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
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
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
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
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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
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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
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
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
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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
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