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The Evolution of Liberal Economics
Transcript of The Evolution of Liberal Economics
Classical liberalism is an ideology that is centered around the values and principles of individualism, including private property, rule of law, economic freedom, self-interest and competition (PRICES). Along with these freedoms, classical liberalism believes the most effective economic system is the free market; an economy in which there is limited government control and is dependent on the assumption that humans are inherently rational.
Classical liberalism was established after the Renaissance and was promoted during the Enlightenment period, with the final result being the liberal ideology of the 19th century.
Liberal Economic Shift
Adam Smith was an economist who promoted the benefits of self-interest in a free-market economic system . He believed that if people worked towards their own interests it would result in a stronger economy, which would benefit all of society. Smith published The Wealth of Nations in 1776 describing such an economic system.
New ways of thinking, such as the views of Adam Smith, were cause for many changes in England during this time; transforming Britain from a society based on agriculture and mercantilism to one of modern industry and capitalism. The government privatized property and imposed no regulations on industry. During this time many people transitioned from working the land and farming to factory jobs. These jobs had very poor working conditions and there were constantly cases of the exploitation of workers. Many of the wealthy factory owners used such tools as worker exploitation, or other questionable means to gain their wealth.
As the Industrial Revolution moved to America, businessmen who used the means stated above to gain their wealth were referred to as "robber barons". Although this term has a negative connotation, many of these men could also be called a Captain of Industry, which means a business leader who has positively impacted society through their work.
Progressivism and Welfare Capitalism (1900's-1917)
Classical Liberalism (1800's-1900's)
Progressivism is the movement away from classical liberalism towards modern liberalism while welfare capitalism is a form of capitalism that includes social welfare policies. Therefore progressivism describes the movement from capitalism to welfare capitalism.
Teddy Roosevelt and Progressivism
Taft and the Sherman Anti-Trust Act
Alphonse Desjardins and Credit Unions
Liberal Economic Shift
Economic Prosperity and Consumerism of the 1920's
The First Red Scare
Political Conservatism: Harding and Coolidge
Liberal Economic Shift
During the Roaring 20's, the period known as the First Red Scare greatly impacted the views towards economic liberalism, due to the public fear of communism and government control. In response, America experienced a time of increasing reduction in the lives of citizens. This means that when Harding was elected president of the United States, the economy experienced a shift right on the spectrum back towards classical liberal principles and values. The lack of government regulation and intervention was also used to (in theory) allow the economy to continue to boom.
2008 Economic Recession
Reaction to the Recession
Liberal Economic Shift
Economic Crises of 1970
Monetarism: Friedman and Hayek
Liberal Economic Shift
After the beginning of yet another economic crisis in the 1970's involving stagflation the economy took a large shift right on the economic spectrum, towards classical liberalism, when both President Ronald Reagan and British Prime Minister Margret Thatcher used economic policies based of off ideas from classical liberal economists. Both used techniques such as privatization, deregulation and less government intervention in the economy in their economic policies.
The Great Depression and John Maynard Keynes
The Postwar Consensus
Franklin Roosevelt and the New Deal
Second Wave of the New Deal
Liberal Economic Shift
After the stock market crash of 1929 and the resulting Great Depression, people wanted relief from the economic hardships they were facing and turned to more government control and intervention in the economy to achieve this. With the election of Franklin Roosevelt for president of the United States came a multitude of social welfare programs and the use of deficit government spending to attempt to stimulate the economy and get people back to work and earning money. This is a major shift left on the economic spectrum, away from classical liberal principles. The economy at this time was based around much more collectivism, welfare programs and government involvement in the economy than had ever been experienced in America before.
Roaring 20's and Political Conservatism (1917-1929)
The Roaring Twenties is a term commonly used to describe the economic boom of the 1920's that occurred predominantly in the United States along with the substantial industrial growth, the drastic culture changes and social shift that were experienced during this period. The government position during the economic boom was one based off of political conservatism and intention of maintaining the existing state of society and reducing government involvement.
Keynesian Economics and the Post War Consensus
Keynesian Economics is a very left winged policy for the time period in America that was implemented to solve economic problems caused by the massive economic bust leading to the Great Depression and within that the major stock market crash. In terms of a broader political spectrum, Keynesian Economics would be considered right winged. The Post-War Consensus was a period of time in Britain that started at the end of World War II, up to 1979 when Margret Thatcher was elected as Prime Minister and implemented her ideas into a new policy called Thatcherism. Post-War Consensus was the general agreement and support for Keynesian Economics, collectivism, a mixed economy and becoming a social welfare state. It involved the nationalization of major resource industries, such as oil and gas.
Monetarism and Reaganomics
Monetarism is a school of thought that emphasizes the role of the government in controlling the country's money supply to encourage economic growth and limit unemployment and inflation through regulating interest rates.
Reaganomics is the economic policy that was used by the United States President Ronald Reagan that advocated for less government involvement in the economy and supported pro-industry, anti-regulation, anti-environmental regulation and anti-labour policies.
Obomanomics is an economic policy that is currently used by the present United States President, Barack Obama. This policy includes an increase in government involvement and in both the economy and the lives of American citizens and the strengthening of America's social welfare state.
John Maynard Keynes developed the theory that government interference and spending is necessary to promote economic stability and prevent excessive unemployment. Keynes believed that in times of economic boom, governments should raise taxes, increase interest rates and decrease spending to control inflation. In times of economic trouble, government should lower taxes and interest rate while increasing government spending to stimulate the economy. He argued that his monetary and fiscal policies were the solution to the Great Depression
In 1942, during the second World War, a man named Sir William Beveridge wrote and presented the report "Social Insurance and Allied Services" to the British Parliament, advising more government provided services for a more secure society. The Labour Party implemented some of these suggestions in the form of the National Insurance Act, the National Assistance Act and the National Health Service Act. From this time until the end of the 1970's, successive governments continued to provide such services that were a part of the welfare state, regardless of their political views.
The Postwar Consensus: Canada
During the several decades following the second World War, similar to Britain, Canada's government worked on creating and strengthening social programs. Legislation was passed and modified that was representative of a welfare state, such as Unemployment Insurance, Family Allowances, universal healthcare, Canadian Pension Plan, Foreign Investment Review Agency, Canadian Radio and Television Commission and Atomic Energy of Canada Limited.
United States President Franklin D. Roosevelt implemented Keynes economic theories in his New Deal, which promotes government spending and social programs to help stimulate the economy. FDR's government had a vast number of social programs for citizens, also known as the Alphabet Agencies, that focused on relief for the unemployed, reform to the economy and recovery from the Great Depression. For example, the Civilian Conservation Corps, which was one of many "back to work" programs. Along with these programs, the government established the banking system. This led to the creation of the Federal Deposit Insurance Corporation in 1933, which insured individual bank deposits.
By: Megan, Bobby, Johnny and Morgan
In the second wave of FDR's New Deal, the programs were directed towards the purpose of redistributing power among businesses, consumers, farmers and workers. Along with these programs, workers unions were encouraged. The social programs and services involved in the second wave of the New Deal included The Securities and Exchange Commission (SEC), The Agricultural Adjustment Act, Works Progress Administration and the Social Security system. Both the SEC, which regulates publicly traded stock, and the Social Security System, which provides financial assistance to people who are disabled or elderly, exist today.
Roosevelt's political policy was a drastic response to the economic turmoil created by the Great Depression in result of the stock market crash. It involved more government involvement and intervention in the economy than America had ever experienced before. The New Deal also demonstrated the necessity of applying liberal principle, rights and freedoms to all people, not only wealthy industrialists. This had a lasting impression on the future of liberalism.
During his presidency, Theodore Roosevelt began introducing multiple reforms in order to provide Americans with a "square deal" and curb the excess of capitalism that created harsh and unfair circumstances for many. Such reforms included preventing large companies from abusing their substantial power in the marketplace through government intervention such as the Elkins Act and the Hepburn Act. The overall goal of the square deal was to emphasize the necessity of fair and equal treatment of both capital and labour.
This introduction of more welfare capitalist principles and the movement towards modern liberalism is often referred to as progressivism; a new kind of liberalism that combines both aspects of classical liberalism and the values of a welfare state. In his second term of presidency, Teddy Roosevelt created a new political party, called the National Progressive Party, which reflects such an ideology.
William Howard Taft was the president who served following Theodore Roosevelt and he continued multiple progressive initiatives that were set out by the previous president. One such initiative was breaking up trusts; large business conglomerates that exerted monopolies. In 1890 the government passed legislation in the form of the Sherman Anti-Trust Act that was to prevent monopolies between competing companies, some organized labour activities (this actually weakened unions but was corrected through the Clayton Act), and the abuse of the rights and freedoms of less influential organizations by those with more power.
Around the same time that labour unions were being formed, the first credit unions were also being established in North America. These began as small financial institutions that offered an alternative to traditional commercial banks.
Caisse d'epargne Desjardins, which was founded by Alphose Desjardins and his wife in Levis, Quebec was the first credit union established in North America. These credit unions flourished and today the Desjardins Group is the largest credit union association in North America.
After the brief recession following the first World War, the economy boomed as factories switched to producing consumer good rather than supplying the war effort with goods. Industrialists such as Henry Ford, the founder of the Ford Motor company, even further stimulated the economic boom by pioneering mass production techniques and using practices of welfare capitalism, such as advocating a minimum wage and 40 hour workweeks in Ford factories. This use of welfare capitalist principles was sourced from financial motivation for Ford; he believed that such conditions would result in happier employees that would work more efficiently, and giving them a higher wage would enable them to by Ford's products, overall increasing sales. These types of manufacturing and financial strategy made products cheaper, resulting in a dramatic increase in consumer spending, or consumerism.
Along with the rapidly expanding and growing economy, there were major social changes that developed during the Roaring Twenties. Women's role in society had been altered; there were more women in the workforce and by 1920 both Canadian and American women gained the right to vote in federal elections. During this time, Native Americans were also granted citizenship in the United States. While there were many examples of such movements toward greater social equality, there were also instances of growing inequality. During the economic boom, the income disparity, or a widening income gap, increased dramatically with the wealthiest ten percent of Americans earning approximately forty nice percent of total income.
The political climate of the 1920's centered around a period known as the "First Red Scare", which is a term that refers to a public fear of communism with the color red being associated with the Bolshevik Red Army of the Russian Revolution.
As series of bombings in the states, by anarchists of mainly Italian heritage, labour strikes in Seattle, Pittsburgh, and Cleveland, and the circulating government anti-German and anti-communism propaganda were cause from an atmosphere of xenophobia (an intense or irrational dislike/fear of people from other countries) in the United States.
President G. Harding was elected during the time period of the Red Scare and promised the people a "return to normalcy" with a platform focusing on isolationism (moving away from foreign affairs), nativism (promotion of policies that maintain America's current culture and reduced immigration) and a reduction of government involvement in citizens' lives. These policies were acted upon by the introduction of the Revenue Act of 1921, which reduced income taxes rid corporations of excess profits tax, and the Emergency Quota Act, which reduced immigration into America by approximately seventy five percent.
After Harding's death in 1923, Coolidge won the 1924 presidential election and went on to promote classical liberal economic policies. He further reduced income tax with the Revenue Act of 1924 and again with the Revenue Act of 1928. Coolidge also vetoed Congress legislation that would have allowed the government to subsidize American farmers, and passed the Immigration Act of 1924 that even further reduced the immigration into the United States
The Great Depression was a time period of extreme economic recession that followed the economic boom of the 1920's and the Wall street stock market crash. The inflation of the economy in the 1920's had grown too big and the resulted in huge economic turmoil.
The harsh effects of the Great Depression left many people frustrated and unconfident in the capitalist economic system and many instead turned to political organizations with more collectivist values and ideologies.
In the 1970's governments in several liberal democracies were experiencing stagflation; which is the term used when a recession and high inflation occur simultaneously. The economic stain resulting from experiencing stagflation were cause for another shift in economic thinking .
During this time period there was an economic shift back towards classical laisez-faire economics and the principles of classical liberalism. This shift was made in the form of monetarism, which is an economic theory that's closely associated with the economist Milton Friedman.
Friedman believed that the economic indicators such as the rate of inflation should be used to determine the amount of money that should be issued by the central bank, because inflation was primarily due to an excess supply of money.
Friedrich Hayek, who was another influential economist of the time, was an open critic of collectivist ideology and values. He argued that it would be impossible for the government to have enough information to make the proper economic decisions and that government involvement in the economy would quickly lead to government involvement in the lives of citizens.
Supporters of these economic thinkers believed that the stagflation was a result of the deficit spending of the previous government .
Reaganomics was an economic policy used by American President Ronald Reagan that was influenced by the thinking of economists such as Friedman and Hayek. His response to the high employment and high inflation was to reduce both income and business tax, reduce regulation, and increase military spending. These policies are referred to as supply-side economics, or trickle-down economics. The idea behind such policies is that lowering taxes, especially for the wealthy, will encourage economic growth as more capital is invested and the benefits of private investment and military spending will "tickle-down" throughout the economy.
Thatcherism is a term used to describe the economic policy of the British prime minister Margaret Thatcher, which was greatly influenced by the views of economist Friedrich Hayek. Thatcher's government aimed to reduce government involvement in the economy in order to increase economic freedoms, overall following classical liberal principles. The government also privatized utility companies and social housing while challenging the labour unions in Britain.
Beginning around December of 2007, the credit and mortgage crisis occurring in the United States would develop into a global recession. The massive economic turmoil that resulted from the crisis was led to the revelation that we should not fully rely on an unregulated market and that governments should have an important role to further modern liberalism within their own country and internationally. Conservative governments in both the U.S. and Canada agreed that the government involving itself in the economy was the best plan which led to national banking systems, financial markets, and bailouts for important industries
United States president Barack Obama, who was elected in November of 2008, called for more government involvement in order to revive the economy, provide affordable and accessible healthcare for all people, and strengthen both public education and social security systems.
Classical liberalism established from economic thinkers such as Adam Smith that began the Evolution of Liberal Economics with an ideology based of off principles of individualism such as the rule of law, private property, individual rights and freedoms, economic freedom, self-interest and competition. Classical liberalism stresses that the most beneficial economic system is the free market, with limited government intervention. Individuals working towards their own self-interest will propel the economy forward more efficiently if they are not interrupted by government involvement.
Progressivism and the introduction of welfare capitalism into society is an economic shift to the left, away from capital liberalism towards modern liberalism. During Roosevelt's progressivism, reforms and regulations were implemented to protect workers and ensure that everyone was given the "square deal". The reforms resulted in the limitations of some classical liberal freedoms and principles in the economic market, in favor of protecting the rights and freedoms of less influential organizations or people; clearly illustrating the left shift in economic liberalism.
With the event of the 2008 global recession, people yet again looked to the government for aid during the economic turmoil that was largely blamed on the lack of regulation on the financial market. The Obama administration then promoted more government involvement in the economy, through the regulation of the national banks, the financial market and bailouts of important industries. This caused a shift left in the economic liberal spectrum to a more modern liberal economy, with aspects of both capitalistic values with the incorporation of social welfare programs and social security for all people.