Economists are widely respected around in the society as they are believed to speak about certain vital issues with regard to economy, growth, employment and development which all have a scientific base. But still this widely accepted and valued knowledge and wisdom was based on a highly uncertain philosophy. It responded only to a certain class’ reaction to the uprising modern market mechanism. Classical economics is an economics whose commitment has always been to serve to the interest of a “specific” class. Yet we see that classical economics, which exhibits biasness, has been universalised as a scientifically proved path and it has been commonly agreed to be valid for all sections of the society in each and every situation that would guarantee progress for everyone.
The main difference of the classical and neoclassical economic theory can be seen from the concept of utility. In classical economics, utility is not a study of the various theories that brought him both in terms of value, labor or growth. In classical theory, the value of the equilibrium that was the benchmark price compared to the values of supply and demand (supply and demand). While in neoclassical, value needs a top priority in addition to the value of the equilibrium that is also used in the control of supply and demand (Button, 2014). In terms of value (value), classical and neoclassical economics have a very different definition.
Classical and Keynesian economic theories translate directly into American politics and fiscal public policy. There are stark contrasts with the Republican’s belief in the classical economic theory and the Democrat’s position to implement fiscal spending based on the Keynesian approach to economic stimulation. This is evident in the presidencies of Ronald Reagan and Barack Obama. The Keynesian approach to influence economic growth has left our country severely in debt without a sound fiscal vision to pay down the national debt to an acceptable level. Both economic theories have their advantages when the economic markets are struggling, finding a balance to debt management and economic soundness is the key to any nation’s economic policy.
Main arguments involve the theory fails in providing sufficient account of its dynamic properties such as ‘internal relations’ between policy makers and the agents (entrepreneur). Their main concern is, Keynes could elaborate in his theory which ways the group of agents that participate in trade will be able to integrate with the policy makers of host country so as to ensure maintenances of his ideas of effective demand in the economy (Jespersen and Madsen 2012: 50). After criticism of Keynes’s theory there exists another group successors of Keynes identified as Keynesians and post-Keynesians. Each group has its own way of analysing trade and its impact on current account of the country. Keynesians who are also known as neoclassical synthesis develop their theory which considers some of ideas from the general theory.
In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves randomly, affecting production, employment, and inflation. Keynesian economics served as the standard economic model in the developed nations during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973). Keynesian General Theory of Employment, Interest and Money During the Great Depression, unemployment soared to 25% in the USA and Germany. Economics had no advice to give to leaders anxious to do something, and none of the neoclassical predictions were coming true. The government of the UK commissioned J.M.
Classical economics emphasises the fact free markets lead to an efficient outcome and are self-regulating. In macroeconomics, classical economics assumes the long run aggregate supply curve is inelastic; therefore any deviation from full employment will only be temporary. The Classical model stresses the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation. Keynesians argue that the economy can be below full capacity for a considerable time due to imperfect markets. Keynesians place a greater role for expansionary fiscal policy (government intervention) to overcome recession.
Neoclassical Theory provides the intellectual basis for neoliberal regional policy. As it was mentioned before, overtime the unevenness that neoclassical theory will eventually disappear, therefore the government will not do anything about the spatial inequality. If the government has to intervene, the measure that is needed for the market to do is to improve the functioning of factor markets, for example, by improving workers knowledge of employment opportunities in other regions. The second theory of Uneven Development is The Disequilibrium Theory. This theory is associated with the Swedish Economist, Gunnar Myrdal who argued that economic change is most likely to be characterised by positive feedback effects rather than negative feedback.
Tata institute of social science, Hyderabad Assignment of Theory of development Name Vishal B Gaikwad Programme MA in Development Studies Roll no H2014DS023 Course title Theory of Development Q.1. Classical economics, which claims universality and progress for everyone, is a class biased from the start. Reflect on this statement. Introduction: -The period of 1776 to 1848 is considered as an era of Classical economics in which free market was the central of the every aspect of developmental theories which was influenced by then political and economic circumstances, moreover the period also characterized of new developmental theories in which private player has been regarded as an important driver of development. The dominant luminaries of classical economics are Adam Smith regarded as father of modern economics, then Jeremy Bentham, David Ricardo and others.
1 Introduction About 400 year b.c.e., Greek historian and philosopher Xenophon was first to use in his writings the word economy (oeconomicus) – which in translation means managing the household. Despite the name, economic ideas were and remained an integral part of the entire society. From antique to Greece today, the economy, as a social science, traded, developed and shaped under the influence of current of occurrences, changes and needs of the people. Keynes’s theory represented the biggest inspiration to European States and economic theoretics in the period between 1941 and 1976. In this period the macroeconomics has become a special scientific and teaching discipline.
Saad-Filho and Johnston (2005 cited in Thorsen and Lie) believed that neoliberalism has been dominating and shaping the world today. Thorsen and Lie, on the one hand, stated that it is a new paradigm for economic theory and policy-making. Many scholars have stated in their studies that the core foundation of this ideology goes back to Adam Smith and his work “The Wealth of Nations”. In support to this, Clarke (2005) stated in his paper that Smith’s main argument in laying the foundation of neoliberalism was that, “free exchange was a transaction from which both parties necessarily benefited, since nobody would voluntarily engage in an exchange from which they would emerge worse off.”, and added that as market expands which allows increasing