Economic freedom is the idea of free markets in which people have freedom to produce, buy and sell products and services both inside and outside one’s borders. These products and services should be obtained without the use of force, deception or robbery. Economic freedom is based on personal choice, keeping what you own and security for one’s belongings. The government should keep away from interfering with what individuals choose to transact but it should have measures to support people in their endeavor. The government should also help in making sure that illegal activities should not take place in any way. (Yergin, & Stanislaw, 1998)
The Chicago school of thought stressed the importance of free market without any government intervention. They advocated for individual freedom in choosing not just public procedures but also the sort of economic activities to engage in.
Economy was viewed as a way to understand how society behavior was structured and not just on economic issues only. They believed the issue of allocation of resources was best done by use of prices. The Chicago school believed in markets and the effectiveness of competition and that markets give the best results. They felt that increase in prices does not mean that unemployment decreases but rather it brought about more uncertainty. (Federal Reserve Bank of San Francisco, n.d.).
The government is supposed to keep away from the private sector and the less it contributes the better. If the government supplied money to the people it will lead to market decline and it is essential to have a stable, expected increase in the money supply. The Chicago school felt that state interference caused further damage than good. The school declared that taxation and government expenditure were suitable only if limited to a few issues of public property like national defense while other issues are left without any interference. Government intervention is most cases do not produce the expected results because of the value of the decision makers in the economy.
This is because market knowledge beats state awareness. They argued that economic liberty was depended mostly on political freedom. Small system of government was more efficient since a big government found it easy to do away with private activity. (Yergin, & Stanislaw, 1998)
Keynes stated that in case of decline in prices and earnings the income of individuals would be decreased so that people will reduce their spending. In the case where there is a circular flow of earnings and where instability occurred between income and expenditure then productivity would adjust. He said that depending on markets to achieve complete employment was not good. He also said that the market would come together when there is stability and thus there will be not regular changes in the market to fix this problem. In the case of wages the employees will not want to be cut their salaries and their salaries will not help the market thus unemployment will remain.
He states that if demand for employment falls the salaries should be lowered so that the market stabilizes. He said that increasing people’s savings will lead to people spending less thus leading to decrease in general demand. This will make many firms not want to invest since the demand for the goods will be low. He stated that government expenditure will make things stabilize the economy. (Hayek, n.d.)
Keynesian’s emphasized that government intervention was essential in order to increase the overall spending. Keynesian school of economic thought believed that the government would be able to curb economic instability. The government would spend and lower taxes when people did not have much money threatening economic decline. This means that spending would increase as well increase in taxes once people have a lot of money to use since that can lead to increase in prices.
Keynesian emphasized that markets without human intervention will not result to complete employment stability. He said that an economy could however be stabilized with any sort of unemployment. This implied that without some intervention the economy will fail. The government should intervene in order to supervise the intensity of the demand. (Hayek, n.d.)
According to the Chicago school of economists, the government was not supposed to interfere with private activities. They however, argue that the government should give support on public property to help the people do their private activities well. The government should ensure security and other government projects were stable in order for the private sector to do their activities well. The government should also ensure that all private activities were protected from destruction from any government body. This would ensure that the people are free to trade and spend money. (Yergin, & Stanislaw, 1998)
The government role would also be to maintain law and order. The government should also ensure that property rights are clearly defined to make sure that citizens are free to own and acquire property. The issues of competition should also be closely examined by the government to ensure that economic structure is maintained. This will be achieved through encouraging of competition in various sectors of the economy and in this way the economy will grow. The Chicago school also advocated that the government should take the necessary measures to prevent technical dominance while at the same time ensuring that private activities are not interfered with. This will be achieved through protection of the reckless members of the society in various ways. (Federal Reserve Bank of San Francisco, n.d.).
I feel that there are certain economic crises that the government should intervene in order to stabilize the economy. Some of these cases include market failure, limiting destruction of market power as well as improving economic stability. The government should intervene in regulation of prices in certain firms. The government should do this amicably and also to ensure that the rules of competition are not violated. This will ensure that consumer rights are not abused by certain firms and stable environment is created. Competition helps prevent abuse of market authority through prohibiting a strong company from compelling competitors from the market.
References List
Federal Reserve Bank of San Francisco. (n.d.). Major Schools of Economic Theory: Keynesian School. Web.
Hayek, V.F. (n.d.).The Battle of Ideas: The Core Debate – Markets vs. Government. Web.
Yergin, D, & Stanislaw.J. (1998) “The Chicago School” Excerpt from Commanding Heights pp. 145-149. Web.