Sociology is the scientific study of human communities, their interrelationships, and the techniques used to safeguard and change them. The dynamics of society’s constituent elements such as organizations, community members, and populations, including those of different sex, race, or different ages, are studied. This essay discusses the theory of Adam Smith, the wealth of the nation of 1776, John Maynard Keynes, and Karl Marx, the general theory of interest, money, and employment.
Smith examines economic progress and its causes, including market forces, private ownership, and competitive pressure. He analyses division of labor, labor theory of value, free-market philosophy, and GDP in boosting productivity and affluence. Smith says dividing routine work increases productivity. Each employee can focus on a specific skill set, boosting productivity and specialization. Smith argued that division of labor promotes development by allowing analytical problems (Atkins, 2022). Smith’s labor theory of value is discussed in The Wealth of Nations. According to this theory, labour helps determine the value of a product or service. A product that requires the most effort and time will be valuable. Competitive rivalry forces industries to reduce costs and improve efficiency (Atkins, 2022). Smith says self-interested people improve society. Smith’s invisible hand theory claimed an economic system could self-regulate through the decisions of people who only want to make money. Smith says governments can create a stable workplace. This would help the free market and everyone’s wealth (Atkins, 2022). He said a country’s efficiency depends on its ability to absorb resources through interconnected markets. He saw the industry as an interconnected system in which output, usage, and exchange all affect favorable or unfavorable development. GDP is a key economic metric. We can identify areas where economic output improves and future policy initiatives by monitoring GDP over time. Adam Smith’s work has influenced economics and society (Atkins, 2022).
Two fundamental principles underpin Keynesian economics. One principle is that aggregate demand, rather than aggregate supply, is much more likely to be the main reason for a relatively brief economic indicator such as a recession. The other principle while in a financial crisis, wages and prices can become sticky, resulting in joblessness (Pettinger, 2018).
Recessions occur when saving surpasses investment. The classical theory proposed that a drop in invested capital would lower interest rates, minimize saving, increase investment, and restore full employment. Due to a liquidity trap and excess savings, Keynes’ analysis indicates this is improbable. Keynes believed recessions could be longer due to liquidity trap and negative multiplier effect. When low rates do not spur growth, a liquidity trap develops. People will not borrow if their confidence is low, even with the low-interest rate (Pettinger, 2018).
Furthermore, meagre interest rates can make banks unprofitable, causing them to minimize loaning (Pettinger, 2018). The multiplier effect was made famous by Keynes. The suggestion is that a drop in economic infusions has a pull effect and that the ultimate influence may be higher than the initial impact. When a company minimizes its assets, individuals are unemployed, which leads to reduced expenses and impacts everybody in the economic system (Pettinger, 2018).
Economic theory suggests transparent labor markets. The minimum wage artificially raises wage levels above equilibrium, causing unemployment. The classical theory says wage cuts reduce unemployment. Keynes thought this was insufficient (Pettinger, 2018). Employees may resist wage cuts even without a union or a minimum wage. Pay cuts won’t fix the imbalance. Reduced wages, lower income, and spending reduce consumer spending and labor demand. Instead of isolating labor markets, Keynes showed their interplay. Savings and labor markets shaped macroeconomic policy (Pettinger, 2018).
Marxism, named after Karl Marx, posits that class struggle designates economic ties in a capitalist economy and gives rise to communism. He said exploitative power relationships between capitalists and workers would cause class conflict (Maïa, 2018).
Marx’s Conflict Theory says limited resources will always cause conflict. Wealthy people will protect it, while others will do anything to get it. Rich and poor will constantly fight (Nickerson, 2021).
In conclusion, Adam Smith’s Wealth of Nations (1776) theory emphasized the division of labor, labor theory of value, free-market philosophy, and GDP to increase productivity and wealth. John Maynard Keynes and Karl Marx depicted the general theory of interest and employment, and money is aggregate demand that causes a recession. Prices and wages can also be sticky, leading to joblessness during a recession.
Atkins, H. (2022, April 29). Adam Smith’s Wealth of Nations: 4 Key Economic Theories. https://www.historyhit.com/adam-smiths-wealth-of-nations-4-key-economic-theories/
Pettinger, T. (2018, February 5). Keynesian economics.https://www.economicshelp.org/blog/6801/economics/keynesian-economics/
Nickerson, C. (2021, October 21). Conflict Theory. https://www.simplypsychology.org/conflict-theory.html
Maïa, P. (2018, February 25). Introducing Marxism in International Relations Theory.https://www.e-ir.info/2018/02/25/introducing-marxism-in-international-relations-theory/