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Major Economic Schools of Thought

Economics

Austrian School


- In 1871, Carl Menger published Principles of Economics
- Associated with Neoclassical
- Emphasis on methodological individualism, methodological subjectivism, and processes rather than on end states
- Does not use mathematics in their analyses or theories
- Key people: Richard Cantillon, Carl Menger, Friedrich Hayek, Ludwig von Mises

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Classical School


- In 1776, Adam Smith published The Wealth of Nations
- Challenged Mercantilism, influenced by Physiocrats
- Land, labor, and capital as the three factors of production
- Pursuit of individuals' self-interests produces the greatest benefit for society as a whole
- Prices are determined by the costs of production
- Advocated laissez-faire
- Key people: Adam Smith, David Ricardo, Thomas Robert Malthus, John Stuart Mill

  Britannica


Keynesian School


- In 1936, John Maynard Keynes (pronounced "Canes") published General Theory of Employment, Interest, and Money
- Keynes was a student of Alfred Marshall (Neoclassical). Influenced by Great Depression.
- Emphasizes demand-side
- Theory of total spending in the economy (aggregate demand) and of its effects on output and inflation
- Both fiscal and monetary policy affect aggregate demand
- Periods of recession or depression are economic maladies, not efficient market responses
- Key people: John Maynard Keynes

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Marxism


- In 1867, Karl Marx published Das Kapital. Influenced by Industrial Revolution.
- Challenged Classical School
- The value of a commodity is measured solely by the labor hours that are required to produce that commodity
- All production belongs to labor because workers produce all value within society
- Struggle between the bourgeoisie (the capitalist class that owns the means of production) and the proletariat (the working class, which is at the mercy of the capitalists)
- Key people: Karl Marx, Friedrich Engels
  About, EconLib, Britannica, InfoPlease


Mercantilism


- Adopted by merchants and statesmen during the 16th and 17th centuries
- Nation's wealth came primarily from the accumulation of gold and silver
- Foreign trade favored above domestic trade
- Imposed tariffs on foreign goods to restrict import trade, and granting subsidies to improve export prospects for domestic goods

  EconLib, InfoPlease, Britannica, Bartleby


Monetarism


- Challenged Keynesianism
- Money supply is the chief determinant of economic activity
- Inflation is caused by an excess quantity of money in an economy
- Rejection of fiscal policy and proponent monetary policy
- Government intervention in the economy should be kept to a minimum
- Key people: Milton Friedman

  EconLib, Britannica


Neoclassical


- Outgrowth from Classical
- An umbrella term that covers many schools (Austrian, Keynesian, et al)
- In 1871, William Stanley Jevons published Theory of Political Economy
- In 1890, Alfred Marshall published Principles of Economics
- Emphasizes equilibria, the solutions of individual maximization problems
- Based on 3 assumptions: 1. People have rational preferences among outcomes. 2. Individuals maximize utility and firms maximize profits. 3. People act independently on the basis of full and relevant information.
- All economic phenomena can be explained by aggregating the behavior of individuals
- Key people: William Stanley Jevons, Alfred Marshall

  About, EconLib, Wikipedia


Physiocrats


- Greek for "Government of Nature"
- Regarded as the first scientific school of economics
- Challenged Mercantilism
- Group of 18th century French philosophers
- Land and agriculture was the sole source of wealth
- Advocated a policy of laissez-faire
- Key people: Francois Quesnay, Anne Turgot

  InfoPlease, Britannica, Wikipedia


Supply-side


- Also called "trickle-down economics"
- Influencing the supply of labor and goods as a path to economic health
- Use of tax cuts and benefit cuts to the unemployed, with the intention of increasing the incentive to work and produce goods and service
- High marginal tax rates and government regulation discourage private investment in areas that fuel economic expansion
- Key people: Arthur Laffer

  InfoPlease, Britannica




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More Links:
History of Economic Thought
A Historical Perspective on Economic Schools of Thought
Economic Schools of Thought
Wikipedia
Encarta
Bartleby
Schools of Though Diagram
Collection of Economic Thought
History of Economic Thought
Web Links
Great Economists and Their Times
The Origins of Various Economic-related Terms

Posted: 2003-10-09 17:19:00


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