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Capitalism versus Keynesian Economics comparison chart
Edit this comparison chartCapitalismKeynesian Economics
Key Proponents Richard Cantillon, Adam Smith, David Ricardo, Frédéric Bastiat, Ludwig von Mises, Fredrich A. Hayek, Murray N. Rothbard, Ayn Rand, Milton Friedman. John Maynard Keynes, Paul Samuelson, Brad DeLong, Paul Krugman.
Economic System Market-based economy combined with private or corporate ownership of the means of production. Goods and services are produced to make a profit, and this profit is reinvested into the economy to fuel economic growth. Keynesian.
Political System Can coexist with a variety of political systems, including dictatorship, democratic republic, anarchism, and direct democracy. Most capitalists advocate a democratic republic. Can coexist with a variety of political systems, including dictatorship, oligarchy, republics, and "democratic centralism."
Religion Freedom of religion. Freedom of religion.
Philosophy Capital (or the "means of production") is owned, operated, and traded in order to generate profits for private owners or shareholders. Emphasis on individual profit rather than on workers or society as a whole. No restriction on who may own capital. Aggregate demand does not necessarily equal the productive capacity of the economy. Government and central banking can be used to smooth out the business cycle.
Free Choice All individuals make decisions for themselves. People will make the best decisions because they must live with the consequences of their actions. Freedom of choice allows consumers to drive the economy. Production decisions are driven by a mixture of State decision and consumer demand. Taxpayers are forced to fund projects aimed at spurring production. Some socialized endeavors may exist. Other choices are generally left to the individual.
Definition A theory or system of social organization based around a free market and privatization in which ownership is ascribed to the individual persons. Voluntary co-ownership is also permitted. The view that, in the short run (and especially during recessions), economic output is strongly influenced by aggregate demand (total spending in the economy).
Ideas Laissez-faire means to "let it be"; opposed to government intervention in economics because capitalists believe it introduces inefficiencies. A free market produces the best economic outcome for society. Government should not pick winners and losers. Free markets sometimes lead to inefficient macroeconomic outcomes. The public sector and its central bank can be used to stabilize output over the business cycle.
View of war War, although good for select industries, is bad for the economy as a whole. It wastefully diverts resources away from producing that which would raise consumers' standard of living (i.e., that which is demanded by consumers), toward destruction. War is good for the economy because military spending creates jobs when the economy is depressed and spurs production both directly and via the “multiplier effect.” Rebuilding destroyed infrastructure further stimulates the economy.
Private Property Private property in capital and other goods is the dominant form of property. Public property and state property play a secondary role, and there might also be some collective property in the economy. Typically permitted.
Examples The modern world economy operates largely according to the principles of capitalism. The UK, US, and Hong Kong are mostly capitalist. Singapore is an example of state capitalism. While politicians the world over often use Keynesian arguments to defend their desire to tax and to spend, few actually advocate cutting government spending during the boom or cutting taxes during the bust.
Key Elements Competition for ownership of capital drives economic activity & creates a price system that determines resource allocation; profits are reinvested in the economy. "Production for profit": useful goods and services are a byproduct of pursuing profit. Centralized banking, government investment in infrastructure, centralized government actively setting monetary and fiscal policy.
Way of Change Fast change within the system. In theory, consumer demand is what drives production choices. Government can change the rules of conduct and/or business practices through regulation or ease of regulations. Change results from a mixture of market incentives & government controls. Change can be swift or slow depending on change in policy, perceived degree of crisis, or even whim.
Social Structure Classes exist based on their relationship to capital: the capitalists own shares of the means of production and derive their income in that way while the working class is dependent on wages or salaries. Large degree of mobility between the classes. Classes exist based on their relationship to capital. Varying amounts of class mobility.
Means of control Capitalism promotes a "society of contract" as opposed to a "society of status." Production decisions are driven by consumer demand and resource allocation is driven by a price system arising from competition for profit. Interest rates and monetary policy in general is controlled through discretionary centralized banking. Federal government stimulates production through taxation, deficit spending, and public works projects.
Political Movements Classical liberalism, social liberalism, libertarianism, neo-liberalism, modern social-democracy, and anarcho-capitalism. Neo-liberalism, democratic socialism, social democracy, national socialism, fascism.
Famous Examples Richard Cobden and John Bright (Anti-Corn Law League), Friedrich Hayek and Milton Friedman (Mont Pelerin Society), Leonard Read (Foundation for Economc Education), Murray N. Rothbard (Ludwig von Mises Institute). John Maynard Keynes.
Variations Free-market capitalism (also known as laissez-faire capitalism), state capitalism (also known as neo-mercantilism). Neo-Keynesian economics, post-Keynesian economics, new Keynesian economics.
Economic Coordination Relies principally on markets to determine investment, production, and distribution decisions. Markets may be free-markets, regulated-markets, or may be combined with a degree of state-directed economic planning or planning within private companies. Believes the State can spur production and bring about full employment by taxing people in order to invest in infrastructure and by setting or influencing interest rates.
Ownership Structure The means of production are privately-owned and operated for a private profit. This drives incentives for producers to engage in economic activity. Firms can be owned by individuals, worker co-ops, or shareholders. The means of production are generally privately owned, but production may be directed by the State in times of crisis. The State owns some institutions (e.g., a central bank).

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