism and predicted its downfall. He had witnessed how industrial workers, known as the proletariat, who were forced to work extra hours without compensation because of a fear that they would be fired if they did not. This is a classic example of class exploitation, where capitalists steal labor. Inevitably the proletariat would revolt against the wealthier professionals, called the bourgeoisie, and establish a classless, communal society controlled by the workers. The most significant consequence of Marxs writings, however, was the inspiration of several political leaders of the 20th century and the creation of political dichotomy. Vladimir Lenin was the first to attempt to put the Marxs ideas into effect. He believed that capitalism had escaped the 19th century because industrialized countries had exploited the people of their colonized countries in a practice known as imperialism. Rather than use the indigenous people to

revolt, he believed that a centralized, highly-disciplined group of professional revolutionaries would be better. In 1917, the Bolshevik Party took advantage of a weak provisional government and seized the government of Russia. The Communist Bolsheviks took continued to take more power in the country and to instate their increasingly harsh rule. When Lenin died in 1924, an even more brutal dictator by the name of Joseph Stalin came to rule. During World War II, Communism began to spread to Eastern Europe, as well as Asia and the Pacific, which eventually led to the Cold War. Capitalism has not collapsed like he predicted, but the influence of Marxs writings can be seen across the world. Today, Cuba, China, Vietnam, North Korea, and Laos are self-declared Communist states, while many other countries, including those in Africa, Asia, South America, and Europe, practice socialism, which, according to Marx, is the stage following capitalism in the transition of a society to Communism. One reason why capitalist economies still exist could be that Marx failed to consider that working conditions would improve over time. Since his time, the majority of countries have adopted laws to protect the rights of workers, including injury compensation, bargaining rights, and social security. In addition, measures have been taken to prevent monopolies and ensure that trade is not completely unregulated. John Maynard Keynes The radical English economist John Maynard Keynes (1883-1946) made many contributions to the field of economics, but his most significant appeared in his General Theory of Employment, Interest, and Money, published in 1936. In the book, Keynes argued that a country in a depression left untreated will remain in a depressionsome action must be taken to successfully pull it out. The action that he vehemently advocated was cutting taxes and spending or investing instead of saving, which would result in a government deficit and would contradict the basic principles of lassez faire. According to Keynes, hoarded money has no use because it cannot be used for transactions within the market. In an

economy where savings flow directly to the market, more goods can be produced and, which means more jobs are available. During the time of the books publication, the world was suffering from the worst financial crisis it had ever experienced, so it was especially relevant. Keynes actually met with Franklin Roosevelt at the White House in 1934 to observe the policies of the government, which included the WPA (Works Progress Association), the Civilian Conservation Corps (CCC), the National Recovery Administration (NRA) Agricultural Adjustment Act (AAA), and the Federal Deposit Insurance Corporation (FDIC). By creating these, Roosevelt did try to employ Keynes theories, but all of these programs of the New Deal essentially failednot because the theories were incorrect, but because the United States simply did not have to money to pump into the private sector. World War II was what finally pulled the country out of the Great Depression. In todays current recession, hardly a day goes by where the phrase stimulate the economy is not mentioned by a politician or pundit. America is trying to pull itself out of the slump to avoid stagnation. Some of the actions taken by Congress and the Obama administration, such as the extension of the Bush tax cuts and the Cash for Clunkers program, originated with Keynesian economic philosophy, demonstrating that his ideas are still relevant today. Milton Friedman Milton Friedman (1912-2006), a lassez fair economist, is remembered because he challenged classical macroeconomics, a field dominated by Keynesian scholars, much like the people of his time were challenging the tenets of traditional society. While Keynes had believed that short-term changes in government spending to control the economy, Friedman urged a gradual, continuous increase in the money supply to promote economic growth. Although he spent much of his life working on price theorythe science of determining how goods and services are pricedhe was adamant about a number of other issues including a volunteer army, freely floating exchange rates, abolition of licensing

of doctors, a negative income tax, and education vouchers. At the pinnacle of his career, Friedman received the Nobel Prize for Economics. Friedman argued that unemployment rates and inflation could be traded off for one another. However, to combat unemployment, he argued that accelerating inflation was needed rather than a one-time increase. The stagflation (a combination of the words stagnation and inflation) of the 1970s supported his views, and gave a blow to Keynesian macroeconomics. Friedman suggested a negative income-tax for those with smaller incomes, and today we have a very similar program known as welfare. Families who do not make enough money to live receive monthly food stamps to ensure they have enough money to eat. Friedman opposed the draft that existed during the majority of his career because he believed that soldiers who actually wanted to be in the armed forces would be much more effective than those who were selected by chance and did not necessarily have the desire to serve. Now, all United States soldiers serve by choice and receive numerous benefits, such as health care, living stipends, and the GI Bill as incentives.

Works Cited Caldwell, Bruce J. "Friedman, Milton." Britannica Biographies. Student Research Center by EBSCOhost. Web. 11 Dec. 2011. <http://web.ebscohost.com/src/detail?sid=b3e9e1f0-fb6d-4738-8f6ebf644a6d3f3a%40sessionmgr104&vid=4&hid=108&bdata=JnNpdGU9c3JjLWxpdmU%3d#db=mih &AN=32410401>. "Milton Friedman." Concise Encyclopedia of Economics. Library of Economics and Liberty. Web. 11 Dec. 2011. <http://www.econlib.org/library/Enc/bios/Friedman.html>. Poulson, Barry W. "Keynes, John Maynard." World Book Student. World Book, 2011. Web. 12 Dec. 2011. Schneck, Stephen. "Marx, Karl." World Book Student. World Book, 2011. Web. 12 Dec. 2011. Serrano, Roberto. "Smith, Adam." World Book Student. World Book, 2011. Web. 12 Dec. 2011. Snodgrass, Mary Ellen. CliffsNotes on The Worldly Philosophers. 12 Dec 2011 <http://www.cliffsnotes.com/study_guide/literature/id-163.html>. Vontz, Thomas S. "Communism." World Book Student. World Book, 2011. Web. 12 Dec. 2011. Wright, Robert E. "Friedman, Milton." World Book Student. World Book, 2011. Web. 11 Dec. 2011.