The Macroeconomics’ History

Name Instructor Course Date The Macroeconomics’ History Macroeconomics is a branch of economics which deals with aggregate economic variables. The variables include general economic factors such as national productivity and interest rates. Specifically, macroeconomics is concerned with market systems which operate on a large scale. Moreover, the concept has developed over time with major economic theories and persons who influenced the changes. Majorly, the theories are developed to solve economic problems such as inflation, stagnant growth, or inflation. Therefore, the work focuses on the history of macroeconomics following the time axis by describing the major theories and important persons that brought the concept. John Maynard Keynes founded the concept of macroeconomic theories, and he modeled or described the behaviors of the economy as a whole. Later, Adam Smith, who is regarded as the father of macroeconomics and John Stuart Mill later addressed the issues which would currently be recognized as the domain of macroeconomics. Ideally, the concept of macroeconomics is still relevant, and it is majorly applied to the financial markets and the investment process. Moreover, the concept of macroeconomics originated from the study of monetary theory and business cycles. The early people who developed the theory believed that monetary factors did not affect real factors including real output. However, Keynes disagreed with some of the early theories and developed a general theory which described the economy as a whole. Classical Economic Theory The theory was developed by Adam Smith and other proponents shortly after the emergence of the Industrial Revolution and Western Capitalism, which was at the end of the 18th century and the beginning of the 19th century. The theory attempted to explain the inner working of capitalism. Capitalism is the accumulation of resources by a few states to become wealthier than other nations which were observed among the British nations which colonized the US where they transported resources back to their home countries. The proponents questioned the basic principles of capitalism where they argued that the players in the economy act voluntarily which produces the best outcome for every person. The idea is based on the concept of a self-regulating system where the prices and quantity produced are not determined by an authoritative board, but by the individual players in the economy (Hamilton 35). Further, the idea is based on the concept of an invisible hand where sellers will sell products at prices which the buyers are willing to pay. However, there will be no transaction if the two actors cannot have an agreement on the transaction because they act voluntarily. Therefore, to avoid going out of business, one of the actors must improve the quality of the product or adjust the price. As a result, the concept of invisible hand ensures that a larger number of people receive the greatest satisfaction. Hence, the concept supports that those who are less fortunate in the society are at their position because they do not work hard to be stronger rivals to match the other competitors. Contrarily, Smith ignored the idea that the concept will make the wealthy to acquire more resources, the leading disgrace of the less fortunate which leads to a corrupt effect on society. The Neoclassical Theory However, the classical theory became irrelevant at the end of the 19th century developed a new theory known as neoclassical theories. Luckily, the theory did not reject the ideas of Smith and Ricardo and the other classicists but instead improved the concept. One of the parts that they improved was the improved use of precise metrics and scientific analysis since the 1700s. The proponents of the theory attempt to look at the economy scientifically. They do not just observe the market alone and come up with conclusions, but rather form a hypothesis regarding how the economy functions and then come up with evidence for proof. The theory aims to derive principles and rules about how consumers behave and business is conducted which could be achieved by generating mathematical models to achieve effective results. The proponents assume that the economic agents are rational, which guides their decision on whether to purchase a product or not. Generally, the objective of every consumer is to purchase a product which gives them the most benefit (Romer 58). The idea led to the emergence of the concept of demand and supply where the price and quantity produced plays an important role in guiding a consumer’s decision. The concept is in contrary to the idea of the classicists which was subjective rather than considering the benefits which consumers derive from using the product. Another part which was improved by the proponents of neoclassical theory is the concept of marginalism which considers the behavior and cost of making or purchasing additional items (Brady 12). If the cost of producing an extra unit of an item is high, then manufacturers will avoid making extra units of the product and vice versa. Therefore, the marginal cost of manufacturing or purchasing an extra item should be considered by producers and consumers on their decisions. Finally, they gave a different perspective on pervert as previously viewed by classicist as a contributor to people’s failures. Generally, they consider that there are other factors in the market which cannot be controlled by a person. As a result, a person may fail because of such challenges which lead to the ideas that poverty may occur due to other forces in the market which cannot be controlled by an individual. For instance, the great depression was a systematic failure rather than an individual’s failure as the outcome of the crisis could be predicted by there is nothing which could have been done. Keynesian Economic Theory Keynes developed an econo...