Economic Theories: From Mercantilism to Keynesianism

Mercantilism

Mercantilism is a set of economic ideas that considers the prosperity of a nation or state to depend on its capital, specifically the precious metals held in its power.

Physiocracy

Physiocracy claimed the existence of a natural law, ensuring the economic system would function without government intervention.

Marxist Economic Theory

Marx studied the economy through "historical materialism," where the evolution of society is explained by economic factors. The most important consideration in any historical period is the dominant system of production and distribution.

Surplus Value and Labor

Marx maintained that all wealth is produced by the worker, who remains at the mercy of the capitalist surplus value: the benefit gained by the employer for the excess hours workers are forced to labor beyond their paid wages. The worker produces excess products for free, which Marx believed should be owned by the employee, not the employer.

The Proletarian Revolution

According to Marx, workers cannot afford what they need due to low wages. Consequently, consumption fails to keep pace with production, leading to the collapse of companies and the suffering of the proletariat. To reach these goals, a revolution is required to break the existing order and establish the dictatorship of the proletariat.

Keynesian Thought

The Crisis of '29 highlighted the inadequacy of classical doctrine in addressing unemployment and the lack of demand. This was a crisis of capitalism where supply far exceeded demand, leading to deflation, bankruptcies, and massive unemployment.

Keynesian Macroeconomics

John Maynard Keynes introduced his General Theory of Employment, Interest and Money. He focused on macroeconomic phenomena rather than individual pricing. He argued that state intervention could solve economic problems through:

• Public spending: Investing in infrastructure to mobilize the economy.
• Wage stimulation: Enabling saving and investment through the payment of fair wages.

Keynes concluded that insufficient demand leads to unemployment. Higher employment levels increase demand, as rising wages boost the purchasing power of society.