A comparativ study of the Keynesian school and the neoconservative economic thinking

Classical economy, whose beginning is usually traced to Adam Smith, found its best expression and also its end in David Ricardo. Ricardo, as Marx wrote, “made the antagonism of class-interest, of wages and profits, of profits and rent, the starting-point of his investigation, naively taking this antagonism for a social law of nature. But by this start the science of bourgeois economy had reached the limits beyond which it could not pass,” for a further critical development could lead only to the recognition of the contradictions and limitations of the capitalist system of production. By doing what could no longer be done by bourgeois economists, Marx felt himself to be the true heir, and the destroyer as well, of bourgeois economy.
The further development of economic theory supported Marx’s opinion. Though bourgeois economy was indeed unable to advance, it was able to change its appearance. Classical economics had emphasized production and the system as a whole. Their followers emphasized exchange and individual enterprise. Although there arose no serious doubt that the capitalist system is natural, reasonable, and inalterable, yet the early confidence of bourgeois economy was slowly destroyed by a growing discrepancy between liberal theory and social reality. The increasing economic difficulties which accompanied the accumulation of capital developed an interest in the business cycle, in the factors that make for prosperity, crisis and depression. The neo-classical school, whose best-known proponent was Alfred Marshall, attempted to transform economy into a practical science, that is, to find ways and means to influence market movements and to increase both the profitability of capital and the general social welfare. But the increasing length and violence of depressions soon changed a new optimism into even deeper despair, and the sterility of bourgeois economics led economists once more to embrace the less-embarrassing security of “pure theory” and the silence...

Economic theories are constantly changing. Keynesian theory, with its emphasis on activist gove
ment policies to promote high employment, dominated economic policymaking in the early post-war period. But, starting in the late 1960s, troubling inflation and lagging productivity prodded economists to look for new solutions. From this search, new theories emerged:
Monetarism updates the Quantity Theory, the basis for macroeconomic analysis before Keynes. It reemphasizes the critical role of monetary growth in determining inflation.
Rational Expectations Theory provides a contemporary rationale for the pre-Keynesian tradition of limited gove
ment involvement in the economy. It argues that the market's ability to anticipate gove
ment policy actions limits their effectiveness.
Supply-side Economics recalls the Classical School's conce
with economic growth as a fundamental prerequisite for improving society's material well-being. It emphasizes the need for incentives to save and invest if the nation's economy is to grow.
These theories and others will be debated and tested. Some will be accepted, some modified, and others rejected as we search to answer these basic economic questions: How do we decide what to produce with our limited resources? How do we ensure stable prices and full employment of resources? How do we provide a rising standard of living both for now and the future?