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Economic Crisis The recession of and the subsequent government responses provides a good test for economic theories. There are no controlled experiments in economics, so we can only work with case studies in order to understand how economies work.
A good starting point is to consider the issue through multiple different lenses, so that we can understand how the crisis occurred and what prescriptions might be best suited for response either to address the root problems or to engage in prevention. This paper will consider the works of Marx, Schumpeter and Keynes in analyzing the financial crisis.
All three of these men would have been able to understand its causes, but likely would have taken very different approaches to solving the problem. The second issue at hand is the question of the future of capitalism. We have a pretty good sense at this point of what the response of government is to the threat of such crises going forward, but each crises also presents us with new information that we can use to best understand how are governments can and should set up the economic system of the future.
There will be some discussion about the future of capitalism then, synthesizing what we already know and what will likely take place in the future. Karl Marx was one of the most important economists and he fairly accurately understood the nature of capitalism. He might be better known for the failures of his strongly socialistic response to capitalism, that doctrine having been roundly refuted in practice.
However, his understanding of capitalism can inform us of the past recession and what the responses should have been, and perhaps should be in the future. Marx noted that capitalism was a distinct form of economic organization in that it requires and supports the advancement of capital in the form of profit.
This profit, he argued, can exist on the individual level but for an entire economy is only possible for economy-wide profit to occur through exploitation. He argued that it was exploitation of the worker, though this particular line of thought is probably related more to his political views than an accurate assessment of economics.
Arguably, it is the negative externalities such as the exploitation of common resources or the adding of pollutants to the atmosphere that represent the means by which an economy as a whole can profit Wolff, In Das Kapital, Marx wrote that capitalism also promoted a cycle of "stagnation, prosperity, over-production and crisis, ever recurrent.
He noted that the pursuit of profit would typically lead to excesses, and these excesses will inevitably be checked by economic bust, for example when production dramatically exceeds demand, leading to a situation where too much capital is tied up in goods that are illiquid. He would have known that there are boom and bust cycles.
The moves away from government control of certain sectors, banking especially, were likely to lead to increased volatility in those markets. The problem of course is that the banking system underpins all economic activity.
Marx would also have noted that when the crisis hit, the workers suffered. They were the ones who began to lose their jobs as the result of the credit crunch, for example, and it was individuals who were frequently saddled with the illiquid assets in the form of houses.
Marx would therefore have been especially dismayed at the policy response from the U. Where funds were made available, they were typically made available to the financial sector.It is a tenet of many Marxist groupings that crises are inevitable and will be increasingly severe until the contradictions inherent in the mismatch between the mode of production and the development of productive forces reach the final point of failure, Capitalist Crisis Theory and Practice.
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Marx’s Crisis of Capitalism From Sociocultural Systems: Principles of Structure and Change. Writing Capital in the early s as English society was in the early stages of industrialization, Marx (/) forecast both the immediate course of the development of capitalism and its ultimate end. Essay Economic Crisis and Capitalism and 90,+ more term papers written by professionals and your peers.
Economic Crisis and Capitalism Essay. Length: 10 pages; Sources: 10; Subject: Economics so we can only work with case studies in order to understand how economies work. A good starting point is to consider the issue .