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How did the UK go from merchantilism, to the free market ideas of Adam Smith, on to the managed economy of John Maynard Keynes, only to move back to the free market of Friedrich von Hayek?
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In the words of Paul Anthony Samuelson, the popular economist and Noble prize winner 'Economists are supposed to be dry as dust, dismal fellows. This is quite wrong, the reverse of the truth.' Looking into the historical evidence of modern economics, various rise and fall can be noted. After the downfall of the centralized patterns of economies, the emergence of a mixed form of economy surfaced which had further ruled the global economy with efficacy (Russell, 2015). An insight into the scenario of the mixed economy of the United Kingdom can lead to the observation that this country's economy is fundamentally based on a capitalist system wherein free trading practices are highly encouraged (Balaam, 2015). To add to this, it may be further emphasized that this system of economy is among the primary features of free market wherein interference of the particular country's administration is not entertained. One of the other positive factors associated with the concept of capitalism includes the provisions for free business practices and also aids in the maximum utilization of the market resources. Another essential consideration in this regard emphasizes on the fact that, to remain viable in this capitalist system the business organizations need to deliver excellence with respect to both productivity and competitive approach (Northrup, 2011). But on the contrary, in the case of the mixed market economy, a collaborative force inclusive of the market situation and government decision comes into play wherein the government takes active participation in adverse situations like downfall in a market economy (Boardman, 2013). Therefore it may be stated that both the free market and mixed market own their respective merits and demerits.
In the context of the history of economics, several renowned economists have conceived models and ideas to impart a better understanding of the economies of a nation. It was during the later phase of the 18th century wherein Adam Smith first formulated the ideas of free market during the era of mercantilism (Otteson, 2013). Adam Smith's philosophy of natural liberalism and the concept of 'invisible hand' emerged as the most essential issue with respect to the modern economy and prevailed as an industrial revolution that further established a new era of wealth and economic development (Medema, 2009). Nevertheless, it was during the year 1920 when Adam Smith's free-market capitalism theory was challenged by John Maynard Keynes's new ideas. This British economist in the year 1930 for the first time explored the dimensions of economic liberalism in accordance with the crisis observed in the global economies. His theories like the General Theory of Employment, Interest, and Money were the initial attempts to provide new ways in order to stabilize the economic structure of a nation. Keynes's ideas emerged during the prevalence of the crisis period in the global economic condition wherein the dominance of dictatorship was surfacing gradually (Berkowitz, 2012). Therefore, John Maynard Keynes is regarded as the proponent with respect to management of capitalism and Adam Smith is considered the founder of economic liberalism.
Learning from the facts of economic histories, it is observed that the concept of free market again resurfaced with the contributions from Friedrich A von Hayek, an Austrian who was a popular free-market economic expert of Britain (Tebble, 2010). His writings, particularly The Sensory Order (1952), The Constitution of Liberty (1960), Studies in Philosophy, Politics, and Economics (1967), The Pretence of Knowledge (1974) are some of the greatest contributions to the world of economy. His Trade cycle theory further demonstrates the fact highlighting the scarcity of the capital which may arise as a reason for excessive business investment (Wapshott, 2011). His ideas with respect to classical liberalism opposed the concept of centralized economic structure. Supporting his own views, Friedrich von Hayek published 'Economic Freedom' wherein he strongly discussed on the facts that political or economic forces are considered as the most vulnerable issues with respect to individual freedom and development of free market (Hayek, 2008). Therefore, based on the ideas and concepts forwarded by several economic experts down the course of time, the present economy of United Kingdom has been established wherein this country has faced various challenges with respect to the financial crisis with the business market.
The United Kingdom is comprised of a mixed economy on the ground of the capitalist system on the global economy and free trade, regardless of its boundary being fixed by the government. The capitalist economic system is indicated by free markets and there is an absence of the involvement of Government in the economy (Alves, 2013). The market makes most of the decisions in the UK. Although the UK economy is considered as the capitalist economy, it has the government expending taking up 35% of the GDP. This is because of the government reimbursement for education, health and the national defence etc., that the economy as an overall is recognized as the capitalists. The concept of the mixed economy in the UK has been mentioned in the economic system in which the private and the economic enterprise work as a major role in the matter of production, investment, consumption and saving. This helps to address what and how it is produced as an output and for whom. Mixed economy leans heavily on the government involvement rather than on the free market economies (Ben-Ner, 1993). Compared to the planned economy, mixed economies have less dependence on the government regulation. The following paper develops the concept of the rise and fall of a mixed economy in the United Kingdom in the prospect of the global business systems. Further analysis has been made on the transfer of UK from mercantilism to the free market, which is an idea developed by Adam Smith based on the managed economy of John Maynard Keynes. This prefers to move back to the idea of free market developed by Friedrich von Hayek.