Conceptual Frame of Adam Smith and John Maynard Keynes to Competition - Assignment Example

 Conceptual Frame of Adam Smith and John Maynard Keynes to Competition Competition is apparent in any economic environment. Various economists have covered the topic making arguments for and against the competition. The essence of having competition is to create a unique environment in a market structure. Adam Smith who is the founder of the modern economics laid his emphasis on the role of cooperation, rule of law, and trust as ideal prerequisite to enhance economic and trading activities. The guarantee of the three essential elements, Smith believes that the entrepreneurship will lead to economic flourishment. As a social philosophized his argument is grounded on the establishment of the moral obligations that provides universal opulence and creates the greatest good for man. Ideally, the main concern of Adam Smith was on the need to achieve economic progress. This way, he analyzed the relationships between labor and the size of the market. Capital accumulation and saving roles. Equally, Keynesian observes the role of entrepreneurship and innovation as the emphasis of the economics. He emphasized the need for investment to achieve spiral economic growth. The England economist was considered as “radical”. His view is what is referred to as “neoconservative”. This is because of his desire to have a free market in which it does not require the intervention of the government and the politicians. Economists view capitalisms positively like Adam Smith. Keynes argues that in order to improve the societies and empowerment, there is a need to promote the capitalist's elites due to their power and economic forces. Both economists observe that the political influence creates unnecessary and unfair fight which makes the employers stronger and weakens the workers (Cho, Mun, & World Scientific (Firm), 2013, 19). Just like in Australia, competition is considered ideal only when done in the right way. The government forbids competition that leads to the customer or worker exploitation. The influence in politics sides with the employers who then enact laws that see the lowering of wages and forbid lobbying of the workers (Smith, Rossi, & Allenby, 2017, 12). Additionally, workers were taxed hence their gross salary was lowered. Smith puts the context of competition on the way the government provides an exclusive right to specific companies to produce, sell, and limit labor supply using guilds hence creating a monopoly. Those in power can secretly use their influence and create combinations to lower wages of labor at the expense of the works. The self-interest groups promote their agenda using twisted legislation by peddling their power and influence using their connection with the master (Kindleberger, 2016, 137). The belief that the Australian economy is controlled by large and powerful firms is a myth. The fact is that the Australian economy is controlled by competition. However, only a few enjoy the supernormal profits which help in the growth of the economy. For example, the banking sector is enjoyed by Big Four which accounts for 17% of the aggregate profits, the supermarket sector is dominated by Woolworths and Coles who generate profit that is higher than the compensation the stakeholders derive (Cho, Mun, & World Scientific (Firm), 2013, 20). Other firms like Telstra, liquor retailers, internets service providers, insurance companies, betting agencies in sports and major city airports also enjoy dominance. According to Keynes, capitalism dominance in the economic crisis and subsidizes their vested interests causing social unrest. The popular intellectual and discontent hostility has led to socialism and a doomed capitalism. Ideally, Keynes referred to the constant government control of societies and production that used the system. Despite Keynes opposing the proponents of socialism, he viewed societies that use the ideologies of socialism tend to prosper because of the enormous economic firms either public or private gradually developing to innovative economies. These arguments were wrong but his insight on capitalist’s economic success survives as it was unfinished and interrupted which led to own backlashes. The long-standing trend in the economic recovery displays the heated public reaction on the sluggish economic progress (Marris, 1992, 281). Conversely using the arguments of Adam Smith, presents a genius thought about the economy. Regardless of Smith’s arguments of perfect competition missing on the modern economies, the big firms usually dominate and enjoy the supernormal profits alone. This is because of the imperfect information in the market while they enjoy complete information hence outdoing other rival companies who in the long run exits the market. Just like Smith asserted, Keynes believes that the benefits the large monopolist companies are temporary considering the inspiration of additional innovation by big companies and entrepreneurs alike. The high profits cannot go beyond the stifling competition. Further, Keynes and Smith believe that political and economic competition because the entrepreneur's activities are necessarily monopolists because of their influence in the economy and are prone to destroy the market equilibrium. This depicts the imbalances the state of economic causes and bears monopoly. The few firms only enjoy profits alone at the expense of the small firms and the consumers who have no other choice. The market analogy presented by Keynes depicts the nature of monopolies which conform to the political traits. The scenario Keynes uses is the democratic elitisms which implied the way the modern democracies use the elite rule and elect leaders, however, their agenda can be halted by the posters who can decide to oust such leaders (Guerrieri et al., 2008, 15). The rival teams compete vigorously to control the economy by seeking votes and power from the electorates. It is in this way that the voters have the power to decide which economic front to follow for their benefit. The trade and markets are in order given there is regulatory framework and competition to ensure there is no exploitation, greed, capacity, and ruthlessness that may lead to adverse social consequences. However, the concern is on how the regulation risk undermining by monopolies. As argued by Smith, the essence of giving monopolies power to enjoy the high profits and comfort causes danger to many people in the economy. The process of treating political economy as an integral part of the economy encompasses the need to debunk the opinion and false beliefs by fighting superstition which often presents their self-interests. The emphasis is to promote the common good in the economy by adjusting the regulations to ward off the threats that may set the society to be insecure. Providing the incentives ensure the self-seeking individuals should provide a beneficial effect that addresses the problems faced in today’s economy (Perelman, 2002, 110). As described by Adam Smith, the competition and self-interests in the market economics is an “invisible hand” that provides a guideline for the economy. The paramount resources are the factors of production which include capital, land, and labor. The individual’s control of these resources signifies the essence of voluntary decisions that influence the market. As described by Adam Smith, the self-interests and competition role are crucial economic forces. This is evident in Australia where the government injects standard regulations in the market to protect the economy and the consumers. The Adam Smith arguments are still used in defining the fundamental purpose of the market economies functions. The self-interest connotations depict the way the producer or seller of a service work to add value to the good that will benefit the consumer. Ideally, it is the regulation of the economic activities that are put in place to prevent cheating, price gouging, and unfair competition (Marris, 1992, 282). Using the invisible hand model, Smith describes the opposing forces that explain the contemporary competition and self-interest. The provision of a good that benefits others and society is an amazing way of examining the essence of competition (Perelman, 2002, 111). Producers ensure they provide the good to against elf interests that would help in getting other goods and services that will be of benefit. For example, a farmer that grows millets, the truck driver transports it to the grocery store and the grocer stocks them ready for sale to consumers. This occurs without government intervention or guideline on how much to produce or sell. The automatic cycle explains the way the process is guided by the invisible hand (Gerrard & Hillard, 1992, 46). Both rejected the “Heuristics and biases” which had regarded the normative behavior in the market as an influence to decision makers. The sentiment by Keynes concerning the laissez-fair shows his belief in economic freedom. Ideally, large companies tend to bring down small companies Keynes states that the creative destruction prevalence lead criterion of more industrialists that use creativity to survive. For example, a big company like IBM was rocking in 1970’s as it was considered the big process when it comes to technologies world, however, the current scenarios show how the IBM is struggling to keep up with the fasts growing technology companies like Microsoft, Apple, and Google (Perelman, 2002, 112). Both rejected the free market approach is also shared by Adam Smith, for example, the scenario of Wal-Mart in which the government opposes quotas and tariff imports. According to Smith, the distribution of laborer is effective in maximizing production (Perelman, 2002). The essence of the provided goods to wider market without government intervention sets the risks to offer lower prices and reach out the large market. This way the Smith’s believe in earning consumers loyalty is realized through the guarantee of providing the good at low prices (McDermott, 2015). In Keynes explaining on competition depicts the change of is stand in economic developments. The classical economist is believed to have significant arguments about entrepreneurship. He recognizes entrepreneurship as the fourth factor of production along with labor, capital, and land. This turn of events can be interpreted in the context of competition by observing the role of entrepreneurship as a crucial avenue on achieving business strategies, innovation and credit creations. This way, a business firm can engage fairly in the market without being swallowed by giant companies (Gerrard & Hillard, 1992, 47). Different from Smith arguments, Keynes believe that public policy is unnecessary when offering standard evaluations. The genesis of his arguments is the fact that the system in the economy will take advantage of the inferior systems since the regulations will curb the small firms hence their failure. Ideally, the innovation in the pasts was only regarded as a product of a new firm but the scenario has changed as firms have become readily adaptive to new changes. Innovation is taking over the capitalist economy that is “trustified” as giant firms have shown a form of being creative and have adopted the innovative strategies to capture exceptional talent (McDermott, 2015, 687). The Keynes work was considered for in analysis the antitrust issues. The essence of his work being referred to as “the Keynes hypothesis” indicates how his world on hypothesizing that large firms were in a better position to be innovative compared to smaller firms. However, from his writing, he creates that innovation was possible from any source hence refuting earlier sentiments on larger companies’ ability to innovate. The antitrust syndrome is based on the evolution of the large companies who were challenged by the entrepreneur startups who would have desired the phenomena. The Australia situation in economic development is evidenced by Smith's arguments more compared to Keynes arguments. Smith clarity on the economic models illustrates how Australian has used trusts, rule of law and cooperation to boost its economic development. The use of modern economies displays the prerequisites of conducting trade and promoting economic activity, for this reasons Australia have little or no cases of economic sabotage and unregulated trade. The government has worked on its mandate of instilling laws that protected both the seller and buyer in the economy. The Australian society is an assertive society that provides a fair ground for everyone to contribute to the economic prosperity of the nation. Ideally, the idea of “inclusive institutions” depicts the positive performance of the Australian (McDermott, 2015, 670). In contrast, Keynes emphasis on the role of production and new production techniques stimulates the economy. According to Keynes, cleverer business entrepreneurs will seek possible to outdo their competitor in the market. Keynes refers to this process as “creative destruction”. The process is damaging as other business will be dropped off the market because of the lack of creativity like the rival firms (McDermott, 2015, 688). For the survival of business in Australia the business receives protection from the state but using the agreements of Keynes, the business will either “shape up or shut down”. Ideally, the advancement in technology has prompted much business to adjust to meet the technological trend as their clients also shift and demand for the same. However, initial costs are quite high hence not all firms will shift immediately; those who lack behind are swallowed by the innovational and ready businesses. The idea is to ensure there is efficiency and achieve good understanding (Blatt, 2014, 22). Keynesian arguments are based on manipulating the set natural regulations which lead to the creation of a free market. They both agree on the need to have competition but not regulated excessively. Their arguments also depict the Australian economy in the way the businesses operate with minimal regulation and conducting a fair competition. There is a need to investigate the process to ensure nature is not teased by using deeper secrets. Conclusively, the two economical theorists present valid arguments on the issues of communications. Their shared sentiment concerns the focus on growing and developing the economy. However, the process of executing the economic models to achieve stability which differs with Smith uses of modern economics by considering trust, cooperation, and abiding by the rule of law while Keynes only sees the economy growing through the creations of innovation and investment by ignoring the regarding laws and creating a game against nature. Australian economy lays its emphasis on creating a smooth economy by operating within the confines of the law which ensure regulation is in place and that there is fair competition. Bibliography Blatt, D. (2014). Understanding the economic basics and modern capitalism: Market mechanisms and administered alternatives. Cho, T., Mun, H., & World Scientific (Firm). (2013). From Adam Smith to Michael Porter: Evolution of competitiveness theory. Singapore: World Scientific Pub. Co. Gerrard, B., & Hillard, J. (1992). The philosophy and economics of J.M. Keynes. Aldershot, Hants: E. Elgar Pub. Co. Guerrieri, L., Gust, C. J., López-Salido, J. D., & Board of Governors of the Federal Reserve System (U.S.). (2008). International competition and inflation: A new Keynesian perspective. Kindleberger, C. P. (2016). 1984: The Adam Smith Address was Adam Smith a Monetarist or a Keynesian? The Best of Business Economics, 137-148. doi:10.1007/978-1-137-57251-6_15 Marris, R. (1992). Imperfect Competition, the Economic System and the Debate on Keynesian Economics. Oligopoly and Dynamic Competition, 281-360. doi:10.1007/978-1-349-12818-1_10 McDermott, J. F. (2015). Perfect competition, methodologically contemplated. Journal of Post Keynesian Economics, 37(4), 687-703. doi:10.1080/01603477.2015.1050335 Perelman, M. (2002). Keynesian Policy, Monetary Policy, and the Weakening of Competition. The Pathology of the U.S. Economy Revisited, 109-139. doi:10.1057/9780230108233_6 Smith, A., Rossi, P. E., & Allenby, G. M. (2017). Inference for Product Competition and Separable Demand. SSRN Electronic Journal. doi:10.2139/ssrn.2861986 Smith, N. (2011). Complexity, competition and growth: Key ideas from Adam Smith, modeled using agent-based simulation. Read More