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Economics analysis was over the years an issue that raised sufficient concerns among the politicians and the economists alike. Franklin Roosevelt was shaken by the great depression to the extent that when Keynes shared his propositions with him, he felt the prepositions were too easy to offer solutions. In both theoretical arguments, rationality of the consumer is placed central. Under Marx’s capitalism, individuals always yearned to amaze much wealth and could not be satisfied to the extent to continued wealth amazement. In Keynes economics, the decision by rational consumer always affected the entire economy.
The proletariat capitalist always owned their services and the decision to sell these services was at their discretion. Within the beliefs of Marx, classes in the economy were defined by the relationship between the members and the inherent means for the productions of the goods and services. Ideally, according to Marx, history was transcending from to class wars, uprising and struggles (Tresscott, 1996). Marx asserts that workers would offer their services to the capitalist upperclass for the sake of sustaining their families even if the wage level was a shear bare minimum.
Keynes sought to explain the great depression and found the depression to be a function of the economics slumps that were transcend from the rationality of the consumers. These were affecting the uniformity of the circular flow of income. Given that ones income was simply the other person’s expenditure, Keynes argued that the decision by any consumer to restrict his expenditure patterns would ultimately affect the income of the supplier, and hence course the slumps in the economy.
In a normal economy, according to Keynes, the level of employment is normally high and the expenditure of everyone would be sustained at a level that makes the economics activities balanced (Matticks, 2005). Subsequently, the circular flow of money remains within the requisite level and the economy doesn’t strain to maintain the activities. However, when the economy is shaken, the consumers’ confidence become shaken and may opt to save their probable expenditure for the sake of harder times ahead.
Subsequently, given that one person’s income is the other person’s expenditure, the trend trickles down to the other sectors of the economy (Review of Keynesian theory, 2008). This results from the fact that some of the consumers resort to hoarding money on pretext of saving, causing a shortage in the money supply and subsequently leading to even harder times within the economy. The continued hoarding of money ends up making the vicious cycle a continuous trend; eating direly into the economy.
In mitigating this treacherous trend, Keynes argues that the central bank has to expand the money supply. This would be achieved through the sale of treasury bills and Treasury bond to the public which would assist in returning the confidence of the consumers. Subsequently, expenditure would be normalised which would translate into the stabilisation of the economy through the reestablishment of the circular flow of money. Because of the simplicity of the policy guideline, they were readily wished away by most political classes because they seemed too easy to give results.
Exchange seems to be a common aspect of the two economists. While Keynes looks at the exchange preference of the consumers, Marx looks at the exchange preference of the labourers and the producers of the services. According to Marx, the value of any product depended largely on the value of labour. Like in the case of capitalist economics (Review of Keynesian theory, 2008), if the labourers chose to withhold their services, hoard in the case of Keynesian economics, then there could be slumps in terms of the circular flow on income. Ideally, there could be no sufficient circulation of money and the services and good produced would well be in short supply and therefore affecting the economic cycle.
Marx and Keynes (Ward, 2007) are in agreement that decline in the accumulation of capitals affects the performance of economies. Keynes sees the dilemma as caused by the deficiency in the investment prospects of the nation. Marx argues that if incentives lack, the possibility of increasing investments are reduced and therefore affecting the employment levels. Because expenditure depends on the income of the consumers, low level of employment ultimately eats into the prospects of increased good and service consumptions.
Keynes however, (Tresscott, 1996) does not find depression and crisis as an imperative aspect of the formation of capital. He argues that this is only applicable under the laissez faire conditions. Further, he argues that this would only suffice in cases where the economic equilibrium does not call for full employment which according to Keynes is an impossible condition.
On his part, Marx argues that continued formation of capital presupposes periods of crisis and depression. Marx argues that crisis is only a mechanism that precludes equilibrium believed to function best under capitalist tenets. Under depression, the capitalist structure have been found by Marx to undergo requisite changes that would restore profitability that would have been lost hitherto, translating into the expansion of capital.
Keynes and Marx largely dealt with economic aggregate. The difference only emerges in the sense that while Marx looked at the trend that transcended capital formation Keynes looked at formulation of incidental policy that would support the capital formation without damaging the capitalist production prospects. Keynes economic system was divided into two sectors; the sector that was to produce capital good and that that was to produce consumptions goods. The total income was therefore the sum total of the wage units resultant from both sectors.
Marx (Tresscott, 1996) emphasises the formation of capital, Keynes emphasises consumptions. Combined; the two look at the aggregate demand. Subsequently, this implies that the consumption of services and consumption good’s value translated into the total income of the labourers and hence at this point equilibrium is reached. At the point the savings should equal the investments.
The American economy has remained resilient over the years because of the marginal propensity of its populace (Ward, 2007). It is perhaps for this reason that the economy of the United States was threatened over the last two years resulting from the economic downturn. Through the two years, the ability of the American to purchase equities reduced, subsequently, the consumer shunned investment fearing for the performance of the economy. This reduced investment also meant decline in the employment levels of the resources largely the labour force (Matticks, 2005). The shaken economy, as is argued by Keynes causes investors and consumers alike to save for the future which would be appearing oblique.
China on the other hand, has had its economy on the upward trend with renewed resilience over the years. In line with the arguments put forth by Marx and Keynes, the marginal propensity to invest and consumer from the market of the Chinese have been relatively high and sustained. Besides, the rate of capital accumulation has been very high (Review of Keynesian theory, 2008). Subsequently, given that one person’s expenditure according to Keynes is another person’s income, the circular flow of income has been sustained at a level that has been able to keep the economy resilience. High consumption has equally translated into increased aggregate demand that has called for increased investments and expansion of the labour force.
The Keynesian and Marxist approach to economics has been very incidental in the development of policy for the cushioning of economies against crises. Keynesianism, for instance, has been a critical tool in controlling inflation and unemployment (Matticks, 2005). Certainly, controlled demand is a precursor to checking inflation just as increased aggregate demand boost employment prospects. It is for this reason that the Keynesianism emerges as a one theory that has stood the test of time.
Consequent to the tenets set by the Keynesian economics, the US maintains two policies for maintaining the requisite money supply. When the economy seems to be slowing, the central bank through the commercial banks offers credit to its citizens who then invest (Ward, 2007). These investments results into increased employment opportunities. Once the employment opportunities are increased the populace’s propensity to consumer is improved hence translating into increased aggregate demand.
The Marxist and the Keynesian find due leverage and application through the Chinese and the American economies. Any economy world over that has to remain afloat has to keep a keen eye on the rate of capital formation and the marginal propensity to consume of the members through sustained incomes.
On the part of the capitalist and Marxists in this case, the accumulation of capital is imperative in supporting development prospects. Labour is developed through training in both America and China which has made the two economies remain resilient over the years. The two aspects brought forth by the two theories ideally interlude for any economy to remain stable.