Saturday, January 2, 2016

Free market vs. Keynesianism - What the world was and what the world is today

In Western economics there are two schools of thought regarding economies and markets.  First is the free market system, otherwise known as Austrian economics, and it is based on the invisible hand determining winners and losers, and setting the natural course of prices and interest rates in a self-correcting manner.

But since the early 1930's, and with the advent of Great Depression, most economies in the West have chosen to follow economic principles outlined by English economist John Maynard Keynes.  And in Keynesian economics, government and central bank intervention is used to manipulate interest rates, business cycles, and where the flow of capital goes... and has been the primary economic policy for nations ever since.

But what are some of the key differences between Austrian or Free Market economics and government/central bank controlled Keynesian theory?  Below is an infograph that details the differences.

Adam Smith advocated the use of natural market forces to determine prices, supply, and demand, while politicians since 1776 have sought to impose their own agendas on markets through the use of manipulated intervention as seen in economic models like Communism, Socialism, and Fascism.  And in the end, it was pure free market capitalism that brought the greatest boom to the world in a period of inconceivable prosperity (Industrial Revolution), while in the 20th century this prosperity was forged on a foundation of debt and credit, and by separating winners and losers by political means, rather than by hard work, merit, and opportunity.


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