Emma Shanley1 Synopsis of Adam Smith and John Maynard Keynes By Emma Shanley

2 Adam Smith Scottish Economist Born in Kirkcaldy, Scotland 5 June 1723 Born in Kirkcaldy, Scotland 5 June 1723 School in Kirkcaldy School in Kirkcaldy 1737—University of Glasgow 1737—University of Glasgow Studied at Oxford University Studied at Oxford University Lectured in Edinburgh and Glasgow University between 1748 to Lectured in Edinburgh and Glasgow University between 1748 to Author of The Publication “The Wealth of the Nations” Author of The Publication “The Wealth of the Nations”

Emma Shanley3 The Power of the Invisible Hand Pursue individual interest Pursue individual interest Result: Benefit society in general Result: Benefit society in general E.g. set up business for profit and create employment for people at the same time. E.g. set up business for profit and create employment for people at the same time. Believed people were driven by selfishness and this was morally acceptable as this benefited society.

Emma Shanley4 Laissez-Faire Promote free trade Promote free trade Build up the infrastructure of the country Build up the infrastructure of the country Provide a legal system Provide a legal system Defend the country Defend the country Believed the government should not interfere except for to provide the following:

Emma Shanley5 Productive and Non-productive Labour Productive Produced goods for sale Produced goods for sale Making money to reinvest Making money to reinvest E.g. Baker E.g. Baker Non-productive Actors Teachers Engineers

Emma Shanley6 The Labour Theory of Value Distinguished between value in use and value in exchange. See my example below. Distinguished between value in use and value in exchange. See my example below. Diamonds Has limited number of uses. Large value in exchange. Water Has many usesHas many uses Small value in exchangeSmall value in exchange

Emma Shanley7 The Canons of Taxation Equality– Tax payments should be proportional to income Equality– Tax payments should be proportional to income Certainty– Tax liabilities should be clear and certain Certainty– Tax liabilities should be clear and certain Convenience: Taxes should be collected in a manner convenient for taxpayer Convenience: Taxes should be collected in a manner convenient for taxpayer Economy – Taxes should not be expensive to collect and should not discourage business. Economy – Taxes should not be expensive to collect and should not discourage business.

Emma Shanley8 The Division of Labour Improve the productiveness of labour. For instance, the making of a single pin involves eighteen separate operations, which are entrusted to eighteen separate workmen; and the result is, that whereas one man working alone could make perhaps only twenty pins in a day, several men working together, on the principle of division of labour, can make several thousands of pins per man in one day.

Emma Shanley9 Exam Questions Examples 2006 section B

Emma Shanley10 John Maynard Keynes British Economist Born in Cambridge, England Born in Cambridge, England Son of John Neville Keynes Professor of Economics at Cambridge Son of John Neville Keynes Professor of Economics at Cambridge Won a scholarship to Eton and later to Kings College Cambridge Won a scholarship to Eton and later to Kings College Cambridge Lectured at Kings College from 1908 Lectured at Kings College from 1908

Emma Shanley11 Publications A Treatise on Money – 1930 Bestseller A Treatise on Money – 1930 Bestseller The General Theory of Employment, Interest and Money The General Theory of Employment, Interest and Money

Emma Shanley12 Fiscal Policy Government controlled tax levels and public spending. E.g. an economy has slowed down Unemployment levels are up Consumer spending is down Businesses are not making any money Government decreases taxation Consumers have more money to spend. Government spends money by buying services from the market (such as building roads or schools). Jobs are created. Result: More money in the economy and less taxes to pay Business will now begin to make money again Laissez-Faire He did not believe in Laissez-Faire

Emma Shanley13 The Theory of the Multiplier Injection of money into a business. Injection of money into a business. Creates more income than the amount invested. Creates more income than the amount invested. The formula for the Multiplier is as follows: The formula for the Multiplier is as follows:1 1 – MPC + MPM + MPT

Emma Shanley14 The Liquidity Preference Theory of Interest Rates Rate of Interest fixed by the Central Bank Settles at a level which brings about equal Supply of and Demand for Money Supply meant the money in circulation. Demand meant the reasons why people want to hold onto money rather than invest it.

Emma Shanley15 Saving and Investments Savings and Investments were not equal to each other. Savings and Investments were not equal to each other. Savings were greater than the amount that entrepreneurs are willing to invest. Causes underemployment in the economy.

Emma Shanley16 Exam Question Examples 2002 section A

Emma Shanley17 The End