Keynesian and Classical Economic Schools of Thought Compare and Contrast

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Keynes passionately believed that it was unwise to wait for markets to naturally 'correct' themselves. "Keynesians believe that what is true about the short run cannot necessarily be inferred from what must happen in the long run, and we live in the short run. They often quote Keynes's famous statement, 'In the long run, we are all dead'" (Blinder 2008). Furthermore, in contrast to classical economists, Keynes wrote that prices tended towards rigidity-hence the 'stickiness' of wages during the great depression: "there is only a limited amount of flexibility in prices and wages" (Blinder 2008).

Since the Great Depression, the acceptance of a laissez-faire attitude towards economic policy has never been as absolute as it was previous to the1929 crash, despite the supply-side response to the economic crisis of the 1970s, which challenged Keynesian assumptions. The combination of high inflation and high unemployment in the 1970s was not supposed to happen according to Keynesian theory. Conservative economists advocated high interest rates and a tight money policy as a solution. Yet while Keynes has been shown to have been far from infallible, even conservative economists advocate economic 'tinkering' to a greater degree than the classical school ever did, thanks to Keynes. Liberals and conservatives may advocate different fiscal and monetary responses to the waxing and waning of the business cycle, but no mainstream economists advocate a purely 'hands off' policy, or a return to the rigid gold standard of the 1920s.

Works Cited

Beattie, Andrew. "Giants of Finance: John Maynard Keynes." Investopedia. 31 March 2010.

Blinder, Alan S. "Keynesian Economics." The Concise Encyclopedia of Economics. 2008[continue]

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