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The Common Ground Between the Classical and Keynesian Economics

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Economics is the study of production, distribution, and consumption of goods and services. In economics there are two different theories, the classical economic theory and the Keynesian economic theory. They both contrast each other and bring out two different view/sides in economics. Classical economics is summed up as market functions without government interference while Keynesian economics is the theory about why in short run, economic output is influenced by aggregate demand, and government interference is almost always needed to solve an issue.

Classical economics comes from the concept of laissez-faire which means the “free market.” Being in a free market allows people to have a say when it comes to making economic decisions. Because people are allowed to have a say it makes sure that all the economic resources are being distributed to whom needs/wants it. In Classical economics government spending is for the most part frowned upon. They believe that government spending takes away the resources that individuals need. Also, classical economics has the goal of creating long term solutions when it comes to economic problems. The classical economic theory is developed by things like inflation, government regulation, and taxes. It also plays a big role on the well being of the free market environment. Classical economics is also very free flowing and its goal is to have prices and wages adjust freely to demand over periods of time. This theory has the goal of always wanting full employment and making sure that everyone who wants to work is being used to their full capacity. Overall classical economics is based off of the idea that the economy is self correcting, and if something happens to the economy then it was meant to happen and it will fix itself.

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Keynesian economists believe that aggregate demand is influenced by the people decisions both public and private. Public decisions are made by the government while private decisions are made by individuals and businesses in the economic marketplace. Keynesian economic theory is summed up as how a nations monetary policy can affect the economy. Keynesian economics mostly relies on the idea of government spending to the economy back to where it should be. Its believed that the economy is made up of consumer spending, business investment and government spending. Keynesian economists think that government spending can improve the economy or take the place of economic growth if it is needed. Keynesian economics focuses on the short-term need and how something can be changed for the moment instead of for the long-run, and that government intervention is usually the best solution. Keynesian economists believe that the government should always intervene to help the economy in the short-run otherwise the long-run might never come.

Classical and Keynesian economics are two completely different theories but they both have the same goal, that is to get the economy back to where it is suppose to be. Classical economists want to do what is best for the long-run and want it to happen naturally and not with any government intervention. Keynesian economists believe the best way to fix the economy is to do what’s best for the moment and not for the long-run, and to get that you need some type of government interaction. After reviewing classical and Keynesian economics I’ve decided that both have very different points of view on how to run the economy but both can be argued for what would work the best.

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