Several major changes were set in motion around 1500. Overseas trade established new networks and boosted collective learning and commercialization. Globally-traded currency created an easy way to trade goods and store wealth. Individual markets, once places to buy and sell physical goods, began to merge into the market system.
By the 1600s and 1700s, both custom and command were weakening.
When the Scotsman Adam Smith (1723–1790) was born, industrialization and a proﬁtdriven market system were replacing custom and command-driven economic systems across Europe. Smith studied in Glasgow, Scotland, and Oxford, England. He had many jobs: professor and lecturer, private tutor to the children of European royalty, government economic adviser, and customs commissioner for Scotland. This gave him a comprehensive understanding of economics. His ideas are captured most powerfully in An Inquiry Into the Nature and Causes of the Wealth of Nations, usually known as The Wealth of Nations.
These changes reﬂected an intellectual shift toward rationality, progress, liberty, and secularism — generally referred to as the Enlightenment.
Karl Marx (1818–1883) was born in the midst of the Industrial Revolution, into a middleclass family in Prussia. He led an eventful life: He was jailed for public drunkenness as a college student. His home and personal appearance were unkempt. He spent money frivolously, causing his family to frequently live on the brink of poverty. For most of his professional life, Marx was a writer for a variety of liberal, radical, and foreign newspapers. He moved between Prussia, France, Belgium, and England because he was continually blacklisted or deported for his radical views.
Marx and his frequent co-author, Friedrich Engels, were outraged at the hardships faced by the working classes of industrial European cities. They channeled this anger into monumental written works that formed the basis of modern communism one of which included The Communist Manifesto, published in 1848
Marx and his frequent co-author, Friedrich Engels, were outraged at the hardships faced by the working classes of industrial European cities. They channeled this anger into monumental written works that formed the basis of modern communism one of which included a four-volume, 2500 page work, Das Kapital, published in 1867
John Maynard Keynes (1883–1946, last name rhymes with “rains”) was born into an educated family. During his life, he worked in academia, economic publishing, private ﬁnancial advising and management, currency speculation, and as an ofﬁcial in the British Treasury.
John Maynard Keynes, was highly inﬂuential in confronting the dilemmas of capitalism in the early twentieth century.
As a call to action, Marxism was most inﬂuential in the twentieth century, when it inspired various brands of revolutionary activity. This includes the Russian Revolution in 1917 and the rise of communist governments in China, Vietnam, and Cuba, as well as in many Eastern European and African nations. It has since ﬁzzled out, with the U.S.S.R. collapsing in the early 1990s, China shifting toward a market-friendly economy, and smaller communist countries that depended on them adopting more market-oriented systems.
Keynes argued that only the government had the resources to spend the money that individual consumers and businesses could not, and so break the cycle. This approach proved relevant in the 1930s and 1940s. The New Deal government relief programs of President Franklin D. Roosevelt were designed to stimulate the economy in the early 1930s. Cuts to the federal budget in the late 1930s caused an immediate economic downturn. Extensive government spending to fund World War II coincided with the end of the Depression.
Keyne's ideas about the Great Depression, the major economic crisis of the twentieth century. The worldwide Depression lasted roughly from the early 1930s to the mid-1940s. Unemployment in the United States increased from 3 to 25 percent during this time. The national income was cut in half.
Keynes’s analysis of the Great Depression focused on the role of savings. He explained his theories in his 1936 book, The General Theory of Employment, Interest and Money.
Until the 1970s, Keynesianism predominated American economics. “Great Society” domestic social programs — like Medicare and education funding — reﬂected Keynesian thinking. Institutions such as the International Monetary Fund and the World Bank also are based on the Keynesian model.
The 1980s and 1990s saw a renewal of “classical” economic theories that went back to some of Adam Smith’s ideas.
The “Great Recession” of the 2000s presents a new opportunity to debate whether Keynes’s ideas are still viable.