Models of Economics

Economic models tend to differ in theory and practice.

Economic models reflect the structural framework of economic systems. They are informed by economic, social and political theories. Economic models evolve over time and vary across cultures and geographies. The United States has experimented with and incorporated different economic models in the course of its history.

Marxist Model

The Marxist economic model is based on the economic and sociopolitical theories of 19th-century philosopher Karl Marx. Marx proposed that all human struggles could be traced back to the capitalist system and its unequal distribution of private wealth. The Marxist model of economics seeks to correct social and economic inequalities through public confiscation of private property. This model supports a completely public economy, in which the state controls and manages all wealth and property for the benefit of people rather than for profit. The Marxist socialist model eventually -- if implemented according to Marx's design -- gives way to a completely classless system known as communism.

Friedman Model

The Friedman economic model is inspired by Milton E. Friedman, a 20th-century economist who promoted monetarism, or the idea that money supply should determine the nominal value of output and dictate economic activity in a country. The Friedman model is based on the notion that there exists a stable relationship between price inflation and the money supply and, particularly, that price inflation should be regulated with monetary deflation and vice versa (that price deflation should be regulated with monetary inflation). This model of economics favors the private sector over the public sector, and it aims to reduce government waste by limiting funds that tax revenue collects.

Keynesian Model

The Keynesian economic model is based on the ideas of 19th-century English economist John Maynard Keynes. This model advocates government manipulation through monetary policy actions by the central bank (The Federal Reserve, in the case of the United States), hands-on fiscal legislation and heavy taxation to support state-sponsored economic projects. Under this model of economics, a private sector does exist, but it is heavily regulated by the government and heavily taxed to fund public projects. The Keynesian model was most predominant in the United States during the Great Depression, as President Franklin D. Roosevelt wanted to expand the role of the federal government in economic affairs. President George W. Bush and President Barack Obama revived Keynesian economic agendas through various government stimulus programs.

Smithian Model

The Smithian economic model is attributed to 18th-century Scottish social philosopher and economist Adam Smith. This model advocates the doctrine of laissez-faire, which proposes that the invisible hand of the private market -- rather than government interference -- should control the economy. Smith's model limits the state's role to allow for the creation of private wealth, promoting the idea that under competition, owners of resources will use resources profitably and benefit all. Fiscal conservatives who want to curtail government waste and inefficiency endorse Smith's economic theories.

References

• University of Oxford: Adam Smith Model of Economics
• Library of Economics and Liberty: Marxism
• The Frontal Cortex: Milton Friedman and the Rational-Agent Model
• CATO Institute: Starve the Beast -- A Further Examination