1. Four Schools of Economic Thought
Cause and Effect

2. 1. Mercantilism
2. Laissez faire 1776
3. Scientific socialism 1840
4. Keynesian economics 1930

3. Mercantilism
Primarily European countries with overseas colonies practiced this economic plan. The key was to control the balance of trade so that the mother country always had a surplus and the colonies were dependent upon it.
Tariffs were used to force colonies to buy manufactured products from the England and France for example.

4. Laissez faire
Laissez faire or physiocrats saw free markets as better than mercantilism. Allowing natural laws of supply and demand to rule was better.
Adam Smith’s Wealth of Nations (1776) explained that wherever demand for a good/service was greater, suppliers would meet that need in order to gain profits. Government was needed only to protect society and administer justice.

5. Scientific Socialism
Inspired by the plight of the suffering working class, socialists predicted capitalism would fall due to rise of the workers.
Karl Marx and Friedrich Engels wrote The Communist Manifesto (1848) predicting workers would unite to take over their countries due to the government’s siding with business owners to exploit the workers.
Eventually a classless society would result, allowing the government to “wither away.”

6. John Maynard Keynes
As economic depression spread worldwide in the 1930s, Keynes argued a government should step in and spend more to bring their economy back up to their full productive capacity. This is “deficit spending.”
Keynes refuted laissez faire theory by forcing government spending to stimulate an economy where natural market forces appeared to be unable to generate jobs and increase business and consumer spending.