Term Paper on "Commanding Heights"

Term Paper 4 pages (1171 words) Sources: 2 Style: APA

[EXCERPT] . . . .

Commanding Heights: Questions

Describe the two major themes of economic thought referred to in the video series.

Does a command economy or capitalism a more stable system of government? Was a Keynesian social welfare state superior to a state managed by the Chicago School's monetarist policies? These were the sorts of debates that divided the economists of the 20th century. The 20th century oversaw the rebuilding of the major economies of Europe, several times. The central tensions between the two differing economic camps divided those economists who stressed the need for government intervention to cushion the low points of business cycle vs. The economists who believed the market economy could essentially balance itself out. The most extreme example of a planned economy was that Soviet Russia, Keynesianism advocated capitalism with government intervention, while the Chicago School of economics stressed that beyond the regulation of the monetary supply; government should intervene in the private sector of commerce as little as possible.

Who were the main economists that championed each side and what timeframe did they operate in?

The first major shift in economic philosophy occurred with the ascendancy of John Maynard Keynes, who stressed the need for the government intervention to lessen the uncertainty that people felt, as a result of the inevitable downturns of the market cycle. Keynes wrote in response to what he witnessed during the Great Depression. During this period, he observed that when jobs were uncertain people hoarded their money. On an individual level, this makes sense. However, the less money people spent, the more goods would pile up in warehouses, reducing the incentive for businesses to produce goods, resulting in still more layoffs. The only way to break the spiraling cycle into a depression was for the government to infuse money into the economy by creating public works jobs. Keynes advocated more government involvement in economic life in general, and the creation of a social welfare state, which eventually occurred in Great Britain. Keynes was also influential in the creation of the Bretton Woods system, the World Bank and the International Monetary Fund. As a result of what he saw in World War II, Keynes believed that globalism was crucial to creating a stable economic future for all the nations of the world, and that sound economic policy could foster peace.

It was not until the 1970s that Keynesian economics began to be questioned. The Chicago School headed by Milton Freedman argued against government intervention and a return to a reformed version of Classical economic ideas. High inflation rather than high unemployment was the Chicago School's greatest fear. Unlike Keynes, the Chicago economists argued that the less government intervention in the economy the better, and that deficit government spending, even to stimulate the economy, was wrong.

How did real economic and political events shape their ideas?

Keynes' most obvious defining historical moment as an economist was the Great Depression. However, he was also defined by the earlier, looming spectacle of communist Russia, which demonstrated it was necessary to contain the excesses of capitalism and to prevent the calls from the extreme left to adopt a totally socialistic system. World War I had shaped the economic landscape of Europe in a way that, for Keynes, showed that an entirely hands-off system would not work. Russia's military devastation and participation in the war fostered the necessary political discontent within the populace to first overthrow the czar and then to bring the communist party led by Lenin to power. The widespread inflation… READ MORE

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