Sunday, December 7, 2008

Economic Thought Discussion Board 6

1) Why did Keynes change from supporting a return to the Pre-World War I gold standard to denouncing gold as a barbarous relic?

Keynes believed that government spending is a necessary function in creating jobs and stimulating economic activity. This requires money, of which the governments had created a monopoly in for themselves. The quantity of money is limited by a gold standard. It is a check on government’s power to create money and curb inflation. Thus, they are limited in their spending. But with the gold standard out of the way, the government can print and spend as much money as they want. Additionally, Keynes was afraid that a gold standard, which keeps the value of money based on the free market, would lead to unemployment and destabilize the economy. Keynes preferred a managed currency, where the government can control the value of money determined by politics.

2) What role did government play in Keynes analysis of stabilizing the overall level of economic activity?

          For Keynes, government plays a central role in the overall economy. To Keynes government should manage the currency, spend in to stimulate the economy, and creating fiscal policy conducive to full employment. Government’s role is to essentially manage the economy.  

3) Discuss Schumpeter‘s notion of what could cause capitalism to collapse. 

          Schumpeter believed that capitalism would collapse as a result of its successes. Capitalism’s successes would create an intellectual class of corporatist cronies and welfare statists. They would wage war on the very private property rights and liberty that their existence depended on, and bringing about some form of socialism. Under that system entrepreneurship and innovation would be stymied by the implementation of societal conditions not conducive to their growth.  


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