SCHOOLS OF ECONOMIC THOUGHT

      

MERCANTILISM PHYSIOCRATS CLASSICALS KEYNESIAN ECONOMICS NEO CLASSICALS POST KEYNESIAN ECONOMICS INSTITUTIONAL ECONOMICS

Mercantilism

What is Mercantilism?


Mercantilism, an economic system that stresses the goals of the national government rather than the individual developed in Europe as the feudal system This system required the national government to strictly control businesses to meet certain objectives, such as exporting (selling) more goods to other countries than importing (buying) goods from other countries Within a country, trade barriers (such as taxes) were dropped According to mercantilist philosophy, exploiting the natural resources of a nation's colonies was a worthwhile effort.

 

 

Major Tenets of Mercantilism

   

   

Gold and silver are most desirable forms of wealth Accumulating these requires a trade surplus Implies a nationalistic view Import raw materials, protect with tariffs against the importation of an goods that can be produced domestically. Restrict imports of raw materials. Colonization. Keep colonies dependent. Oppose internal taxes of any kind. Strong central government Large, hard-working labor force is critical
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Validity in its time?

The growth of commerce was/is constrained by liquidity  Needed money for wars  Increased supply of money makes tax collection easier  Reduces interest rates, making borrowing and expansion of capital stock easier and cheaper

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Physiocrats

Physiocrats (1756-1776)


1756, Franois Quesnay published his first article on economics in Grande Encyclopedie

Major Tenets
Physiocracy means rule of nature  Laissez faire, laissez passer  Emphasis on Agriculture.  Only tax landowners.  Viewed the macroeconomy as a circular flow of goods and money.


Who Benefits?
Peasants avoid taxes  Businesses helped by reduced regulation  Landowners get hurt by taxes


Key Ideas
    

Each individual is the best judge of his/her interest Self-interest leads to common good Private property Role of government Unequal distribution of wealth

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CLASSICAL ECONOMISTS
 

referred to as a group for the first time by Karl Marx These economists had seen the first economic and social transformation brought by the Industrial Revolution They supported a free-market economy, arguing it was a natural system based upon freedom and property Jeremy Bentham, Jean-Baptiste Say,Thomas Malthus,David Ricardo,John Stuart Mill
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KEYNESIAN ECONOMICS
 

Macroeconomic theory based on the ideas of 20th century British economist John Maynard Keynes The General Theory of Employment, Interest and Money , published in 1936;

Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector. monetary policy actions by the central bank and fiscal policy actions by the government advocates a mixed economy predominantly private sector, but with a large role of government and public sector served as the economic model during the latter part of the Great Depression

  

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The advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought

NEO CLASSICALS


The term was originally introduced by Thorstein Veblen Neoclassical economics is frequently dated from William Stanley Jevons's Theory of Political Economy (1871), Carl Menger's Principles of Economics(1871), and Leon Walrass Elements of Pure Economics (18741877). certain branches of neoclassical theory may have different approaches People have rational preferences among outcomes that can be identified and associated with a value. Individuals maximize utility and firms maximize profits People act independently on the basis of full and relevant information. An important change in neoclassical economics occurred around 1933. The Economics of Imperfect Competition (1933) and The Theory of Monopolistic Competition (1933), introduced models of imperfect competition.- Joan Robinson and Edward H. Chamberlin
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POST KEYNESIAN ECONOMICS

    

Post Keynesian economics is a school of economic thought with its origins in The General Theory of John Maynard Keyns influenced to a large degree by Micha Kalecki, Joan Robinson, Nichola Kaldor and Paul Davidson Post Keynesian could simply mean economics carried out after 1936, the date of Keynes's The General Theory. Post Keynesian economics can be seen as an attempt to rebuild economic theory in the light of Keynes's ideas and insights. The theoretical foundation of Post Keynesian economics is the principle of effective demand, that demand matters in the long as well as the short run, so that a competitive market economy has no natural or automatic tendency towards full employment The positive contribution of Post Keynesian economics[8] has extended beyond the theory of aggregate employment to theories of income distribution, growth, trade and development in which demand plays a key role In the field of monetary theory, Post Keynesian economists were among the first to emphasise that the money supply responds to the demand for bank credit, Nicholas Kaldor , Joan Robinson, Micha Kalecki
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Institutional economics

focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions (e.g. individuals, firms, states, social norms). Thorstein Veblen, Wesley Mitchell, and 15 John R. Commons