By Helmi Adam
For more than two centuries, there have been two opposing views on capitalism. One emphasizes its virtue, efficiency with consumer prices, producers, and allocating resources. While others highlight the shortcomings of the market system, and especially the problem of unemployment, capital and labor. Adherents of the first group usually treat unemployment as a deviation while they believe that market forces will bring invisible hands if left alone. The New Classical Economist goes even further, they interpret the level of work as a rational response to changes perceived in relative prices: for example workers in 1932, had more free time because wages were relatively low. They equate idle capital with capital reserve capacity for security, when really needed.
The Classical Model grew in popularity before the Great Depression of 1930. This illustrates the economy as free-flow, with prices and wages free to adjust to the ups and downs of the economy from time to time (Barro, 1983). In other words, classical economic models reflect a fluctuating pendulum so that when the time is right, wages and prices rise quickly, and when the time is not right, wages and prices freely adjust downward. This means that the economy is in an ideal framework, which means that everyone who wants to work, they work and all resources are fully used for their capacity (Blanchard, 2011). Classical economists believe that economics is self-correcting and conformity, which means that when a recession occurs, no help is needed from anyone.
The second model is called the Keynesian Model. This model emerged as a result of the Great Depression in 1930. Economist John Maynard Keynes founded this model on the basic principle that the economy does not adjust or always works full time (Cameron, 2003). In other words, the economy can be below or above its potential. For example, during the Great Depression, widespread unemployment, many businesses failed and the economy operated far less than its potential (Mishkin, 2004). Keynes believes that in bad times the government and monetary leaders are required to do something to help the economy in the short term, or the long term may not be the case. In fact, quoted by Goodwin (2008) said "In the long run, we all die".
Most of us can only think about the application of the two economic models as above. Even though we know that the economy is fluctuating; sometimes the economy is strong and sometimes weak. Classical economics actually appeared to counteract mercantilism philosophy which was associated with the rise of nation states in the 16th and 17th centuries (Barker, 1977). The famous mercantilists were Thomas Mun (1571-1641), Montchretien (1576-1621) and Von Horneck (1638-1712). They all believe in the frightening idea of bullionism which emphasizes the accumulation of precious metals (silver and gold) for the wealth and strength of the nation (Eichengreen, 1992). They also advocated state intervention as an important tool to direct the development of the economic system.
Bullionism believes that, to secure the excess of exports over imports, to obtain gold and silver can be done through foreign trade (Howey, 1982). This concept is based on greed and ego in achieving prosperity. The most fundamental thing for mercantilism is the strength of the country. This is the ultimate goal of a country, namely to accumulate wealth and strengthen defense. identifying mercantilism as an orthodox view is a mistake of our thinking, whereas merittilsime is different from bullionism, and the mercantilism view still persists (Barker, 1977).
New Bullonism is carried out by China by piling up foreign exchange reserves, while what Trump does is the New Meritillime, which is to draw profits from the import perspective in International trade. China realizes its great potential, and its great weakness. Therefore since Xi Jin Ping came to power he used Bullonism in his economic practice by using dual systems, the economic system was used liberally he said, while politics remained communist. Even though what he did was New Bullonism where he used authoritarian politics and used it in the interests of the power of the State. This is evident in the policies that provide the broadest permits and facilities for export, even if the term Poison can be exported as long as it is not used in China.
China did this because he realized the importance of a trade surplus to increase his foreign exchange reserves. If foreign exchange reserves are large, China can accumulate its wealth by investing abroad, which in turn can dominate the world through Debt Trap or Debt Traps. Unlike Trump who cannot be like China because control of people is so strong in its democratic system, that Trump only uses New Mercantilism, by protecting domestic industries through import duties, and expanding exports by giving export facilities to domestic entrepreneurs.
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Both have the same goal, namely for the glory of their country, so that they can control the world from economy to politics. Who is the next winner? China did that for a long time, while America just realized from its sleep. Naturally, if a trade war will be won by China, even America itself has been economically dependent on China ...
The author is a student of the Doctoral Program in Economics, Borobudur University Jakarta