Keynesianism

At the heart of the Keynesian economy is the use of fiscal policies (government spending and taxes) as a means to control the economy. This idea was adopted by one of the most important intellectuals of the 20th century who is named, John Maynard Keynes. Keynes's ideas gave form to Modern World Economy. Keynes is still respected and followed.

                The masterpiece of Keynes when published in 1936 named The General Theory (Employment, Interest and The General Theory of Money) has written in a response to Great Depression. Keynes upheld that governments were a task they had ignored before. This task was about keeping alive the economy during trauma. This book was written to criticize the idea of French Jean-Baptiste Say "Supply creates its own demand".According to Say's idea, product manufacturing was enough to create demand by itself in the general economy.

                 To revive the economies again There was an accepted hypothesis of economies organize themselves until Great Depression. The Invisible Hand left on its own will bring employment and economic efficiency to the optimum level. Keynes was strongly opposed to it. He upholds, during periods of economic downturn, any deduction in demand, will cause an economic downturn with a strong crisis and will increase unemployment. The task of the government is to revive the economy again. The government can make this like to be in debt and use this dept at the public sector as a creation of employment, investing cash in infrastructure problems. Falling interest prices, even if not enough, could revive the economy a little bit.

JOHN MAYNARD KEYNES 1883-1946 

J.M. KEYNES was a rare occasion:An economist who has had the chance to apply his theories.His friends called him as Maynard.He was a respected intellectual throughout his life,He was the member of Bloomsbury like famous authors Virginia Woolf and E.M.Forster.He counseled the Finance Minister during World War I, but his fame came after the war.He guessed that Treaty of Versailles can caused hyperinflation in Germany with a huge foresight.History made him legitimate.He made wealth from stock market but he lost whole of them because of 1926s collapse.With the speculation over the setup sometimes won and sometimes lost.Before he died-shortly after World War 2 - He established his base to IMF and WB with sizeable amount financing guarantee from USA.These two shape the modern economy in the following years.

                 According to Keynes, the extra expenditures the government will make will spread throughout the economy. For instance, it emerges a new workplace for construction companies. The workers of related companies spend money on food, products and services and it prevents the economy from doesn't into crisis. The key to Keynes's argument is the idea of multiplying.

                Suppose the American government ordered a $ 10 billion plane ship to shipbuilding company Northrop Grumman. You might think that this is the $ 10 billion transfer of the economic effect. However, according to the multiplying argument, the effect will be much larger. Northrop Grumman will hire more people, make more profit, and workers will spend their money on consumer goods. Total economic efficiency will increase much more than the initial money, depending on the "consumption tendency" of an average consumer.

                If the 10 million dollars increase the American economic efficiency by around 5 million dollars, multiplying is 0.5, if it increases by 15 million dollars, multiplying is 1.5.

Six Basic Principles According to former presidential adviser Alan Blinder, There are six basic principles behind Keynesianism.

1. Keynesians uphold that economy is affected by both public and private sector decisions and sometimes they uphold it can be unbalanced at any time.
2. The Short run, is more important than the long run. The Short runs in unemployment, may cause more harmful things, because it may cause permanent damage problems to the country's economy. This will remind the famous word Keynes "In the Long Run, We're All Dead".
3. Prices and especially salaries give respond to supply and demand changes more slowly. It means that your unemployment is generally higher or lower than your economy.
4. Unemployment is usually very high and variable.; the recessions and crises are not an effective market reaction to unpleasant opportunities such as invisible hand dictation, but rather an economic disease.
5. Governments should stabilize the natural sudden rising and falling actively.
6. Keynesians be inclined to struggle against unemployment more than struggle against inflation.

                   A controversial theory Keynesianism has always created controversy. Critics of it ask why we should assume that governments will better govern the economy. Economic The Great Depression of the 1930s was overcome by Keynes' ideas. Franklin D.Roosevelt's program known as the "New Deal Order" was presented as a reaction against the crisis, and it was a classic example of the government's incentive to drive the economy by spending billions during the recession. It is still discussed whether the Great Depression ended these policies or the Second World War. But the message from history is that government spending seems to work.

                   After the publishing of General Theory, governments around the world quite increased their spending. They did this for social purposes, such as improving the welfare state that will overcome the consequences of high unemployment as well as they made Keynesianism based on the emphasis that governments should control the economy. These interventions have worked for a long time, inflation and unemployment quite decreased, and the economy grew. But, in the 1970s especially the monetarists have been started to criticize Keynesian policies. Governments that implement fiscal and monetary policies regularly to increase employment would not be able to fine-tune the economy. Such as policies(like tax discounting) the time between the moment of realizing that it is necessary and the effect of policies is very long. The effect of tax reduction on the economy is longer. Even if the politicians are quick to set the issues, it takes time for the regulations to be written and approved. The effect of tax discounting on the economy is longer. Eventually, when the tax discounts started to work, the problem being solved may already be worsened or even extinct.

                    Namely, Keynes come to the fore again in the 2008s crisis. It was understood that the tax discounts, in America, the UK and other countries would not be able to prevent the recession. When It was understood that the tax discounts, in America, the UK and other countries would not be able to prevent the recession, economists upheld governments should apply tax discounting and spending by borrowing. In the end, these policies have been implemented, breaking away from the economic policies of the past twenty-five years. Despite everything, Keynes is back.

       Gist, governments must spend to prevent deepening recessions.

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The Benefits of the Invisible Hand

Smith argued that these three ingredients would lead to a "natural harmony" of interests between workers, landlords, and capitalists.Recall the pin factory, where management and labor had to work together to achieve their ends, and the woolen coat that required the"joint labor" of workmen, merchants, and carriers from around the world. On a general scale, the voluntary self-interest of millions of individuals would create a stable, prosperous society without the need for central direction by the state. His doctrine of enlightened self-interest is often called "the invisible hand," based on a famous passage (paraphrased) from The Wealth of Nations: "By pursuing his own self interest, every individual is led by an invisible hand to promote the public interest" (423).

             Adam Smith's invisible hand doctrine has become a popular metaphor for unfettered market capitalism. Although Smith uses the term only once in The Wealth of Nations, and sparingly elsewhere, the phrase "invisible hand" has come to symbolize the workings of the market economy as well as the workings of natural science (Ylikoski 1995).

             Defenders of market economics use it in a positive way, characterizing the market hand as "gentle" (Harris 1998), "wise" and "far reaching" (Joyce 2001), one that "improves the lives of people" (Bush 2002), while contrasting it with the "visible hand," "the hidden hand,"
"the grabbing hand," "the dead hand," and the "iron fist" of government, whose "invisible foot tramples on people's hopes and destroys their dreams" (Shleifer and Vishny 1998, 3^1; Lindsey 2002; Bush 2002). Critics use contrasting comparisons to express their hostility toward capitalism.To them, the invisible hand of the market may be a "backhand" (Brennan and Pettit 1993), "trembling" and "getting stuck" and "amputated" (Hahn 1982), "palsied" (Stiglitz 2001, 473),"bloody
(Rothschild 2001, 119), and an "iron fist of competition"
(Roemer 1988, 2-3).

             The invisible hand concept has received surprising praise from economists across the political spectrum. One would expect high praise from free-market advocates, of course. Milton Friedman refers to Adam Smith's symbol as a "key insight" into the cooperative, self-regulating "power of the market [to] produce our food, our clothing, our housing" (Friedman and Friedman 1980, 1). "His vision of the way in which the voluntary actions of millions of individuals can be coordinated through a price system without central direction . . . is a highly sophisticated and subtle insight" (Friedman 1978, 17; cf.Friedman 1981).Not to be outdone are Keynesian economists. Despite its imperfections, "the invisible hand has an astonishing capacity to handle a coordination problem of truly enormous proportions," declare William Baumol and Alan Blinder (2001, 214). Frank Hahn honors the invisible hand theory as "astonishing" and an appropriate metaphor."Whatever criticisms I shall level at the theory later, I should like to record that it is a major intellectual achievement. . . . The invisible hand works in harmony [that] leads to the growth in the output of goods which people desire" (Hahn 1982, 1, 4, 8).

Smith's References to the Invisible Hand

             Surprisingly, Adam Smith uses the expression "invisible hand" only three times in his writings. The references are so sparse that economists and political commentators seldom mentioned the invisible hand idea by name in the nineteenth century. No references were made to it during the celebrations of the centenary of The Wealth of Nations in 1876. In fact, in the famed edited volume by Edwin Cannan, published in 1904, the index does not include a separate entry for "invisible hand." The term only became a popular symbol in the twentieth century (Rothschild 2001, 117-18). But this historical fact should not imply that Smith's metaphor is marginal to his philosophy; it is in reality the central element to his philosophy.

               The first mention of the invisible hand is found in Smith's "History of Astronomy," where he discusses superstitious peoples who ascribed unusual events to the handiwork of unseen gods:

Among savages, as well as in the early ages of Heathen antiquity, it is the irregular events of nature only that are ascribed to the agency and power of their gods. Fire burns, and water refreshes; heavy bodies descend and lighter substances fly upwards, by the necessity of their own nature; nor was the invisible hand of Jupiter ever apprehended to be employed in those matters. (Smith 1982, 49)

             A full statement of the invisible hand's economic power occurs in The Theory of Moral Sentiments, when Smith describes some unpleasant rich landlords who in "their natural selfishness and rapacity"pursue "their own vain and insatiable desires." And yet they employ several thousand poor workers to produce luxury products: The rest he [the proprietor] is obliged to distribute . . . among those. . . which are employed in the economy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. . . . [T]hey divide with the poor the produce of all their improvements. They are led by an invisible hand to,... without intending it, without knowing it, advance the interests of the society. (Smith 1982 [1759], 183-85)"The third mention, already quoted above, occurs in a chapter on international trade in The Wealth of Nations, where Smith argues against restrictions on imports, and against the merchants and manufacturers who support their mercantilist views. Here is the complete quotation:As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.... [A]nd by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it.

             By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. (Smith 1965 [1776], 423)

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Adam Smith:The Invisible Hand

Gordon Gekko, the villain of 1980's classic movie Wall Street,said ''greed is reasonable'' and he justified all community's fears about the financiers.Disgraceful money ambition,in the brutal World of Manhattan it is not something to be ashamed of anymore;like striped shirt red trousers hanger,it should be wear proudly..

            The film shocked everyone ends of the 20th century,but think about how people would respond such a declaration two centuries ago.At that time intellectual life was under the control of the church and it was considered almost insulting to describe people as "economic animals".And now Adam Smith's the idea of ''Invisible Hand'',you can think how people respond it in 18th century more or less.Even so,Smith's book has reached to commercial success and it has been finished at first edition;it is still on classics.The Individual interest is short name of ''The Invisible Hand'' and the law of supply-demand and it explains how these two factors are beneficial for society.The simple idea behind it is:It is not wrong for people to act in their own interests.In a liberal market,to act in their own interests of people,total actions,it does benefit all society and it make rich all.

            Smith,classic work of 1776 him '' The Wealth of Nations '' it has been used that phrases three times.But the important paragraphs of work,it has been emphasized importance of ''The Invisible Hand'':

[Every individual] neither intends to protect the public interest nor knows how much s/he can protect it.While managing this [her/his own] business by the method that will reach the maximum value,s/he works only for his/her own benefit,and like in many other subjects,in this,too,and invisible hand makes him/her a part of the work s/he has never intended to do...By affording advantage for his/her own, most of the time,s/he can protect the benefit of society more effectively than the time that s/he has intended to protect it. I've not seen so far that the people acting as if they were trading in the public interest help. 

References Adam Smith,The Wealth of Nations, Chapter II - Of Restraints upon Importation from Foreign Countries of such Goods as can be Produced at Home  
         
              This idea,of free market,the reason of development in complex modern societies,it helps to understand that it is so important.

              The course to be taken from ''Invisible Hands''  Let's examine an inventor:Thomas Edison. Thomas has invented a new bulb;more effective from at markets,long-lasting and bright.Thomas had made it for his own interests.;being rich,also maybe hoping to be famous.The related emerged product will be useful for society;it will creat employment both for bulb producers and for it will brighten demanders life.If there was no demand for bulbs,nobody wouldn't pay to Thomas and so invisible hand would have punished him for falling into such a mistake.

             Similary,others who see Thomas's job and earn money will also try to make more money from him by designing a better bright bulb.They will start to being rich.But the invisible hand never sleep.At this time Thomas will try to reduce prices and will try to sell more than opponents.

             Thomas,at every stage of the process,act for his own interests,doesn't think of society's interests,but unexpectedly the result benefit to all.

            Smith specifies that the "invisible hand" is a condition in which we can not operate.One of these,as known ''public property tragedy'' impasse.A related source of- for instance everyone who grazing animals on lands - ,it creates the being limited problem.People,even if their actions are against their neighbors,they continue to using green areas.

           The limits of free market In the past decade,the invisible hands doesnt support a related political perspective in fact.In the past decade,the invisible hands does not support a certain political perspective in fact.It is an optimistic theory [please check Micro and Macro],but it goes against the ideas of those who think that the economy should be best managed from the top, or that the government should decide what to produce.

           The invisile hand, beside governments and managments,underlines that individuals must decide what is produced and consumed.But,there is important conditions;Smith,makes a distinction with between in individuals own interests and selfish greed.The laws and regulations that protect us from injustice as a being consumers are our own interests.These are,contain property rights,patents and copyrights and workers' rights.The Invisible Hand should support with laws.

``Main MESSAGE
The benefit of the individual is the benefit of the community.

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