Political Ecomomics - critically examine the contributions of Adam Smith and John Keynes to the study of political economy and describe their contribution to current management practice.
Introduction: Political Economy and Economic Theories
The historical study of the political economy requires a complete and a correct understanding of the past economic theories and their repercussions on the economy of those times as well on the present economies as well. Politics and money intersect each other in a very complex and an interesting way. It’s therefore very difficult to find out the thin line where the politics ends and the economy begins. The governments of the world are expected to play a role in shaping the economy of their states and at the same time the economy of the nation’s shapes the policies of the state in diverse ways, hence it’s a cycle which has been coined as a political economy by the various different political scientists of the world who have carried out their studies on these effects. The two of the most prominent and well known economists of our times have been Adam Smith and John Maynard Keynes (Friedman,1968). Their theories related to economy and state has had profound effects in shaping up the economic policies, not only of the nations but of the entire world. There is still an ongoing debate as to which of the economists have had a more profound effect on the economy and whose predictions can be considered true in today’s era and times. But the fact of the matter is that this is a never ending debate and it is up to and individual to study both their points of view and decide, as to which of the economists he wants to believe and follow. Adam Smith’s “Wealth of Nations” brought light on the economics in the modern era. Smith was of the opinion that the most efficient form of the economics is the free market economics with almost zero or minimal government interference in the same. When this theory was put into practice by the rich and developed nations of those times like Britain and France, it brought good results and the economies of these nations improved drastically. The acceptance of these policies by the increasing and growing capitalist class led to policy proposals being made and economic practices being developed based on Smith’s Theories (Klein, 2008). This discovery of Smith, laid the foundation for what we know today as the classical economics. The key doctrine of this theory is what is called a laissez-faire attitude of the government in dealing with the market place, and thus allowing the “invisible hand “to guide the society in its economic attitude (Klein, 2008).