Government Involvment In Economics Essay

1401 words - 6 pages

In the late 1700's, government ran the economy in a country. Colonies were tightly controlled and little freedom was granted merchants. Due to this way of economic life, in 1776 Adam Smith wrote a book entitled "The Wealth of Nations". In it, he listed three economic questions that need to be answered. He suggested that any economic system must be able to answer: "What goods should be produced, How are they to be produced and who should have them?" Adam Smith suggested a system with little government involvement, with profit and competition being the motivation behind quality goods at reasonable prices. This was known as Capitalism.At the same time, Karl Marx was questioning economic systems as well. However, he wrote about a system know as communism or command economy, in which the government tightly controlled the economy to prevent anyone from becoming poor or rich. Everyone would be equal, working for the common good. So the question facing a country's economy style was, should there be government involvement. Basically, Capitalism or Communism? The problem is neither system in its true form can work. Pure capitalism is very hard to achieve, as it encounters problems such as monopolies, oligopolies, vast extremes from poor to rich and "˜boom and bust' cycles, which damage the economy. Communism however, had bigger problems. With no incentive, conformity to state and severely limited human rights, communism has become a hated economic system. So what is the answer to the extent of government involvement in planning the economy? The answer lies with a balance of the two know as Mixed Economy.Mixed Economies exist where government and people live in economic balance. Mixed Economies lie in the middle of the economic spectrum, with some government intervention. The question now becomes, not should government interfere with planning a system of economics, but to what extent should they be involved.There are two sides in a mixed economy. They are know as "˜Supply Side' (right side), or "˜Demand Side' (left side). Supply side demands less government involvement, whereas Demand Side calls for more government involvement. Which is the better of the two? In planning a economic system, governments need some involvement. John Keynes, a Demand Side economist in Pre-World War 2, raised some very important points. He said that government is responsible for each person in the country. A government needs to control business to protect people and provide a social safety net. Yet, this creates debt and abusers of the system. So, to what extent should the government be involved in the planning of a system? The answer is a slightly more left side supply side government. Why? To answer this, one must consider the results of left side and the right side economics in capitalism.In a Demand Side economy, the government is heavily involved with planning. It follows the guidelines laid out by John Keynes. Keynes wrote of social safety,...

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