Page 251 - Encyclopedia of Business and Finance

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Economics: Historical Perspectives

demise of smaller, noncompetitive businesses. Failing
businesses would be bought by successful ones; hence, the
growth cycle would continue. He realized that a trend
toward larger businesses is typical in a capitalistic system.
Marx also speculated that there would be a class
struggle in a capitalistic society. He thought that as small
businesses were forced out of the marketplace and
acquired by larger businesses, the social structure would
also evolve into two classes. He predicted that there would
be one class of wealthy property owners and another class
of propertyless workers. There are arguments for and
against Marx’s economic beliefs, but he has more critics
than supporters in capitalistic countries.

JOHN MAYNARD KEYNES
(1883–1946)
John Maynard Keynes was the father of a “mixed econ-
omy” in which the government plays a crucial role. Many
believe that government should not have a role in a capi-
talistic system, viewing such a role with considerable dis-
trust and suspicion. As a result, many find Keynes’s
theories to be as offensive as those of Marx.
One of the main tenets of Keynes’s theory—in con-
flict with both Smith and Marx—is that economic prob-
lems in a capitalistic society are not self-correcting and
Karl Marx (1818–1883). German social, political and that economies cannot keep growing indefinitely. He
economic theorist Marx stressed the instability of capitalism.
believed that if there is nothing to support capital
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growth, a depressed economy requires outside interven-
tion or a substitute for business capital spending. Keynes
believed that only government intervention could get a
country out of a depression and the economy back on
desire for profits that would create a working free-enter-
prise system that is self-regulating. track.

ALFRED MARSHALL (1842–1924)
KARL MARX (1818–1883)
The mere mention of Karl Marx might be disturbing to Alfred Marshall was a mathematician who applied his
some. However, his thoughts and writings on economics mathematical training to his explanation of economics.
have stirred many to more intense economic analysis. His Marshall’s economic theories, although very elaborate,
role in economic history is quite different from that of have been viewed as eclectic and lacking in internal con-
Adam Smith. Smith was the visionary regarding the sistency. He was noted for taking a series of formal eco-
orderly processes and growth of capitalism while Marx nomic thoughts and analyses and linking them. He
diagnosed its disorderliness and eventual demise. Marx thought that his writings would present a detailed picture
believed that growth is fraught with crises and pitfalls. of economic reality.
Marx was the first economic theorist to stress the His complex thoughts are extremely detailed, and he
instability of capitalism, maintaining that economic developed theories of value and distribution that combine
growth is wavering and uncertain. He pointed out that marginal utility with real cost. The forces behind both
even though accumulation of wealth is primary in a free- supply and demand determine value. Behind demand is
market system, it may not always be possible. Marx marginal utility, which is reflected in the prices at which
believed that increasing instability would occur until the given quantities will be demanded by buyers. Marshall
system collapsed. stated that behind supply is marginal effort and sacrifice,
Marx discussed how the size of businesses would con- reflected in the prices at which given quantities will be
tinue to grow because of the inherent instability and produced.

228 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION