Final answer:
John Maynard Keynes believed in government intervention and fiscal policy, while Adam Smith advocated for free markets and limited government intervention. Both have had a significant impact on the free market economy.
Step-by-step explanation:
Economic Theories of John Maynard Keynes and Adam Smith
John Maynard Keynes and Adam Smith were both influential economic thinkers who had contrasting theories on how economies should function.
Keynes believed in government intervention and fiscal policy to manage the economy during times of recession and unemployment. He argued that during economic downturns, the government should increase spending and lower taxes to stimulate economic growth. This approach is known as Keynesian economics.
On the other hand, Adam Smith advocated for free markets and limited government intervention. He believed that individuals pursuing their own self-interest in a free market would lead to overall economic prosperity. Smith's ideas form the basis of classical liberalism and are associated with the concept of the invisible hand.
Importance of Keynes and Smith on the Free Market Economy
Both Keynes and Smith have had a significant impact on the free market economy.
Keynes' ideas gained prominence during the Great Depression when his theories of government spending to stimulate the economy were put into practice. His influence can still be seen today in the use of fiscal policy to manage economic downturns.
Smith's ideas on free markets and the invisible hand have shaped modern capitalist economies. The belief in minimal government intervention and the importance of individual choice and competition are fundamental to the free market system.