Schools of economic thought

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In the

physiocrats) and modern (beginning with Adam Smith and classical economics in the late 18th century, and Karl Marx and Friedrich Engels' Marxian economics in the mid 19th century). Systematic economic theory has been developed mainly since the beginning of what is termed the modern era
.

Currently, the great majority of economists follow an approach referred to as mainstream economics (sometimes called 'orthodox economics'). Economists generally specialize into either macroeconomics, broadly on the general scope of the economy as a whole,[1] and microeconomics, on specific markets or actors.[2]

Within the macroeconomic mainstream in the United States, distinctions can be made between saltwater economists[a] and the more laissez-faire ideas of freshwater economists.[b] However, there is broad agreement on the importance of general equilibrium, the methodology related to models used for certain purposes (e.g. statistical models for forecasting, structural models for counterfactual analysis, etc.), and the importance of partial equilibrium models for analyzing specific factors important to the economy (e.g. banking).[3]

Some influential approaches of the past, such as the

Austrian economics and Marxian economics. Some more recent developments in economic thought such as feminist economics and ecological economics
adapt and critique mainstream approaches with an emphasis on particular issues rather than developing as independent schools.

Contemporary economic thought

Mainstream economics

Main article: Mainstream economics

Mainstream economics is distinguished in general economics from

tradeoffs. With scarcity, choosing one alternative implies forgoing another alternative—the opportunity cost. The opportunity cost expresses an implicit relationship between competing alternatives. Such costs, considered as prices in a market economy, are used for analysis of economic efficiency or for predicting responses to disturbances in a market. In a planned economy comparable shadow price relations must be satisfied for the efficient use of resources, as first demonstrated by the Italian economist Enrico Barone
.

Economists believe that incentives and costs play a pervasive role in shaping

resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem. The subject thus defined involves the study of choice
, as affected by incentives and resources.

Mainstream economics encompasses a wide (but not unbounded) range of views. Politically, most mainstream economists hold views ranging from laissez-faire to modern liberalism. There are also differing views on certain empirical claims within macroeconomics, such as the effectiveness of expansionary fiscal policy under certain conditions.[5]

Disputes within mainstream macroeconomics tend to be characterised by disagreement over the convincingness of individual empirical claims (such as the predictive power of a specific model) and in this respect differ from the more fundamental conflicts over methodology that characterised previous periods (like those between

Neo-Keynesians), in which economists of differing schools would disagree on whether a given work was even a legitimate contribution to the field.[6]

Contemporary heterodox economics

Main article: Heterodox economics

In the late 19th century, a number of heterodox schools contended with the

Austrian School
.

The development of Keynesian economics was a substantial challenge to the dominant neoclassical school of economics. Keynesian views entered the mainstream as a result of the neoclassical synthesis developed by John Hicks. The rise of Keynesianism, and its incorporation into mainstream economics, reduced the appeal of heterodox schools. However, advocates of a more fundamental critique of neoclassical economics formed a school of post-Keynesian economics.

Heterodox approaches often embody criticisms of perceived "mainstream" approaches. For instance:

  • feminist economics criticizes the valuation of labor and argues female labor is systemically undervalued;
  • green economics criticizes instances of externalized and intangible ecosystems and argues for them to be brought into the tangible capital asset model as natural capital; and
  • post-keynesian economics disagrees with the notion of the long-term neutrality of demand, arguing that there is no natural tendency for a competitive market economy to reach full employment.

Other viewpoints on economic issues from outside mainstream economics include

world systems theory in the study of international relations
.

Historical economic thought

Modern macro- and microeconomics are young sciences.[7] But many in the past have thought on topics ranging from value to production relations. These forays into economic thought contribute to the modern understanding, ranging from ancient Greek conceptions of the role of the household and its choices[8] to mercantilism and its emphasis on the hoarding of precious metals.

Ancient economic thought

Main article: Ancient economic thought

Islamic economics

Main article: Islamic economics

Islamic economics is the practice of economics in accordance with Islamic law. The origins can be traced back to the Caliphate,[9] where an early market economy and some of the earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".[10]

Islamic economics seeks to enforce Islamic regulations not only on personal issues, but to implement broader economic goals and policies of an Islamic society, based on uplifting the deprived masses. It was founded on free and unhindered circulation of wealth so as to handsomely reach even the lowest echelons of society. One distinguishing feature is the tax on wealth (in the form of both Zakat and Jizya), and bans levying taxes on all kinds of trade and transactions (Income/Sales/Excise/Import/Export duties etc.). Another distinguishing feature is prohibition of interest in the form of excess charged while trading in money. Its pronouncement on use of paper currency also stands out. Though promissory notes are recognized, they must be fully backed by reserves.

trust
.

Trade in Islamic societies saw innovations such as

agency institution.[16][17]

This school has seen a revived interest in development and understanding since the later part of the 20th century.

Scholasticism

Main article: Scholasticism

Mercantilism

Main article: Mercantilism

Economic policy in Europe during the late Middle Ages and early

sumptuary laws were enacted, regulating dress and housing, including allowable styles, materials and frequency of purchase for different classes. Niccolò Machiavelli in his book The Prince was one of the first authors to theorize economic policy in the form of advice. He did so by stating that princes and republics
should limit their expenditures and prevent either the wealthy or the populace from despoiling the other. In this way a state would be seen as "generous" because it was not a heavy burden on its citizens.

Physiocrats

Main article:
Physiocrats

The Physiocrats were 18th century French economists who emphasized the importance of productive work, and particularly agriculture, to an economy's wealth. Their early support of free trade and deregulation influenced Adam Smith and the classical economists.

Classical political economy

Main article: Classical economics

Classical economics, also called classical

member of parliament, published a book called The National Gain in 1765, in which he proposes ideas of freedom of trade and industry and explores the relationship between economy and society and lays out the principles of liberalism, all of this eleven years before Adam Smith
published a similar and more comprehensive book, The Wealth of Nations. According to Chydenius, democracy, equality and a respect for human rights were the only way towards progress and happiness for the whole of society.

American School

Main article: American School (economics)

The American School owes its origin to the writings and economic policies of

Otto Von Bismarck
beginning in 1879.

French Liberal School

Main article: French Liberal School

The French Liberal School (also called the "Optimist School" or "Orthodox School") is a 19th-century school of economic thought that was centered on the Collège de France and the Institut de France. The Journal des Économistes was instrumental in promulgating the ideas of the School. The School voraciously defended free trade and laissez-faire capitalism. They were primary opponents of collectivist, interventionist and protectionist ideas. This made the French School a forerunner of the modern Austrian School.

Historical school

Main article: Historical school of economics

The

Wilhelm Roscher, Karl Knies, and Bruno Hildebrand; the Younger, led by Gustav von Schmoller, and also including Étienne Laspeyres, Karl Bücher, Adolph Wagner, and to some extent Lujo Brentano; the Youngest, led by Werner Sombart and including, to a very large extent, Max Weber
.

Predecessors included Friedrich List. The Historical school largely controlled appointments to Chairs of Economics in German universities, as many of the advisors of Friedrich Althoff, head of the university department in the Prussian Ministry of Education 1882–1907, had studied under members of the School. Moreover, Prussia was the intellectual powerhouse of Germany and so dominated academia, not only in central Europe, but also in the United States until about 1900, because the American economics profession was led by holders of German Ph.Ds. The Historical school was involved in the Methodenstreit ("strife over method") with the Austrian School, whose orientation was more theoretical and a prioristic. In English speaking countries, the Historical school is perhaps the least known and least understood approach to the study of economics, because it differs radically from the now-dominant Anglo-American analytical point of view. Yet the Historical school forms the basis—both in theory and in practice—of the social market economy, for many decades the dominant economic paradigm in most countries of continental Europe. The Historical school is also a source of Joseph Schumpeter's dynamic, change-oriented, and innovation-based economics. Although his writings could be critical of the School, Schumpeter's work on the role of innovation and entrepreneurship can be seen as a continuation of ideas originated by the Historical School, especially the work of von Schmoller and Sombart.

English historical school

Main article: English historical school of economics

Although not nearly as famous as its German counterpart, there was also an English Historical School, whose figures included William Whewell, Richard Jones, Thomas Edward Cliffe Leslie, Walter Bagehot, Thorold Rogers, Arnold Toynbee, William Cunningham, and William Ashley. It was this school that heavily critiqued the deductive approach of the classical economists, especially the writings of David Ricardo. This school revered the inductive process and called for the merging of historical fact with those of the present period.

French historical school

Utopian economics

Georgist economics

Main article: Georgism

Georgism or geoism is an economic philosophy proposing that both individual and national economic outcomes would be improved by the utilization of economic rent resulting from control over land and natural resources through levies such as a land value tax.

Ricardian socialism

Main article: Ricardian socialism

Ricardian socialism is a branch of early 19th century classical economic thought based on the theory that labor is the source of all wealth and exchange value, and rent, profit and interest represent distortions to a free market. The pre-Marxian theories of capitalist exploitation they developed are widely regarded as having been heavily influenced by the works of David Ricardo, and favoured collective ownership of the means of production.

Marxian economics

Main article: Marxian economics

Marxian economics descended from the work of Karl Marx and Friedrich Engels. This school focuses on the labor theory of value and what Marx considered to be the exploitation of labour by capital. Thus, in Marxian economics, the labour theory of value is a method for measuring the exploitation of labour in a capitalist society rather than simply a theory of price.[18][19]

Neo-Marxian economics

Main article:
Neo-Marxian economics

State socialism

Main article: Socialist economics
See also: State socialism

Anarchist economics

Main article: Anarchist economics

Anarchist economics comprises a set of theories which seek to outline modes of production and exchange not governed by coercive social institutions:

Thinkers associated with anarchist economics include:

Distributism

Main article: Distributism

Distributism is an economic philosophy that was originally formulated in the late 19th century and early 20th century by Catholic thinkers to reflect the teachings of Pope Leo XIII's encyclical Rerum Novarum and Pope Pius's XI encyclical Quadragesimo Anno. It seeks to pursue a third way between capitalism and socialism, desiring to order society according to Christian principles of justice while still preserving private property.

Institutional economics

Main article: Institutional economics

Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in

Walton H. Hamilton.[20][21]

Neoclassical economics

Main article: Neoclassical economics

Neoclassical economics is often referred to by its critics as Orthodox Economics. The more specific definition this approach implies was captured by Lionel Robbins in a 1932 essay: "the science which studies human behavior as a relation between scarce means having alternative uses." The definition of scarcity is that available resources are insufficient to satisfy all wants and needs; if there is no scarcity and no alternative uses of available resources, then there is no economic problem.

Lausanne School

Main article:
neoclassical school of economic thought, named after the University of Lausanne in Switzerland. The school is primarily associated with Léon Walras and Vilfredo Pareto, both of whom held successive professorships in political economy at the university, in the latter half of the 19th century.[22] Beginning with Walras, the school is credited with playing a central role in the development of mathematical economics. For this reason, the school has also been referred to as the Mathematical School.[23] A notable work of the Lausanne School is Walras' development of the general equilibrium theory[24] as a holistic means of analysing the economy, in contrast to partial equilibrium theory, which only analyses single markets in isolation.[25]
The theory shows how a general equilibrium is reached through the interaction between demand and supply in an economy consisting of multiple markets operating simultaneously.

The Lausanne School is also largely credited with the foundation of welfare economics, through which Pareto sought to measure the welfare of an economy.[26] Contrary to utilitarianism, Pareto found that the welfare of an economy cannot be measured by aggregating the individual utilities of its inhabitants. Since individual utilities are subjective, their measurements may not be directly comparable. This led Pareto to conclude that if at least one person's utility increased, while nobody else was any worse off, then the welfare of the economy would increase. Conversely, if a majority of people experienced an increase in utility while at least one person was worse off, there could be no definitive conclusion about the welfare of the economy.[27] These observations formed the basis of Pareto efficiency, which describes a situation or outcome in which nobody can be made better off without also making someone else worse off.[28] Pareto efficiency is still widely used in contemporary welfare economics as well as game theory.[29]

Austrian School

Main article:
Austrian School

Austrian economists advocate

laissez faire approach to the economy.[30]

Stockholm School

Main article:
Stockholm School

The Stockholm School is a school of economic thought. It refers to a loosely organized group of Swedish economists that worked together, in Stockholm, Sweden primarily in the 1930s.

The Stockholm School had—like John Maynard Keynes—come to the same conclusions in macroeconomics and the theories of demand and supply. Like Keynes, they were inspired by the works of Knut Wicksell, a Swedish economist active in the early years of the twentieth century.

Keynesian economics

Main articles:
Neo-Keynesian economics, and New Keynesian economics

Keynesian economics has developed from the work of

New-Keynesian economics
).

Chicago school

Main article: Chicago school of economics

The Chicago School is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, notable particularly in macroeconomics for developing monetarism as an alternative to Keynesianism and its influence on the use of rational expectations in macroeconomic modelling.

Carnegie School

Main article: Carnegie School

Neo-Ricardianism

Main article: Neo-Ricardianism

New institutional economics

Main article: New institutional economics

New institutional economics is a perspective that attempts to extend economics by focusing on the

norms and rules (which are institutions) that underlie economic activity and with analysis beyond earlier institutional economics and neoclassical economics.[31] It can be seen as a broadening step to include aspects excluded in neoclassical economics. It rediscovers aspects of classical political economy
.

20th century schools

Notable schools or trends of thought in economics in the 20th century were as follows. These were advocated by well-defined groups of academics that became widely known:

In the late 20th century, areas of study that produced change in economic thinking were: risk-based (rather than price-based models), imperfect economic actors, and treating economics as a biological science (based on evolutionary norms rather than abstract exchange).

The study of risk was influential, in viewing variations in price over time as more important than actual price. This applied particularly to financial economics, where risk/return tradeoffs were the crucial decisions to be made.

An important area of growth was the study of information and decision. Examples of this school included the work of

stock options, insurance markets, and Third-World debt relief
.

Finally, there were a series of economic ideas rooted in the conception of economics as a branch of biology, including the idea that energy relationships, rather than price relationships, determine economic structure. The use of

non-linear dynamics to economic theory, as well as the application of evolutionary psychology explored the processes of valuation and the persistence of non-equilibrium conditions. The most visible work was in the area of applying fractals to market analysis. Another infant branch of economics was neuroeconomics. The latter combines neuroscience, economics, and psychology
to study how we make choices.

See also

Notes

  1. Yale[citation needed
    ]
  2. ^ Freshwater economists generally hail from the interior of the nation, represented by the Chicago school of economics, Carnegie Mellon University, the University of Rochester and the University of Minnesota[citation needed]

References

  1. ISBN 978-1-4292-1887-0
    .
  2. ^ Mankiw 2010, p. 13.
  3. doi:10.1093/oxrep/grx045
    .
  4. ^ Woodford, Michael. Convergence in Macroeconomics: Elements of the New Synthesis. January 2009. http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf.
  5. SSRN 2535453
    .
  6. ^ Woodford, Michael. Convergence in Macroeconomics: Elements of the New Synthesis. January 2009. http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf.
  7. ^ Mankiw 2010, p. 4.
  8. ISSN 0895-3309
    .
  9. ISBN 0-521-08709-0
    .
  10. ^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81, 83, 85, 90, 93, 96].
  11. ^ Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers.
  12. ISBN 0-231-12357-4
    .
  13. ^ Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", American Journal of Comparative Law 53, pp. 785–834 [798–9].
  14. ^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1): 79–96 [92–3]
  15. ^ Ray Spier (2002), "The history of the peer-review process", Trends in Biotechnology 20 (8), pp. 357–58 [357].
  16. ^ Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press.
  17. ^ Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13].
  18. ISBN 978-0-333-37235-7
    .
  19. ISBN 978-0-333-37235-7
    .
  20. ^ Walton H. Hamilton (1919). "The Institutional Approach to Economic Theory," American Economic Review, 9(1), Supplement, p p. 309-318. Reprinted in R. Albelda, C. Gunn, and W. Waller (1987), Alternatives to Economic Orthodoxy: A Reader in Political Economy, pp. 204- 12.
  21. ^ D.R. Scott, Veblen not an Institutional Economist. The American Economic Review. Vol.23. No.2. June 1933. pp. 274-277.
  22. S2CID 219521928
    .
  23. JSTOR 2221106
    .
  24. ISBN 978-0-415-31340-7
    .
  25. ISBN 9780128110232
    . Retrieved 2021-04-25.
  26. ISBN 978-0-387-33756-2
    .
  27. ISBN 978-3-540-20497-8
    .
  28. ISBN 978-1-349-95188-8
    .
  29. ^ "Cost-Benefit Analysis | Public economics and public policy". Cambridge University Press. Retrieved 2021-04-25.
  30. ^ Raico, Ralph (2011). "Austrian Economics and Classical Liberalism". mises.org. Mises Institute. Retrieved 27 July 2011. despite the particular policy views of its founders ..., Austrianism was perceived as the economics of the free market.
  31. ^ Malcolm Rutherford (2001). "Institutional Economics: Then and Now," Journal of Economic Perspectives, 15(3), pp. 185-90 (173-194).
    L. J. Alston, (2008). "new institutional economics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.

Sources

External links
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