Smith vs. Keynesian
Storyboard Text
- Sometime in the mid-1800s...
- Smith
- Okay, okay. Let's go back to the start. We'll each explain our theories and come to a reasonable conclusion. You can go first.
- Keynes
- Smith
- Very well. The Keynesian theory is clearly the correct one, however. The theory entails that economies do not stabilize themselves quickly and require active intervention that boosts short-term demand in the economy. Wages and employment are slower to respond to the needs of the market and require governmental intervention to stay on track. My friends Roy Harrod and John Hicks would agree.
- Keynes
- Smith
- We classical economists have a long run perspective. We recognize that business cycles are inevitable but believe they are self-correcting and advocate minimal government intervention in managing the economy. the market is always clear because prices adjust through the interactions of supply and demand. Since the market is self-regulating, there is no need to intervene. David Ricardo and Irving Fisher would agree with me.
- Keynes
- Smith
- In short, we stress the importance of limiting government intervention and striving to keep markets free of potential barriers to their efficient operation.
- And we argue that the economy can be below full capacity for a considerable time due to imperfect markets.
- Keynes
- Smith
- I think Keynes is right.
- Keynes
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