Kyle Jemmric Velasco

EC 112 Paper # 3
The film, Commanding Heights is basically a documentary that explains the history of the worlds
economy that lead up to globalization and the trends that we may well expect into the 21st century. What
does globalization, a certainty that all countries have to learn to face, have for us in the future? The
documentary offers insights into how economic theories can help explain how the market and other
economic factors come into play for control of a countrys economy.
During the world wars, there were 2 major but opposing economic theories that explains the
reasons behind such conflicts and how it can be avoided. Frederick Von Hayek, a supporter to the free
market concept and John Maynard Keynes, an advocate for government intervention in the market. The
film detailed how these 2 theories came to be and how other countries and governments viewed it
versus alternative economic systems such as communism and socialism. The more popular and widely
accepted then was the Keynesian model which advocated for government intervention through
regulatory and other forms of control over the economic market. The Commanding Heights of the
Economy was referred to those aggregate inputs of production such as industry, manufacturing, mining,
human and other resources, the documentary shows how the regulator of these Commanding Heights
equates to the control of the economy and therefore the wealth and the distribution of it.
The basic application of these theories are the concept of the basic market forces of supply and
demand. Hayek was for a free market where there is no government intervention. By letting the natural
demand and supply freely determine the optimal amounts needed for manufacture and consumption, a
capitalistic economy can grow. However, after the 2 World Wars, that trend started to wane and instead
governments needed some other solution. This need for an answer was readily supplied by Keynes
through government spending and other forms of intervention. While Hayek still believed for free
markets and no government intervention, more governments became inclined in following the Keynesian
model to control the uncertainties of a free market, therefore its countrys commanding heights. Instead,
while such government participation spurred economic activity in the short term, the long term produced
Inflation and artificial economic bubbles were formed which created unemployment when it burst. As

people began losing their wealth, inflation continued to rise together with unemployment thus giving rise
to a state of stagflationi. Still governments continued to intervene, spending money and regulating almost
everything they can put their hands on.
It was only during the late 80s to early 90s, when the British-American leadership tandem of
Margaret Thatcher and Ronald Reagan decided to go the way of Hayeks model and followed his
prescriptions started tightening their fiscal belts. While this non-intervention was painfully felt by
everybody, after 3 years the results were positive in that inflation was put under control and employment
started to rise. People started trusting the market forces to find a way for a sustainable and inclusive
economic growth which not only saved both these countries economies, but became a model for the
rest of the world to adopt and modify for their own application.ii

i
ii

http://www.investopedia.com/terms/s/stagflation.asp
Commanding Heights: Bettle of Ideas, Public Broadcasting Service