Classical School Of Thought And The Great Depression

Classical school of thought dates back to the Enlightenment movement and the Industrial Revolution during the eighteenth century, where secularization started to happen resulting in changes on the way of thinking and analyzing daily life. Adam Smith, also known as the father of economics, wrote An Enquiry into the causes of the Wealth of the Nations in 1776, where he discusses how the wealth of a nation is measured (by GDP), division of labor and lastly, introduces the invisible hand that controls the market. Amongst other economists of the classical school of thought are David Ricardo and Thomas Malthus between others. Two centuries later, the Great Depression occurred in the 1930’s. The U.S.A. was going through great times of prosperity in the 1920’s, whereas the U.K. was suffering from a recession since the First World War had ended (Davidson, 2009). It was not until 1929 when New York suffered a stock market crash, after that, everything started to get worse, unempl oyment rose from â€Å"3.2% in 1939 to 24.9 in 1933† (Davidson, 2009, p. 20). As Hollander (1992) stated, a theory becomes irrelevant when it cannot explain current issues within the economy; therefore the classical school of thought was not valid anymore in Keynes view. John Maynard Keynes is the author of The General Theory of Employment, Interest and Money. Furthermore, The General Theory is the result of the Great Depression, where the unemployment rate was high and businesses were not prosperous (Krugman,Show MoreRelatedThe Classical School And The Neoclassic1702 Words   |  7 PagesToday s Economy as it relates to Classical and Neoclassical Thought Economic thoughts and theories are constantly evolving. One reason being is the growth and evolution of humans and systems. This constant change often brings about greater economics challenges. Thus, we can strongly contend to the fact that the state of today’s economic isn’t as found in the 18th or 19th and so on. Moreover, economic theorists presented with these robust economic challenges often time build up on each other. ThatRead MoreClassical Vs Keynesian Economics1235 Words   |  5 PagesClassical and Keynesian economics are both accepted schools of thought in economics, but each had a different approach to defining economics. The Classical economic theory was developed by Adam Smith while Keynesian theory was developed by John Maynard Keynes. Similarities: One of the most surprising similarities between the two theories is that John Keynes developed his theory based on the Adam Smith’s theory. Keynes did not entirely disagree with Adam Smith but rather, expanded the theory basedRead MoreEssay on John Maynard Keynes Versus Friederich A. Hayek603 Words   |  3 Pagesgained a reputation during the Great Depression in the 1930s, focused mainly on an economys bust. It is where the economy declines and finally bottoms-out, that Keynesian economics believes the answers lie for its eventual recovery. On the other hand, Hayek believed that in studying the boom answers would be provided to lead the economy out of the bust that was sure to follow. Hayek backed the Austrian school of economics. John Maynard Keynes fostered a school of thought that came to be known afterRead MoreA Career Essay : The Career Of My Dream1111 Words   |  5 Pageshigh school, I did not have a single idea. I knew that I wanted to do something with music, but the question was: what kind of musician do I want to be? Because there truly is not a path relating to music that is better than another. When you think about it, the are all dead-ends. Classical musicians, jazz musicians†¦ there aren’t any benefits to either, but they both have their fair share of problems. Show me a musician whose success outweighed their stress and struggles. When I thought aboutRead MoreThe Economic Schools Of Thought1445 Words   |  6 PagesFreshwater Economics Macroeconomic schools of thought would be prudent to accept certain aspects of the views of other schools of thought to better understand the scope of economic efficiency through the use of various models aimed at understanding the implications that all actions affect outcome. Like other economic schools of thought, Freshwater developed from previous schools of thought as new macroeconomic ideas were discussed and disputed. Neoclassical synthesis was a postwar movementRead MoreThe Impact Of Classical Economics On The United States1052 Words   |  5 Pagestheorists who believe they can solve the great divide. No one ever plans for a recession to last more than a few months, let alone watch the economy crumble into a deep depression. How can this happen, when the economy is supposed to be able to self-correct itself as one theory suggests? Moreover, when self-correction does not triumph, does a new theory take effect to explain this conundrum? This week’s readings have introduced the concept of how classical economics have been taught since 1817,Read MoreJohn Maynard Keynes Transformed Economics In The 20Th Century1507 Words   |  7 Pageslaissez faire attitude of the classical thinkers, and argued for greater government intervention due to his belief that the focus should be on demand side macroeconomics rather than supply side. This belief transpired because of the Wall Street Crash of 1929 and the subsequent depression that highlighted the shortcomings of the traditional theories, especially in regards to employment that remained excessively high for a prolonged period. The Keynesian school of thought became the mainstream economicRead MoreKayne vs Hayek1370 Words   |  6 Pagesof economics are Classical Economics and Keynesian Economics. Classical economists believe that markets function very well, will quickly react to any changes in equilibrium and that a â€Å"laissez faire† government policy works best. Keynesian economists believe that markets react very slowly to changes in equilibrium (especial to changes in prices) and that active government intervention is sometimes the best method to get the economy back into equilibrium. It may sound like classical economy speaks forRead MoreThe Theory Of The Classical School1694 Words   |  7 Pages The classical school is one of the economic thoughts; the key assumption of this school is that the market system is the most efficient system in the sense that the unencumbered market mechanism ensures the optimal allocation and utilisation of scarce resources. They also believed that â€Å"Supply creates its own demand.† (The early debate on policy atavism) In other words, in the process of producing output, businesses would also create enough income to ensure that all of the output will be sold.Read MoreClassical Economics And Keynesian Economics1124 Words   |  5 PagesMy research of Classical Economics and Keynesian Economics has given me the opportunity to form an opinion on this greatly debated topic in economics. After researching this topic in great lengths, I have determined the Keynesian Economics far exceeds greatness for America compared to that of Classical Economics. I will begin my paper by first addressing my understanding of both economic theories, I will t hen compare and contrast both theories, and end my paper with my opinions on why I believe Keynesian