Question

20 POINTS!!!! Compare how Adam Smith would respond to a downturn in the economy as opposed to John Maynard Keynes. Be sure to support your answer with what you have learned about their economic theories.

Answer 1

When Smith was writing, those rulers dominated the planet. Most still ruled by divine right. Their realms were their property, to do with as they saw fit. Smith did engage in microeconomics, analyzing the new way of production that was emerging in Britain at that time. Yet, as the title of his book suggests, his primary concern was macroeconomics. He wanted to explain what made a nation wealthy and how a nation’s wealth could be enhanced. His explanations and recommendations put him at odds with mercantilism, the dominant economic doctrine of the time. It called for rulers to treat the finances of their realms as anyone would treat the finances of their own household: to exert as much control as possible, to take in as much income as possible, and to spend that money judiciously. These rulers were happy to abide by the first two parts of that doctrine. They were not lax in exercising their power domestically, including controlling economic activity. They were both diligent and imaginative when it came to increasing their incomes, especially the part that came from taxes. Their spending, however, was another story. They spent money lavishly on themselves, on wars to expand or defend their realms and on exploratory expeditions with the aim of expanding their territory.