Three great individuals who

changed the Course of

Economics
KARL MARX
ADAM SMITH
MILTON FRIEDMAN

Vinayak 11-B 10/05/2024

 INTRODUCTION
Economic theory grew out of societies’ need to account for resources, plan for
the future, exchange and allocate goods. Over time, these basic accounting tools
grew into increasingly complex financial models blending the mathematics
required to calculate compound interest with ethics and moral philosophy. The
three basic accounting tools are ‘Scarcity’, ‘Supply and Demand’ and ‘Costs
and Benefits’.
Scarcity is the demand for a good or service is greater than the availability of
the good or service. Therefore, scarcity can limit the choices available to the
consumers who ultimately make up the economy.
The law of supply and demand combines two fundamental economic principles
describing how changes in the price of a resource, commodity, or product affect
its supply and demand. As the price increases, supply rises while demand
declines. Conversely, as the price drops supply constricts while demand grows.
A cost-benefit analysis is the process used to measure the benefits of a decision
or taking action minus the costs associated with taking that action. A cost-
benefit analysis involves measurable financial metrics such as revenue earned
or costs saved as a result of the decision to pursue a project.
In the 18th century, Scottish economist Adam Smith used the ideas of French
Enlightenment writers to develop a thesis on how economies should work. In
the 19th century, Karl Marx and Thomas Malthus expanded on their work.
 KARL MARX
Karl Heinrich Marx was
born on 5 May 1818 in Trier in western German,
the son of a successful Jewish lawyer. Marx studied
law in Bonn and Berlin, but was also introduced to
the ideas of Hegel and Feuerbach. In 1841, he
received a doctorate in philosophy from the
University of Jena. In 1843, after a short spell as
editor of a liberal newspaper in Cologne, Marx and
his wife Jenny moved to Paris, a hotbed of radical
thought. There he became a revolutionary
communist and befriended his life long
collaborator, Friedrich Engels. Expelled from
France, Marx spent two years in Brussels, where his
partnership with Engels intensified. They co-
authored the pamphlet 'The Communist Manifesto'
which was published in 1848 and asserted that all
human history had been based on class struggles,
but that these would ultimately disappear with the
victory of the proletariat.
 Marx's labour theory of value posits that the value of a commodity is determined by
the amount of socially necessary labour time required to produce it. He argued that
labour is the source of all value and that capitalists appropriate surplus value by
exploiting the labour of workers. This theory formed the basis for Marx's critique of
capitalism and his analysis of class relations.
Marx developed the theory of historical materialism, which proposes that the
structure and development of society are shaped primarily by the material conditions
of production. He argued that economic systems, such as feudalism and capitalism,
give rise to specific social relations and class struggles. According to Marx, the
transition from capitalism to communism is an inevitable outcome of historical
development.
Marx's analysis of class struggle forms a central theme in his work. He argued that
throughout history, societies have been characterized by the conflict between the
bourgeoisie (owners of the means of production) and the proletariat (working class).
Marx believed that the inherent contradictions of capitalism would lead to heightened
class conflict and ultimately result in a proletarian revolution.
 Marx's theory of alienation explores the idea that under capitalism,
workers are estranged from the products of their labor, the process of
production, their own human essence, and from one another. He argued
that alienation is a consequence of the capitalist mode of production,
which treats labor as a mere commodity and separates workers from the
fruits of their labor.
Marx's analysis of capitalism was a fundamental critique of the system.
He argued that capitalism leads to the concentration of wealth and power
in the hands of a few, exploitation of the working class, cyclical economic
crises, and alienation of individuals from their labor. Marx believed that
these inherent contradictions would ultimately lead to the collapse of
capitalism.
 Concept of Communism: Marx envisioned communism as a
classless society where the means of production are collectively
owned and controlled by the working class. In this society, there
would be no private property, no exploitation, and economic
decisions would be made collectively for the benefit of all. Marx saw
communism as the resolution of class conflict and the realization of
human freedom and equality.
Marx's ideas have also been criticized by economists who believe that
the free market is a more efficient way to organize the economy.
Marx's contributions to economic thought are still debated today.
However, there is no doubt that he was one of the most influential
economists of the 19th century. His work has had a profound impact on
the way we think about society, economics and politics.
 ADAM SMITH
Smith was a hugely influential Scottish political economist and philosopher, best
known for his book 'The Wealth of Nations'.
Adam Smith's exact date of birth is unknown, but he was baptised on 5 June
1723. His father, a customs officer in Kirkcaldy, died before he was born. He
studied at Glasgow and Oxford Universities. He returned to Kircaldy in 1746
and two years later he was asked to give a series of public lectures in Edinburgh,
which established his reputation.
In 1751, Smith was appointed professor of logic at Glasgow University and a
year later professor of moral philosophy. He became part of a brilliant
intellectual circle that included David Hume, John Home, Lord Hailes and
William Robertson.
In 1764, Smith left Glasgow to travel on the Continent as a tutor to Henry, the
future Duke of Buccleuch. While travelling, Smith met a number of leading
European intellectuals including Voltaire, Rousseau and Quesnay.
In 1776, Smith moved to London. He published a volume which he intended to
be the first part of a complete theory of society, covering theology, ethics, politics
and law. This volume, 'Inquiry into the Nature and Causes of the Wealth of
Nations', was the first major work of political economy. Smith argued forcefully
against the regulation of commerce and trade, and wrote that if people were set
free to better themselves, it would produce economic prosperity for all.
 Adam Smith didn’t just contribute to economics, he basically
invented it. In the early 18th century, moral philosophy was
the closest thing to what we now think of as the field of
economics. Smith grew up in Kirkcaldy, Scotland and studied
moral philosophy at the University of Glasgow in the 1730s.
One professor in particular, Francis Hutchinson (a notable
Scottish philosopher of the time), had a profound impact on
Smith’s training and seems to have guided his early work.
Smith continued his education at Oxford University in 1740,
where he became close friends with David Hume — Another
philosopher whose work would become well-known during this
age of Scottish Enlightenment. Smith and Hume are rumored
to have spent many hours in the Edinburgh taverns discussing
their ideas.
 Smith published his first notable body of work, The Theory of Moral
Sentiments, in 1759. In it, Smith discussed the idea that self-interested
people naturally end up working toward an outcome that benefits
everyone. He described this idea as an “invisible hand” that guided
individuals toward paths that simultaneously improve their lives and the
lives of the people on the other side of a trade. This concept of natural
liberty leading to optimal outcomes is perhaps the most significant
contribution to what we now call economic theory.
In 1776, Smith published An Inquiry Into the Nature and Causes of the
Wealth of Nations. Smith’s ideas in these works and others helped develop
the foundation of political economics, inspired policies that shifted away
from mercantilism, established the concepts of specialization and the
division of labor, and laid the groundwork for macroeconomic theory.
Because of his wide influence, Smith is often known as the father of
economics.
Adam Smith is considered the father of economics, but he did more than just
write the book on the subject. His life’s work laid a framework of thinking
that is widely believed to have changed the course of humanity. For example,
Smith’s work pointed out the flaws in restricting international trade and
encouraged governments to relax their protectionist policies.Smith’s best-
known ideas formed the basis of economic theory, including the invisible
hand theory (the idea that free-markets coordinate themselves), the division
of labor (the idea that people should specialize in specific tasks), and the
measurement of economic activity (Gross Domestic Product). Smith was a
strong advocate for individual freedom, free-market economics, competition,
and capitalism.
 MILTON FRIEDMAN
Milton Friedman, recipient of the 1976 Nobel Prize for
Economic Science, was a Senior Research Fellow at the
Hoover Institution, Stanford University, from 1977 to 2006.
He was also Paul Snowden Russell Distinguished Service
Professor Emeritus of Economics at the University of
Chicago, where he taught from 1946 to 1976, and was
a member of the research staff of the National Bureau of
Economic Research from 1937 to 1981.
Professor Friedman was awarded the Presidential Medal of
Freedom in 1988 and received the National Medal of Science
the same year. He is widely regarded as the leader of the
Chicago School of monetary economics, which stresses the
importance of the quantity of money as an instrument of
government policy and as a determinant of business cycles
and inflation.
 Friedman’s contributions to economic theory are numerous. One of his earliest,
described in (1957), was the articulation of the permanent income
A Theory of the Consumption Function

hypothesis, the idea that a household’s consumption and savings decisions are
more affected by changes in its permanent income than by income changes that
household members perceive as temporary or transitory. The permanent income hypothesis

provided an explanation for some puzzles that had emerged in the empirical data
concerning the relationship between the average and marginal . It also
propensities to consume

helped to explain why, for example, in the form of a increase, if perceived as

fiscal policy tax

temporary, might not lead to the intended reductions in consumption; instead, the
increased tax might be financed out of savings, leaving consumption levels
unchanged. That was Friedman’s novel finding: if households do not perceive
permanent income as changing, they will maintain their established spending
patterns.
 Friedman’s best-known contributions are in the
realm of monetary economics, where he is regarded
as the founder of and as one of the successors of
monetarism

the “Chicago school” tradition of economics. In the

1950s was dominated by scholars who adhered
macroeconomics

to theories promoted by . believed in using

John Maynard Keynes Keynesians

government-sponsored policy to counteract the , business cycle

and they held that fiscal policy was more effective

than in neutralizing, for example, the effects of
monetary policy

a . Friedman opposed the Keynesian view that

recession

“money does not matter,” instead promoting the

theory that changes in the affect real economic
money supply

activity in the short run and the price level in the

long run. He stated his case in his introduction to
Studies in the Quantity of Money (1956), a collection
of articles that had been contributed by
participants in the Money and Banking Workshop.
Over the course of his career, Friedman became
an articulate spokesman for free markets and
free societies in an era when many social
scientists disparaged solutions to social
market

problems. Friedman’s collaborative work with

Anna J. Schwartz has remained a vital resource
for those interested in the monetary history of
the United States. Other legacies include
Friedman’s revival of a monetary approach to
macroeconomics and his persistent critique of
.
Keynesian economics
 CONCLUSION

Marx’s impact on economic thought has not received the recognition it deserves due to his
view of the historical character of capitalist society and his vision of socialism. Thus,
unfortunately, when orthodox economists discuss aspects of Marx’s work, they generally do
so to point out its alleged weaknesses rather than its strengths. In case of Adam smith,
classical economists have continued to build off of his original ideas while responding to
criticism of their theories, eventually giving rise to the neoclassical school of thought. And
regardless of their particular ideological leanings, economists today all owe a debt to Adam
Smith and his famous book, which is considered the start of the modern field of economics.
By the way Milton friedman and his works , theories influenced economic policies in the
United States and abroad. Friedman is remembered as a leader of the Chicago school of
monetary economics and an advocate for free-market capitalism. Generally , we can safely
say that all of them have contributed well enough to economics and its conceptual
development in their unique ways!