The State and Free Market

Kiesha Webb

02-09-06

History 435

Dr. Roberto

The State and Free Market

1) The weaknesses Keynes found in Laissez-Faire were that it failed to account of the

ways savings and investments could fall out of sync and disrupt the economy both at the bottom and the top of the range of economic performance. It doesn’t take into account the cost of bringing the most successful profit makers to the top by bankrupting the less successful; it only looks to the benefits of the final result which are assumed to be permanent. Keynes also considers the fallacies on which the principles of laissez-faire were based to be a weakness of the free trade system.

2) The weakness of Laissez- Faire justifies state intervention in the economy because the failure of the old economic system was due in part to a lack of planning. The

essence of state planning is to do those things which lie outside the scope of the individuals ability. With the old economic system, the individual had no control over his wealth once the system began to fail, there was virtually nothing he could do no matter how much he wanted to and no matter how pressing his personal interest. State planning would lead to far more deliberate and far reaching policies of credit control, help regulate the rate of interest, and attempt to control the rate at which investment is encouraged and facilitated to take place. Where as the old system relied on the fact that the level of interest and rate of investment were self regulating and didn’t need management and planning, which is part of the reason the old system failed. Traders and investors also needed the promise of a stable international environment for the profitable and predictable conduct of their business.

3) Keynes