Adam Smith Theory and Keynesian Economics

>>1054524
anyone?

shameless self-bump, cause i'm in a mood to learn something today.

The three most important economists were Adam Smith, Karl Marx, and John Maynard Keynes.

Adam Smith and His Invisible Hand of Capitalism -
Deep examination of the world of business affairs led Smith to the conclusion that collectively the individuals in society, each acting in his or her own self-interest, manage to produce and purchase the goods and services that they as a society require. He called the mechanism by which this self-regulation occurs “the invisible hand,” in his groundbreaking book, The Wealth of Nations, published in 1776, the year of America's Declaration of Independence.

tl;dr - selfish pricks end up creating things that the whole society requires.

because, i guess, i have to do my own work. and i must.

kill yourself faggot

>>1054542
fuck off, let me have my thread, you worthless dyke.

>>1054539
Example -
the butcher, the baker, and the candlestick maker individually go about their business. Each produces the amount of meat, bread, and candlesticks he judges to be correct. Each buys the amount of meat, bread, and candlesticks that his household needs. And all of this happens without their consulting one another or without all the king's men telling them how much to produce. In other words, it's the free market economy in action.

>>1054539
>>1054549
This is known as classical economics.
The key doctrine of classical economics is that a laissez-faire attitude by government toward the marketplace will allow the “invisible hand” to guide everyone in their economic endeavors, create the greatest good for the greatest number of people, and generate economic growth.

Karl Marx
He looked at capitalism from a more pessimistic and revolutionary viewpoint. Where Adam Smith saw harmony and growth, Marx saw instability, struggle, and decline. Marx believed that once the capitalist (the guy with the money and the organizational skills to build a factory) has set up the means of production, all value is created by the labor involved in producing whatever is being produced. In Marx's view, presented in his 1867 tome Das Kapital (Capital), a capitalist's profits come from exploiting labor—that is, from underpaying workers for the value that they are actually creating.

tl;dr - It's Exploitation!
>the worker is the reason why the factory exists.
>the factory owner is paying the worker much less than he should.
>the factory belongs to the workers not the one who actually paid to build the factory.

>>1054560
This situation of management exploiting labor underlies the class struggle that Marx saw at the heart of capitalism, and he predicted that that struggle would ultimately destroy capitalism. To Marx, class struggle is not only inherent in the system—because of the tension between capitalists and workers—but also intensifies over time. The struggle intensifies as businesses eventually become larger and larger, due to the inherent efficiency of large outfits and their ability to withstand the cyclical crises that plague the system. Ultimately, in Marx's view, society moves to a two-class system of a few wealthy capitalists and a mass of underpaid, underprivileged workers.

tl;dr - owner and worker must be treated and paid equally, or else the divide between the rich (factory owner) and the poor (worker) will keep on increasing.
>muh equality!
classic communism ffs.

>>1054565
Marx predicted the fall of capitalism and movement of society toward communism, in which “the people” (that is, the workers) own the means of production and thus have no need to exploit labor for profit.

tl;dr - workers will take arms, form unions and demand an equal share in the profits, so that every one is equal in the end.

>>1054565
In practice, however, two events have undermined Marx's theories. First, in socialist, centrally planned economies have proven far less efficient at producing and delivering goods and services—that is, at creating the greatest good for the greatest number of people—than capitalist systems. Second, workers' incomes have actually risen over time, which undercuts the theory that labor is exploited in the name of profit. If workers' incomes are rising, they are clearly sharing in the growth of the economy. In a very real sense, they are sharing in the profits.

kek, take that Marx, you pathetic, useless jew!

John Maynard Keynes
Keynes's theories mainly involve people's propensity to spend or to save their additional money as their incomes rise, and the effects of increases in spending on the economy as a whole.

tl;dr - the more you earn, the more you spend. classic goys.

>>1054578
Keynes believed that there was only one way to get past the Great Depression, and that was for the American government to start spending in order to put money into private-sector pockets and get demand for goods and services up and running again.

Keynesian economics is an approach to economic policy that favors using the government's power to spend, tax, and borrow to keep the economy stable and growing.

tl;dr - government must use tax payer money to keep the economy growing.
yeah, and fuck people's 401ks

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ITT: people who have never actually read Adam Smith and instead go by what today's right-wing shills say Adam Smith meant

>>1054610
if you read OP, you'll see that i specifically requested all /biz/nessmen anons' personal views on the topics.

the rest of my posts are just copy-pasted from what i found on google.

let's see what you know about these.

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Can anyone tl;dr the pic related's bullshit?

>>1054524
Smith was based, Kaynes was a retarded faggot.

>>1054610
Which should be quoted more often (the pic) , not only do they pay lower tax rates than poor people but they benefit the most from all of our socialist policies like "working roads' and "public education"

>>1054585

Don't make inaccurate comments.

Keynes advocated government spending during recessions and government saving during boom cycle.

Keynes theories were developed to smooth out the business cycle

>>1054643
care to elaborate, mate?

>>1054660
okay, thanks.
this is why called myself a noob.

i would still like to know more, though.

>>1054660
And now we have companies with government bailouts built into their business model and a fed which will do anything to keep the indexes going up. Fantastic ideas those man had, truly.

>>1054666
>those
that*

Taking economic advice from Adam Smith is like using leeches instead of antibiotics when you get sick.

>>1054539
>Karl Marx

Yunno, I think our problem is we never distinguished breakthrough economic theory with stumbling around in the dark

Before we had chemistry, there was alchemy. No disrespect to alchemists, they worked within the limits of their time period and had to start somewhere, but no one would call an alchemist a chemist or take his theory seriously today. We don't take mercantilism and feudalism seriously today. Marx is taken seriously in academia, but mostly in political science and hardly in economics.

>>1054666
hmm, so basically the govt. influence in the economy went from being "advocating" / "suggested" to being a "must".
looks like i was right in >>1054585

>>1054672
hmm.
care to elaborate?
who else would be an ideal adviser?

>>1054666

except keynes only ever advocated two things to stimulate the economy

1. A reduction in interest rates (monetary policy), and
2. Government investment in infrastructure (fiscal policy).'

Actual economist here: Adam Smith mentions the 'invisible hand' exactly once and didn't raise self-interest to the hyperbolic status that later economists did (Smith stated that in some cases self-interest might not be the worst alternative. Seriously. If you want to see this idea taken to its illogical extreme, check out the controversies around Pareto optimality). His theory was set more as in introduction to concepts such as various modes of production, return on investment, and division of labor.

Keynes said a lot of things that his direct students didn't understand, and has since been bastardized to oblivion. Take every paraphrasing of his works with a grain of salt; they're generally 50/50 true and false. Consumption smoothing was important yes but so was the behavior of investors and the equilibrium criteria for savings. It's much more technical than his critics would lead you to believe, and if it's his Austrian critics in particular, they just can't do the math.

>>1054687
hmm. so basically what adam smith meant was - "necessity is the mother of invention"?
and keynes said that, "the economy is only growing when you are spending"?
pretty much?

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Adam Smith saw society divided between capitalists/labourers/rentiers and had a labour theory of value as the source of all revenue.
Capitalists = profit
Labourers = wages
Rentiers = rent
Wages and profit were proportional (e.g. higher profits lower wages, higher wages lower profits) but rent seeking activity sucked from both and was a purely unproductive activity. He was the first to see profit as an income uniquely associated with the use of fixed-capital along side the employment of wage-labour.


Keynes was a marginalist and had a subject theory of value. He thought the central issue with capitalism was money demand chronically lags behind production, therefore the state must urge private investment or directly engage in public investment to combat the tendency towards unemployment and crisis.

>>1054678
WRONG

>"The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result just as well by consuming more or working less. Personally I regard the investment policy as first aid. In US it almost certainly will not do the trick. Less work is the ultimate solution (a 35 hour week in US would do the trick now). How you mix up the three ingredients of a cure is a matter of taste and experience, i.e. of morals and knowledge." -- Keynes

>>1054663
>care to elaborate, mate?
Sure thing.

>To Keynes, excessive saving, i.e. saving beyond planned investment, was a serious problem

>>1054708

How exactly does the quote advocate for a bail out?

>>1054700
>looking at people and only seeing monetary profit.
was Smith a jew?

>The date of Smith's baptism into the Church of Scotland at Kirkcaldy was 5 June 1723.

>>1054710
My Marxist understanding of Keynes is: Individual savings takes away from purchasing power and results in an over accumulate of capital which results in the production of commodities which cannot be sold at a profit and the build up of debt (your savings are just someone elses debt) which cannot be payed off due to the decline in the rate of profit inevitably resulting in a liquidity crisis because all the "growth" was purely fictitious.
In the good times everyone sees money as purely a means-of-exchange and anything can function as money, everyone will take your credit and fiat currency because everything is growing and exchange is easy but when the crisis breaks out people start viewing money more as a store-of-value and seek out gold and commodity money and credit becomes worthless because people want real value.


>>1054714
It doesn't, it shows Keynes believed reduction in work-time was an option alongside others to get out of a crisis.

>>1054733

Yes wow you found some on off letter about reducing work times. Yet none of his published theories actually talk about having the government reduce people's work times.

>>1054733
>Individual savings takes away from purchasing power and results in an over accumulate of capital which results in the production of commodities which cannot be sold at a profit and the build up of debt etc. etc.
Mm.. It's a tough one. See this conflicts with my belief that saving is good and spending frivolously on things you don't need or even really want because otherwise the economy would slow down is silly and wasteful (and that borrowing money to do this is worse still or outright stupid). But then at the same time apparently when everyone saves too heavily everyone starves which isn't really desirable either, so I'm not really sure where I stand on this.

>muh invisible hand
>muh government spending

>>1054754
He's talking about things you don't understand. Saving is inherently wasteful in a broad sense because nothing is being DONE with that money. It sits, stagnant. It does not stimulate the economy. Spending and investment do stimulate the economy by definition.

>>1054763
>Saving is inherently wasteful in a broad sense because nothing is being DONE with that money.
That isn't inherently bad. I'd say it's more neutral than wasteful. Destroying things, and using resources unnecessarily is wasteful.

>>1054754
The point of wages, in pure theory, is to be spent on living expenses. Wages form the market for capitalists profit to be realized back into money and reinvested in expanding their production. When workers save more of their wages it decreases the size of this market.
If all wages are spent this would obviously boost the rate of profit for companies, if not this would decrease it. More spending = more profit. This is what capitalists ideally want, workers to spend and stay workers and never exit the working class and become capitalists.
When more individuals are saving it means companies have to borrow more funds at interest to expand instead of out of their profit, which increases their over-head costs and debt build up. Remember the return you get on your savings are because the economy is growing and people think it will keep on growing and its easy to get credit. The second a hiccup comes and companies start to become illiquid because of all the debt build-up it requires to operate and cannot pay back their debts when it's called in a general crisis potiently can break out and a massive devaluation of all capital across the board will begin and the economy can enter a death spiral.
This could result in a general breakdown of capitalism and mass unrest, the only time this really almost happened was during the great depression but the government intervened to prop up the monetary profitability of companies by managing the supply and demand of the core goods of the economy. There is no reason to think there's a floor and things could restart once you enter into a death spiral and all industries start to become unprofitable and a burden to their owners.

>>1054823
Yeah I just get a little offended at the notion that people saving is a problem because the only reason they have money is to prop up the economy with their frivolous spending. For one it's backward: the economy exists to serve the needs of the people, the needs of the people don't exist to serve the needs of business. For two it's fucking retarded. It's like saying to a business "well you're making too much profit your role here is to buy stock and pay wages not make profit, knock it off will you?"

>>1054572
>f workers' incomes are rising, they are clearly sharing in the growth of the economy. In a very real sense, they are sharing in the profits.

lmao

>>1054622
One is accepted and verifiable empirically

The other isn't

>>1054572
>workers' incomes have actually risen over time

Relative to capitalist income? It's gone down.

But that's beyond the point because it's always been the same. The rich get richer and the poor get poorer in comparison -- a regular middle class worker has far better standards of living than medieval kings, yet the people above him are standing way, way higher than kings were over their workers.

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>>1054878
>Relative to capitalist income? It's gone down.
>But that's beyond the point because it's always been the same. The rich get richer and the poor get poorer in comparison
Que?

>>1054881

You need to look at the broader picture. The whole world is not the US.

>>1054882
W-why?
I was just pointing out that sometimes the rich and poor can increase in wealth in tandem.

>>1054830
Saving is just the purchase of some asset with the idea of making a monetary gain with it. It's just the essence of capitalism... something for noting... but it's ultimately an illusion. Increasing the monetary value of assets by driving up their market value doesn't actually generate the magnitude of real tangible wealth necessary to pay off the interest bearing debt created in the process.

What actually expands an economy and generates profit under capitalism, as Adam Smith knew, was exclusively the investment in fixed-capital and wage-labour... this expands production and output onto a higher scale and allows the generation of more profit.

>>1054569
marx was against unions

>>1054763

>Spending and investment stimulate economy

But you need savings to invest. You need to invest to have products for people to spend on.

>>1055158
>But you need savings to invest
Not according to endogenous money theory you don't m8. Even most central banks and bankers don't believe in a pure loanable funds theory anymore

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>>1055158
You can capitalize on future earnings potential as easily as past

>>1054911
That's a good way of putting it.

>>1055174
>Even most central banks and bankers don't believe in a pure loanable funds theory anymore
Kek. Guess I can loan you the two billion dollars I don't have just because then? Awesome. Free money for everyone!

>>1054660
So fool the people to spend during the bust cycle where they're supposed to reallocate their capital, and.make them save during the boom cycle where they're supposed to reinvest their now newly acquired capital?

>>1054911
So investment into things like real-estate or other assets like it can be thought of as "saving"? Does that mean that Keynes was in line with Classical, and even Marxist, thought which saw it as inevitable that what we now know as the "FIRE" sector would be subordinated to industrial interests?

>>1054660
it sounds nice, but look at what happened when hoover and roosevelt spent all that money on public works programs-the economy continued to stagnate and they made what should have been a 3-4 year downturn into a decade long depression

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>>1054524
>Keynesian Economics

>>1056187
>imblying thats the policythat fucked it up
try the restrictuions on trade and anti competition policies

>>1056239
thank you for tipping fedora!