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Monday 26 September 2011

Human Rihgts and judiciary


Introduction


 Human rights are "basic rights and freedoms that all people are entitled to regardless of nationality, sex, age, national or ethnic origin, race, religion, language, or other status. “Human rights are conceived as universal and egalitarian, with all people having equal rights by virtue of being human. These rights may exist as natural rights or as legal rights, in both national and international law. The doctrine of human rights in international practice, within international law, global and regional institutions, in the policies of states and the activities of non-governmental organisations has been a cornerstone of public policy around the world. It has been said that: "if the public discourse of peacetime global society can be said to have a common moral language, it is that of human rights." Despite this, the strong claims made by the doctrine of human rights continue to provoke considerable scepticism, debates about the content, nature and justifications of human rights continue to this day.
                                          Human rights and judiciary share a strong relationship, as both are interdependent and one’s existence is not possible without support and cooperation of the other. There were various challenges which judiciary had faced in recent times. Terrorism, fundamentalism, fascism and growth of capitalism are some imminent threats the judiciary have been facing recently. Relationship between human rights and development needs careful consideration. Countries which are more developed accord more importance to protecting human rights.

The Role of Judiciary in Protection of Human Rights:

           The little drops of humanism which jointly makes humanity a cherished desire of mankind has seemingly dried up when the perpetrators of the crime had burnt alive helpless woman and innocent children. Was their fault that they were born in the houses of persons belonging to a particular community? If it is assuming alarming proportions, now a days, all around it is merely on account of the devilish devices adopted by those at the helm of affairs who proclaim from roof tops to be the defenders of democracy and protectors of people' rights and yet do not hesitate to condescend behind the screen to let loose their men in uniform to settle personal scores, feigning ignorance of what happens and pretending to be peace loving puritans and saviours of citizens' rights". The court laid down the following guidelines till legislative measures are taken: the Police personnel carrying out the arrest and handling the interrogation of the arrestee should bear accurate, visible and clear identification and name tags with their designations.
           The particulars of all such police personnel who handle interrogation of the arrestee must be recorded in a register. The arrestee should, if he so requests, if any present on his/her body must be recorded at that time. The "inspection memo" must be signed by both the arrestee and the police officer affecting the arrest and its copy provided to the arrestee. The arrestee should be subjected to medical examination by a trained doctor every 48 hours during his detention in custody by doctor on the panel of approved doctors appointed by the director, health services of the concerned state/UT.

Judicial review

Judicial review is the doctrine under which legislative and executive actions are subject to review (and possible invalidation) by the judiciary. Specific courts with judicial review power must annul the acts of the state when it finds them incompatible with a higher authority (such as the terms of a written constitution). Judicial review is an example of the separation of powers in a modern governmental system (where the judiciary is one of three branches of government). This principle is interpreted differently in different jurisdictions, which also have differing views on the different hierarchy of governmental norms. As a result, the procedure and scope of judicial review differs from country to country and state to state. Judicial review is adopted in the Constitution of India from the Constitution of the United States of America. In the Indian constitution, Judicial Review is dealt with under Article 13. Judicial Review refers that the Constitution is the supreme power of the nation and all laws are under its supremacy. Article 13 states that
1. All pre-constitutional laws, after the coming into force of constitution, if in conflict with it in all or some of its provisions then the provisions of constitution will prevail and the provisions of that pre-constitutional law which conflicts the provisions of the constitution will not be in force until an amendment of the constitution relating to the same matter. In such situation the provision of that law will again come into force, if it is compatible with the constitution as amended. This is called the Doctrine of Eclipse.
2. In a similar manner, laws made after adoption of the Constitution by the Constituent Assembly must be compatible with the constitution, otherwise the laws and amendments will be deemed to be void-ab-initio.
In such situations, the Supreme Court or High Court interprets the laws as if they are in conformity with the Constitution. If such an interpretation is not possible because of inconsistency, and where a separation is possible, the provision that is inconsistent with constitution is considered to be void. In addition to article 13, articles 32, 124, 131, 219, 228 and 246 provide a constitutional basis to the Judicial review in India.

Human Rights and Judicial Review

The purpose of the Human Rights Act 1998 ("the Act") is to improve public access to the rights and freedoms guaranteed under the 1950 European Convention for the Protection of Human Rights and Fundamental Freedoms.
Any person who believes that any right he has under the Convention has been contravened will be able to bring a case before a court in the United Kingdom, instead of before the European Court of Human Rights (based in Strasbourg).
In addition, the Human Rights Act 1998 imposes a duty on the Government to ensure that both primary and subordinate legislation (i.e., Acts of Parliament and statutory instruments made under such Acts) is compatible with the Convention and requires public authorities to act in a manner which is compatible with the Convention.
S.6 of the Act makes it unlawful for a public authority to act in a way which is incompatible with a Convention right.
The term "act" includes a failure to act, but does not include a failure to introduce a proposal for legislation or to make any primary legislation or remedial order. In addition, s.6 does not apply to an act if, as a result of a provision of any Act of Parliament, the authority could not have acted differently or if the authority was simply giving effect to provisions of a statutory instrument which could not have been interpreted or given effect to in any other way.
Home Office guidance defines the term "public authority" to include:-
(a) Government departments and local authorities, health authorities and trusts;
(b) The armed forces and the police;
(c) Courts and tribunals;
(d)any person or organisation which carries out some function of a public nature, but only in relation to those public functions.
In other words, all of the above, as well as prisons and prison staff must comply with the Act and failure to do so is unlawful.
A person who claims that a public authority has contravened s.6 and who is a victim of that contravention may bring proceedings against that authority in an appropriate court or tribunal, or may rely on the Convention right concerned in any legal proceedings (including an appeal against the decision of a court or tribunal)
Any such proceedings must be brought within one year of the date on which the act complained of took place, or within such longer period as the court or tribunal considers fair having regard to all the circumstances.
Where a court finds that any act of a public authority is, or would be, a contravention of s.6, it may grant such relief or remedy, or make such order, as it considers just and appropriate.
Damages may be awarded by a court which has power to award damages (or to order the payment of compensation) in civil proceedings, but no award of damages is to be made unless, taking account of all the circumstances of the case, the court is satisfied that an award is necessary to give just satisfaction to the person in whose favour it is made (s.8).
Proceedings under s.7 in respect of a judicial act may only be brought (s.9)-
(a)by exercising a right of appeal
(b)on an application for judicial review;
(c)in such other form as may be prescribed.
In Scotland, where proceedings cannot be brought under (a) or (b) then, for the purposes of (c), the Court of Session is prescribed as the appropriate forum for proceedings (Human Rights Act 1998 (Jurisdiction) (Scotland) Rules 2000, r.4).
The Home Office Guidance: A New Era of Rights and Responsibilities-Core Guidance for Public Authorities explains the 1998 Act and gives examples of its effect on public authorities

Limitation on the power of review:

                      The expansion of the horizon of judicial review is seen both with reverence and suspicion; reverence in as much as the judicial review is a creative element of interpretation, which serves as an omnipresent and potentially omnipotent check on the legislative and executive branches of government. But at the same time there is a danger that they may trespass into the powers given to the legislature and the executive.
One many say that if there is any limitation on judicial review other than constitutional and procedural that is a product of judicial self-restraint. As justice Dwivedi empathically observed, "Structural socio-political value choices involve a complex and complicated political process. This court is hardly fitted for performing that function. In the absence of any explicit Constitutional norms and for want of complete evidence, the court’s structural value choices will be largely subjective. Our personal predilections will unavoidably enter into the scale and give colour to our judgment. Subjectivism is calculated to undermine legal certainty, an essential element of rule of law."
The above observations also reveal another assumption to support an attitude of self-restraint, viz., the element subjectiveness in judicial decision on issues having socio-political significance. When one looks at the decisions of the Supreme Court on certain questions of fundamental issues of constitutional law one can see that there is a sharp division among the judges of the apex court on such basic questions of power of the Parliament to amend the Constitution, federal relations, powers of the President etc. This aptly demonstrates the observation of the judge. This would mean that though there has been expansion of powers of judicial review one cannot also say that this cannot be overturned.
Judicial self-restrain in relation to legislative power manifests itself in the form the there is a presumption of constitutionality when the validity of the statute is challenged. In the words of Fazl Ali, "…the presumption is always in favour of the constitutionality of an enactment, and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles"
In applying the presumption of constitutionality the Courts sometimes apply an interpretational device called ‘reading down’. The essence of the device is that "if certain provisions of law construed in one way would make them consistent with the constitution, and another interpretation would render them unconstitutional, the court would lean in favour of the former construction. “But all this depends on the outlook and values of the judge.
When it come judicial review of administrative action though the presumption of validity is not so strong in the case of administrative action as in the case of statutes. Still, when the legislature expressly leaves a matter to the discretion of an administrative authority the courts have adopted an attitude of restraint. They have said we cannot the question the legality of the exercise of discretionary power unless and until it is an abuse of discretionary power (which includes mala fide exercise of power, exercising the power for an improper motive, decision based on irrelevant considerations or in disregard of relevant consideration, and in some cases unreasonable exercise of power) and non-exercise of discretion ( which come when power is exercised without proper delegation and when it is acted under dictation).
The relevant considerations which should make the judicial choice in favour of activism or restraint are the policy and scheme of the statute, the object of conferring discretionary powers, the nature and scope of the discretion, and finally, the nature of the right and interests affected by the decision. Any impulsive move to activism without a serious consideration of these factors may only be viewed as undesirable. Judicial activism, being an exception, not the general rule, in relation to the control of discretionary power, needs strong reasons to justify it. In the absence of such strong support of reasons the interventionist strategy may provoke the other branches of Government may retaliate and impose further limitations on the scope of judicial review

HUMAN RIGHTS AND CRIMINAL JUSTICE SYSTEM

                                        This is an arena where perhaps the violation of Human Rights takes place the most. Non-registration of cases, illegal arrest and detention, custodial cruelty, abusive treatment in jail and stagnant nature of trial are the highlights of violation of Human Rights in the Criminal Justice System. The Indian Judiciary has been engaged in a never-ending struggle so as to uphold these rights. The judiciary’s efforts can be viewed through its decisions.

Judicial Activism

   Judicial activism describes judicial ruling suspected of being based on personal or political considerations rather than on existing law. It is sometimes used as an antonym of judicial restraint. The definition of judicial activism, and which specific decisions are activist, a controversial political issue, particularly in the United States. The question of judicial activism is closely related to constitutional interpretation, statutory construction, and separation of powers. Of all the institutions established by the Constitution the higher judiciary seems to have acquitted itself in the last 60 years as the best in a relative sense. The most respected public institution in India is the Supreme Court, respected by the elite and the illiterate alike. If the Court has come increasingly effective in its role as the final arbiter of justice, it is because of the confidence the common man has placed in it. The Court has no army at its command. It does not hold any purse strings. Its strength lies largely in the command it has over the hearts and minds of the public and the manner in which it can influence and mould public opinion. As the distinguished French author Alexis de Toquevulle describes the power wielded by judges is the power of public opinion. Like many catchwords, judicial activism has acquired so many different meanings as to obscure more than it reveals. But at the same time it can not be discarded as an intellectual void for the vagueness of the definition of the word for at the heart it speaks about the survival of law. Abandonment of this word not being a viable option, clarification needed as to what judicial activism is. Judicial activism is different from the judicial review or other process of jurisdiction in the sense that under the gamut of judicial review the judiciary can extend its influence to the spheres of executive and the legislative. Judicial activism simply means a pro-active judiciary which does no limit itself to the interpretation of law only but also sees if the law affects people adversely.

Human rights and judicial activism
One of the most remarkable achievements in the twentieth-centuries constitutional development is the assertion of human rights. On one hand, we have seen the codification and constitutionalization of human rights. On the other, constitutional or high courts of many countries have begun to implement human rights by way of judicial review. Consequently, an intertwined relationship between courts and human rights is established. It remains to be examined, however, for what reasons courts, instead of other political institutions, are linked to the assertion of human rights and what are the institutional backgrounds and normative foundations for such a relationship.
                           More importantly, the intertwined relationship between courts and human rights has been even more expressed in the context of third-wave transitional democracies. Similarly organized and situated, the Constitutional Courts of Taiwan and Hungary have shown strong tendencies in judicial activism and human rights protections. Both courts have been taken roles in highly contested transitional politics. Which court, however, is more likely to be progressive or constrained? Are human rights decisions rendered both courts involved with similar or different natures? Perhaps even more importantly, after more than a decade of democratic transition, has human rights decisions of these progressive courts rendered justice or instead, has injustice been entrenched by way of these court decisions? To properly address these issues, this paper will undertake a comparative analysis of judicial performances with regard to human rights decisions rendered by both the Taiwanese and Hungarian Constitutional Courts.
Conclusion and Suggestions:
         The Indian Judiciary has acted in the protection and promotion of Human Rights contained in the Constitution and the Civil and Political Rights Covenants and Economic, Social and Cultural Rights Covenants and Universal Declaration of Human Rights of the United Nations. The punch of law requires more propensity and effect. The working of judicial system particularly, the criminal justice system has collapsed. It is marred by delays and dying under its own weight due to mounting pendency of cases. The whole judicial system requires to be reformed. The successive cries of the persons who matter in the affairs of judiciary for remedial measurers have fallen on deaf ears.

Sir Isaac Newton


Sir Isaac Newton


Sir Isaac NewtonIsaac Newton was born in 1642 in a manor house in Lincolnshire, England. His father had died two months before his birth. When Isaac was three his mother remarried, and Isaac remained with his grandmother. He was not interested in the family farm, so he was sent to Cambridge University to study.
Isaac was born just a short time after the death of Galileo, one of the greatest scientists of all time. Galileo had proved that the planets revolve around the sun, not the earth as people thought at the time. Isaac Newton was very interested in the discoveries of Galileo and others. Isaac thought the universe worked like a machine and that a few simple laws governed it. Like Galileo, he realized that mathematics was the way to explain and prove those laws. Isaac Newton was one of the world’s great scientists because he took his ideas, and the ideas of earlier scientists, and combined them into a unified picture of how the universe works.
Isaac Newton explained the workings of the universe through mathematics. He formulated laws of motion and gravitation. These laws are math formulas that explain how objects move when a force acts on them. Isaac published his most famous book, Principia, in 1687 while he was a mathematics professor at Trinity College, Cambridge. In the Principia, Isaac explained three basic laws that govern the way objects move. He then described his idea, or theory, about gravity. Gravity is the force that causes things to fall down. If a pencil falls off a desk, it will land on the floor, not the ceiling. In his book Isaac also used his laws to show that the planets revolve around the suns in orbits that are oval, not round.
Isaac Newton used three laws to explain the way objects move. They are often call Newton’s Laws. The First Law states that an object that is not being pushed or pulled by some force will stay still, or will keep moving in a straight line at a steady speed. It is easy to understand that a bike will not move unless something pushes or pulls it. It is harder to understand that an object will continue to move without help. Think of the bike again. If someone is riding a bike and jumps off before the bike is stopped what happens? The bike continues on until it falls over. The tendency of an object to remain still, or keep moving in a straight line at a steady speed is called inertia.
The Second Law explains how a force acts on an object. An object accelerates in the direction the force is moving it. If someone gets on a bike and pushes the pedals forward the bike will begin to move. If someone gives the bike a push from behind, the bike will speed up. If the rider pushes back on the pedals the bike will slow down. If the rider turns the handlebars, the bike will change direction.
The Third Law states that if an object is pushed or pulled, it will push or pull equally in the opposite direction. If someone lifts a heavy box, they use force to push it up. The box is heavy because it is producing an equal force downward on the lifter’s arms. The weight is transferred through the lifter’s legs to the floor. The floor presses upward with an equal force. If the floor pushed back with less force, the person lifting the box would fall through the floor. If it pushed back with more force the lifter would fly into the air.
When most people think of Isaac Newton, they think of him sitting under an apple tree observing an apple fall to the ground. When he saw the apple fall, Newton began to think about a specific kind of motion—gravity. Newton understood that gravity was the force of attraction between two objects. He also understood that an object with more matter –mass- exerted the greater force, or pulled smaller object toward it. That meant that the large mass of the earth pulled objects toward it. That is why the apple fell down instead of up, and why people don’t float in the air.
Isaac Newton thought about gravity and the apple. He thought that maybe gravity was not just limited to the earth and the objects on it. What if gravity extended to the moon and beyond? Isaac calculated the force needed to keep the moon moving around the earth. Then he compared it with the force the made the apple fall downward. After allowing for the fact that the moon is much farther from the earth, and has a much greater mass, he discovered that the forces were the same. The moon in held in an orbit around earth by the pull of earth’s gravity.
Isaac Newton’s calculations changed the way people understood the universe. No one had been able to explain why the planets stayed in their orbits. What held them up? Less that 50 years before Isaac Newton was born it was thought that the planets were held in place by an invisible shield. Isaac proved that they were held in place by the sun’s gravity. He also showed that the force of gravity was affected by distance and by mass. He was not the first to understand that the orbit of a planet was not circular, but more elongated, like an oval. What he did was to explain how it worked.

What are the contributions of Isaac Newton in physics?



The discovery of spectrum: He allowed sunlight to pass through a prism into a dark chamber onto a white screen. He observed a band of seven colors on the screen. The colors were the same which made up a rainbow viz, violet, indigo, blue, green, yellow, orange and red. He thus conferred that sunlight or white light was made up of seven colors and the rain droplets in the sky acted as a prism which split sunlight to give the impression of a rainbow.
 

Rectilinear Propagation of Light: Newton also made a contribution towards proving that light travels in a straight line. He made a pin-hole camera for the first time with a hole on one of the sides of a cardboard box, and a tracing paper on the opposite side. One could see an upside down image of the object in front of the hole. This proved that light travels in a straight line.


The equation for the velocity of sound: Newton also made a major contribution to the calculation of velocity of sound. Since this equation was calculated taking into account that sound waves travel in the form of translational waves, there was a slight anomaly in the results. This equation was later corrected by a scientist named Laplace.
It is also worth noting that Newton was a great mathematician, and he helped invent calculus in order to have the necessary mathematical tools with which to state his theories in a precise form. This was revolutionary in itself.



What Really Happened with the Apple?

Probably the more correct version of the story is that Newton, upon observing an apple fall from a tree, began to think along the following lines: The apple is accelerated, since its velocity changes from zero as it is hanging on the tree and moves toward the ground. Thus, by Newton's 2nd Law there must be a force that acts on the apple to cause this acceleration. Let's call this force "gravity", and the associated acceleration the "acceleration due to gravity". Then imagine the apple tree is twice as high. Again, we expect the apple to be accelerated toward the ground, so this suggests that this force that we call gravity reaches to the top of the tallest apple tree.

Newton's Modification of Kepler's Third Law

Because for every action there is an equal and opposite reaction, Newton realized that in the planet-Sun system the planet does not orbit around a stationary Sun. Instead, Newton proposed that both the planet and the Sun orbited around the common center of mass for the planet-Sun system. He then modified Kepler's 3rd Law to read,
where P is the planetary orbital period and the other quantities have the meanings described above, with the Sun as one mass and the planet as the other mass. (As in the earlier discussion of Kepler's 3rd Law, this form of the equation assumes that masses are measured in solar masses, times in Earth years, and distances in astronomical units.) Notice the symmetry of this equation: since the masses are added on the left side and the distances are added on the right side, it doesn't matter whether the Sun is labeled with 1 and the planet with 2, or vice-versa. One obtains the same result in either case.

Newton's Prism Experiments

In 1665, Isaac Newton was a young scientist studying at Cambridge University in England. He was very interested in learning all about light and colors. One bright sunny day, Newton darkened his room and made a hole in his window shutter, allowing just one beam of sunlight to enter the room. He then took a glass prism and placed it in the sunbeam. The result was a spectacular multicolored band of light just like a rainbow. The multicolored band of light is called a color spectrum.
In Mathematics
Newton laid the foundations for differential and integral calculus, several years before its independent discovery by Leibniz. The 'method of fluxions', as he termed it, was based on his crucial insight that the integration of a function is merely the inverse procedure to differentiating it. Taking differentiation as the basic operation, Newton produced simple analytical methods that unified many separate techniques previously developed to solve apparently unrelated problems such as finding areas, tangents, the lengths of curves and the maxima and minima of functions.

Keynesian economics Vs Classical economics


Introduction

Keynesian economics also called Keynesianism and Keynesian theory) is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes. Keynesian economics advocates a mixed economy — predominantly private sector, but with a moderate role of government and public sector — and served as the economic model during the later part of the Great Depression, World War II, and the post-war economic expansion (1945–1973), though it lost some influence following the stagflation of the 1970s. The advent of the global financial crisis in 2007 has caused resurgence in Keynesian thought. The former British Prime Minister Gordon Brown, former President of the United States George W. Bush, President Barack Obama, and other world leaders have used Keynesian economics through government stimulus programs to attempt to assist the economic state of their countries.

                              Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. The classical economists produced their "magnificent dynamics" during a period in which capitalism was emerging from feudalism and in which the industrial revolution was leading to vast changes in society. These changes raised the question of how a society could be organized around a system in which every individual sought his or her own (monetary) gain. Classical political economy is popularly associated with the idea that free markets can regulate themselves.

 








Classical Economics
                    Classical economics is considered to be the first school of economic thought. Let us start with a general overview of what this school of thought propagates. By the way, I am an out and out Classical economist, so forgive any biases that might creep in. Also understand, that even if it may seem so in this particular article at times, one cannot conclude that Keynesian economics is flawed or classical economics is flawed (there's no absolute right and wrong in economics, different theories are applicable under different economic assumptions).
                               Adam Smith is the great economist, who is known as the founder of the classical economics school of thought. Though many others (David Ricardo, Thomas Malthus, John Stuart Mill, William Petty, Johann Heinrich Von Thunen, etc.) have come and gone, and added a few things here and there, to the classical theories.
The Classical economics theory is based on the premise that free markets can regulate themselves if left alone, free of any human intervention. Adam Smith's book, 'The Wealth of Nations', that started a worldwide Classical wave, stresses on there being an invisible hand (an automatic mechanism) that moves markets towards a natural equilibrium, without the requirement of any intervention at all. In better economic words, the division of labor and the free market will automatically tend toward an equilibrium that advances public interests.

Classical Economics Assumptions

Before working our way towards the workings of the Classical economics model, let us first know and understand the classical economics assumptions. The idea, is that like any theory, if the founding assumptions do not hold, the theory based on them is bound to fail. There are three basic assumptions of Classical Economics theories. They are:
  • Flexible Prices: The prices of everything, the commodities, labor (wages), land (rent), etc. must be both upwardly and downwardly mobile. Unfortunately, in reality, it has been observed that these prices are not as readily flexible downwards as they are upwards, due a variety of market imperfections, like laws, unions, etc.
  • Say's Law: 'Supply creates its own demand'. The Say's law suggests that the aggregate production in an economy must generate an income enough to purchase all of the economy's output. In other words, if a good is produced, it has to be bought. Unfortunately, this assumption also does not hold good today, as most economies today are demand driven (production is based on demand. Demand is not based on production or supply).
  • Savings - Investment Equality: This assumption requires the household savings to equal the capital investment expenditures. Now it takes no genius to know, that this is rarely the case. Yet, should the savings not equal the investment, the 'flexible' interest rates should be able to restore the equilibrium.
Classical Economics - The Workings of an Economy

"Civil government, so far it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all." - Adam Smith from 'The Wealth of Nations', (1776)

All the normal principles of economics apply to classical economics as well. If all the assumptions hold, classical economics works as follows.

Wage Markets
                      Classical economics negates the fact that there can be some unemployment (especially involuntary) in an economy, because classical economists believe in the self correcting mechanism of an economy. Their contention is based on the following:
  • Whenever there is unemployment in an economy, it is usually a temporary disequilibrium because it is an equilibrium caused by excess labor available at the current wage rate.
  • Whenever wages are high, there are always more people willing to work at that ongoing rate and this is termed as unemployment.
  • In an unregulated, classical economy, where wages are perfectly flexible, the wage rates fall, eliminating the excess labor available and reducing the unemployment back to equilibrium levels.
  • How exactly does this happen? This happens because all hirers favor their self interest motives. When laborers are still available when he pays them a lower wage, why should he pay more. He thus adjusts his wage rates downwards, acting in the overall welfare of society, without knowing it.
Commodity Markets
                                The Say's law that equates the demand and supply in an economy actually applies to aggregates and not single goods and commodities. Classical economists believe that the commodities markets will also always be in equilibrium, due to flexible prices. If the supply is high and there is inadequate demand for it, it is a temporary situation. The prices for the commodity in question lower down, to equate the demand and supply and bring the situation back to equilibrium. How does this work? Well, what would you do if you had a commodity that you needed to sell but weren't able to secure a buyer. You'd obviously reduce the prices step by step, in a trial and error manner and finally reach a price that might tempt a buyer to buy. It is a similar case with the aggregate demand and supply, say the classical theorists.

Capital Markets

                                In the beautiful free world of classical economics, no human intervention is required to lead the capital markets to equilibrium as well. If the economy does not follow the last assumption and shows a mismatch in savings and investments, the classical economists provide the evergreen solution - do nothing, it is temporary and will correct itself. If savings exceed investment, the interest rates fall and the market achieves equilibrium again. On the other hand, if savings fall short of investments, the interest rates rise and once again, the economy reaches its own equilibrium. Let us now see how all the markets come together in the classical economics model.

                           One potential problem with the classical theories is that Say's law may not be true. This may happen because not all the income earned goes towards consumption expenditures. The totals savings thus saved, translate into the missing potential demand, which is the cause of the disequilibrium. When supply falls short of effective demand like this, several things spiral downwards: producers reduce their production; workers are laid off, wages fall resulting in lower disposable incomes, consumption declines reducing demand by further more and starting a self sustaining vicious cycle. However, classical economists argue that what happens to the savings that started to the whole chain is the key solution here. If all of these savings go in as investments, the interest rates adjust to bring the economy back to equilibrium once again, with absolutely no problems at all. The only glitch, are all savings actually invested in reality? By investment, classical economists mean capital generation, so I doubt it! But as one can see, according to classical theories, there is really no need for any government intervention. No wonder then, that they are against it, for they can provide good backing to all the arguments that state, that government intervention cannot help, but can actually harm the economy in the long run.

Keynesian Economics Theory
                                         Keynesian economics is the brain child of the great economist, John Maynard Keynes. The Keynesian school of economics considers his book, 'The General Theory of Employment, Interest and Money' (1936) as its holy Bible. Let us have an overview of this theory, which contradicts and confronts the classical theory on almost all counts.

Keynesian Economics Definition and Groundwork for the Keynesian Economics Model.
  "Long run is a misleading guide to current affairs. In the long run we are all dead."
John Keynes's most famous quote, to stop the Classical economists from rapping about the 'long run'.

                                       Keynesian economics is wholly based on a simple logic, that there is no divine entity, nor some invisible hand, that can tide us over economic difficulties, and we must all do so ourselves. Keynesian economic models stress on the fact that Government intervention is absolutely necessary to ensure growth and economic stability. While classical economists believe that the best monetary policy is no monetary policy, Keynesian economists believe otherwise. In the Keynesian economic model, the government has the very important job of smoothening out the business cycle bumps. They stress on the importance of measures like government spending, tax breaks and hikes, etc. for the best functioning of the economy.

Keynesian Economics Assumptions
                 Like all economic theories, the Keynesian Economics school of thought is based on a few key assumptions. Let us have a look at them first, before we progress on to the application of Keynesian economics in the actual economy.
  • Rigid or Inflexible Prices: Mostly we see that while a wage hike is easier to take, wage falls hit some resistance. Likewise, while for a producer, commodity prices are easily upwardly mobile, he is extremely reluctant for any reductions. For all such prices, it is easily notable that they are not actually as flexible as we'd like, due to several reasons, like long term wage agreements, long term supplier contracts, etc.
  • Effective Demand: Contrary to Say's law, which is based on supply, Keynesian economics stresses the importance of effective demand. Effective demand is derived from the actual household disposable incomes and not from the disposable income that could be gained at full employment, as the classical theories state. Keynesian economics also recognizes that only a fraction of the household income will be used for consumption expenditure purposes.
  • Savings and Investment Determinants: Keynesian economics directly contradicts the savings-investment proponent of Classical economics, because of what it believes to be the savings and investment determinants. While classical economists believe that savings and investment is triggered by the prevailing interest rates, Keynesian economists believe otherwise. They believe that household savings and investments are based on disposable incomes and the desire to save for the future and commercial capital investments are solely based on the expected profitability of the endeavor.
Keynesian Economics - The Workings of an Economy

"The biggest problem is not to let people accept new ideas, but to let them forget the old ones." - John Maynard Keynes.

                   As classical economics and the Great Depression did not go so well together, with the latter exposing several flaws in the former, but Keynesian economics came up with a solution. Keynesian economics and the Great depression worked well together, with in fact the former giving ways to avoid and escape the latter. Keynesian economics is equipped to teach everyone about how to survive an economic depression. Let us have a look at how the Keynesian theory works.

                       Keynesian economists believe that the macroeconomic economy is more than just an aggregate of markets. Also, these individual commodity and resource markets are not capable of achieving an automatic equilibrium and it is quite possible that such disequilibrium last for very long. As full employment is not guaranteed automatically, Keynesian economics advocates the use of beneficial government policies in order to give the economy a helping hand.


Commodity Markets

The Keynesians start with a graph showing a 45 degree line starting at the intersection of both the axis. This line depicts all the points where the aggregate expenditure equals the aggregate production. In other words, the economy is at full employment equilibrium. They then chart a real aggregate expenditures line, an aggregated amount of all the macroeconomic sector expenditures (Household Consumption, Investment, Government Spending, etc.) and capture the effective demand. When the economy is below or above the intersection between these two lines, there is an obvious disequilibrium or imbalance.

                                  If aggregate production is more than the aggregate expenditures, there is excess supply. Inventories increase and businesses reduce their production to stop these. On the other hand, when the demand is more than the supply (aggregate expenditure supersedes aggregate production) the accumulated inventories of businesses decrease and there is an incentive to increase production. Through this mechanism of inventories, the commodity markets find their equilibrium.

Employment Markets

                    When there is a recessionary gap, that is when the actual aggregate production in an economy is less than the aggregate production that should have come off full employment and there is rampant unemployment in the economy. On the other hand, under an inflationary gap, the actual aggregate production exceeds the aggregate production that should have come off full employment. Both the situations cannot be solved automatically, contrary to the classical economic fundamentals.

The solution to the entire economic problems lie in the manipulation of some key indicators, say the Keynesian economists. These indicators include interest rates (increase in interest rates, decrease in aggregate expenditures), confidence or expectations (pessimistic economic outlook, fall in aggregate expenditures) and Government Policies and Federal Deficit (Increase in taxes or fall in Government spending, fall in aggregate expenditures). The government can manipulate these variables (and even many others) through the two market intervention tools that it has at its disposal, namely the fiscal policy and the monetary policy.



Classical Economics Vs Keynesian Economics
                      (Comparison and Contrast)
                       The following are some of the basic comparisons for a Keynesian economics Vs Classical economics study.
  • Keynes refuted Classical economics' claim that the Say's law holds. The strong form of the Say's law stated that the "costs of output are always covered in the aggregate by the sale-proceeds resulting from demand". Keynes argues that this can only hold true if the individual savings exactly equal the aggregate investment.
  • While Classical economics believes in the theory of the invisible hand, where any imperfections in the economy get corrected automatically, Keynesian economics rubbishes the idea. Keynesian economics does not believe that price adjustments are possible easily and so the self-correcting market mechanism based on flexible prices also obviously doesn't. The Keynesian economists actually explain the determinants of saving, consumption, investment and production differently than the classical economists.
  • Classical economists believe that the best monetary policy during is a crisis is no monetary policy. The Keynesian theorist on the other hand, believes that Government intervention in the form of monetary and fiscal policies is an absolute must to keep the economy running smoothly.
  • Classical economists believed in the long run and aimed to provide long run solutions at short run losses. Keynes was completely opposed to this, and believed that it is the short run that should be targeted first.
  • Keynes thought of savings beyond planned investments as a problem, but Classicalists didn't think so because they believed that interest rate changes would sort this surplus of loanable funds and bring the economy back to equilibrium. Keynes argued that interest rates do not usually fall or rise perfectly in proportion to the demand and supply of loanable funds. They are known to overshoot or undershoot at times as well.
  • Both Keynes and the Classical theorists however, believed as fact, that the future economic expectations affect the economy. But while, Keynes argued for corrective Government intervention, Classical theorists relied on people's selfish motives to sort the system out.