The Big Threes in Economic Thought

In the sphere of economics, There exists three big brothers whose ideology has prevailed and survived through centuries. Let call them, The Big Threes. Who are they? They are Adam Smith, Karl Max and John Mayer Keyne. In the underlying paragraph, I am going to summarize their very influential magic and some of their everlasitng principles. I am not the narrator but this sound like telling a legend alike I used to listen during Prof. Takeuchi’s and Prof. Yanagihara lecture. You can find the detail on this topic by reading many text books with title, The History of Economic Though. Now, let start.

Once upon a time, may be when human gained knowledge on how to produce and how to trade. Plantation, farming, and hunting as well as communication are necessary for life.

The story began with religion. The idea of economics and religion, where most economist named it, The Physocrat. King was regarded as the representative of god and people have the role to supply and respect his power. They produce and offer for the king. They are obligated to pay tax.

Not long ago, but long enough, the Mercantilism was born. After faudalism power lessend and dissatisfaction of higher tax imposed. Power remain in the hand of group of people. The concept of mercantilist is gold or bullionism is the most precious value. Mercantilist try to promote gold inflow and impose restriction again export of gold. The rulers, impose quota on import from foreign to avoid out flow of gold. However, people do not consume gold they need to consume other kinds of goods. Mercantislm is every much extreem form of government intervention.

Now, the first brother appeared. It appeared with a very famous pinoneer, Adam Smith. To most economic student, Adams smith come with Invisible Hand. His famous, publication is The Wealth of Nation. What is invisible hand. There nothing more than the simple human hand but the word invisible hand refer to hand with specialization. Every body has their own skill and they specialized in one particular skill. It would lead to welfare improvement for all. As quality of goods and service would be accesible when everyone produce their specialize products and trade with one another. In technical economic the invisible hand is the price mechanism that adjusts demand and supply to satisfy all people who seek to satisfy their needs. Price will rise or fall to reflect shortage or excess supply and demand. What Adam Smith and his follower such as David Ricardo, Multhus, John Start Mill and other beleive is price is flexible and market is always clear. This group of economist form a school call Classical Economist. To the extreem point, Classical beleive that supply determined demand. Market is always clear. Unemployment of labor market is just in the short run. In the long run, after the wage contract expired wage will adjust to equilibrate demand and supply of labor.

After the first world war 1929, great depression noted by over production and the destruction of war has brought poverty and less income. Unemployment rose as firm could not sell the product they prouduced they decided to lay off workers. The world experience depression. In U.S, Black Friday is used to note the collape of banking as investors who are customer defaut the banks. Then, our second brother came. He said, the government has role to rebuild and cure this economy. His named is Keynes, his group is called Keynsian school.What is the fundamental idea behind his school? He said government can play role to increase job by increase government expenditure. Public investment, and state-owned enteprise will bring job and reduce employment. Tax reduction, encourage and offer incentive for high consumption and make economics revive. For most economic student including me, while studying his model, developped by John Hick, on IS-LM model whose tools rely on Fiscal and Monatery Policy, we all realized such great tool to stabilize economy in the short run. I remeber One of my friend, His name, Dyna, who currently studying at Hitosubashi University and Just won a famous Japanese essay prize, once rephrased on Keynsian words, that In the long run we all are dead. Then, in the short run we need government.

The Thrid Brother where we always ignore him and very famous for communsit block is Karl Max. In chronological order of time, his idear came before Keyne.His philosphy is much agaist Capitalism. He viewed Capitalist (merchant) is exploiting worker. He would prefere equality and common benefit share by all class. Elimination of capitalist class is the extreme revoulation he wait to see. But the planning economy, represented by collapsed of Soviet Union in the eariler centuries has weaken his philosophy. Usually, we talked only about Classic and Keynes exlude Marxist (Polictical scholar like one of my brother Bang Un saman might study all kind of philopsophy).

Our three brothers passed aways but his philosophy still remain and his next generation on a strong diverge between Classical (Market Clear, Flexible Price, Long Run) and Keynesian (Market is not always clear, Sticky Price, Short Run). Where is the world now? Keynsian is famous but his stage had ended with oil crisis in 1960s, too much government intervention spoiled the market. State-owned enteprise is not as much as efficient as the private one. The son of Classical called Neo-classical said Keynsian fail to explain the stagflation of oil shock and find solution for the crisis. Follower by some Monetarist such as Milton Friendman of Chigago, prefere the goverment to increase money supply in a continuous along side with economic growth indicator. Nevertherless, the son of Keynese, namely, Neo-Keynsian try to argue against his opponent in favor of his father with many new model and reason.

So, which one is the most prominent? Who is the winner? We can not say any one is better than other. The debate between the two groups is on the short run and long run and on the degree of government intervention. Although, the debate can not coverge but we would know that we all want a welfare imporvement for both in the short run and in the long run. May be you also, care for your son or grand son if you are not selfish (sell fish) as most Buhdist Cambodian.

This passage is written by me. All idea are just a colleciton of text books I have read. Therefore, all errors will remain responsible by me.