Economics & Ethics
Ryan P. Quinn
Business Society & Ethics
Professor Peter J. Classetti
March 24, 2014
Keynesian economics, also referred to as “mainstream” economics differs drastically from its counterpart, the Austrian school of economic thought. In a very basic sense, the two varying economic philosophies connect with and represent the two main political philosophies, (or what are known in the political realm as parties). Keynesianism is the liberal way of perceiving and practicing economics, whereas Austrian economists are much more conservative in their views on policies and procedures. Not unlike the liberals and conservatives in the world of politics, the main ...view middle of the document...
This is what is known as “demand-side policy,” which essentially states that the economy is good when people have jobs and have money to spend, and the economy is bad when people are not working, thus having to save their money rather than spend it (Be Financial Cycles Educated, 1). Keynes argued that the government needed to push against this economic tide in order to lessen the impact of these boom and bust cycles in hopes to avoid the complete destruction of the economy. This means the government spending more money in times of economic hardship, and less money in times of economic prosperity. Keynes argued, the primary reason the government needs to pump more money into the economy if it is doing poorly is due to the decrease in aggregate demand, which is brought on by excessive saving. Keynes contends that it is the role and responsibility of the federal government to spend money when and where necessary in order to stabilize the economy, by methods such as lowering interest rates or increasing governmental outlays (Keynesian Economics, 2). The auto-maker and big bank bailouts of recent years, as well as the stimulus package enacted by the Obama administration are prime examples of increased government spending and intervention.
Supporters of the Austrian school of thought, strongly disagree with this notion that governmental intervention and spending is the way to bring a capitalist society out of the economic doldrums. Rather, they believe that the government, (more specifically the Federal Reserve) needs to allow the free market to dictate how and when society is restored to a state of economic prosperity. Austrian economics is, in fact, the oldest, continuous school of economic thought to date. It was founded in 1870, but traces its roots back to the middle of the eighteenth century. As well as being the oldest school of economic thought, it is also the smallest one, (hence Keynesian economics also being known as “mainstream economics”). Oddly enough, Austrian economics is also currently the fastest growing economic philosophy, in large part due to the recent economic collapse (The Ludwig Von Mises Institute, 1). When comparing the two competing schools of thought, one relies heavily on complex, mathematical formulas to predict future economic trends, while the other puts much more stock into gut feelings and intuition. Austrian economists simply rely on “logic and reasoning” to predict future economic forecasts; claiming that the use of such complex mathematics and super-computers is menial in the field of economics, which interestingly enough, is regarded as a social science (Be Financial Cycles Educated, 2). Another key difference between the two, is the issue regarding the regulation of money. Austrian economists believe that the medium of exchange needs to be stable, which is why they are strong supporters of going back to the “gold standard,” in which gold and silver are the stable mediums backing paper currency...