Economic Theories and Theorists Essay - 1212 Words

1. Response of socialism to Classical liberalism: Classical liberalism is an ideology that embraces the principles of individualism such as rule of law, individual rights and freedoms, private property, economic freedom, self-interest, competition. Classical liberalism stresses the importance of human rationality. Just as it values, political freedom, classical liberalism also holds freedom to be the basic standard in economics, and believes the most beneficial economic system to be the free market. Whereas, the term socialism, when generally used refers to any ideology that believes that resources should be controlled by the public for the benefit of everyone in society and not by private interests for the benefit of private owners and†¦show more content†¦This began to change in the 1960s and 1970s, and Hayeks theories gradually started becoming more and more widely accepted. Most of Hayek’s work from the 1920s through the 1930s was in the Austrian theory of business cycles and capital and monetary theory. Hayek saw, that the price system did a remarkable job of co-coordinating peoples actions, even though that co-ordination was not part of anyone’s intent. Hayek believed that the market was unplanned and was not designed by anyone. However, it did evolve slowly as a result of human actions. Nevertheless, no market works perfectly causing booms and busts throughout the market. The Boom and Bust Cycles: In Hayek’s opinion one cause for the cause of the booms and bust in a free-market economy, was an increase in the supply of money created by the central bank. Such increases caused an in prices and production, driving down interest rates, making credit artificially cheap. Causing businessmen to make capital investments that they would not have made if they had understood that they were getting distorted price signals from the credit market. However, capital investments are not homogeneous (all alike). Proving that long-term investments are more sensitive to interest rates than short-term ones, just as long-term bonds are more interest sensitive than treasury bills. Therefore, Hayek concluded that artificially low interest rates not only cause investment to be artificiallyShow MoreRelatedThe Marxist Theory Is The Political And Economic Theories Influenced By German Theorists852 Words   |  4 PagesThe Marxist theory is the political and economic theories originated by German theorists: Karl Marx and Friedrich Engels. Marx was born in Germany in 1818 and studied philosophy and law. He was among many the most important authors of sociology and was best known as the â€Å"father of Marxism† (McIntyre, 21). Along with Friedrich Engels, he wrote and published The Communist Manifesto. 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