economic thoughts

8/3/2019 Economic Thoughts

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SCHOOLS OF ECONOMIC

THOUGHT MERCANTILISM

PHYSIOCRATS

CLASSICALS KEYNESIAN ECONOMICS

NEO CLASSICALS

POST KEYNESIAN ECONOMICS

INSTITUTIONAL ECONOMICS



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Mercantilism



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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 meetcertain objectives, such as exporting (selling) more goods to other countries thanimporting (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'scolonies was a worthwhile effort.



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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 againstthe importation of an goods that can beproduced 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, makingborrowing and expansion of capitalstock easier and cheaper



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Physiocrats



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Physiocrats (1756-1776)

1756, François Quesnay publishedhis first article on economics inGrande Encyclopedie



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Major Tenets ³Physiocracy´ means ³rule of nature´

Laissez faire, laissez passer

Emphasis on Agriculture.

Only tax landowners.

Viewed the macroeconomy as acircular flow of goods and money.



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Who Benefits? Peasants avoid taxes

Businesses helped by reducedregulation

Landowners get hurt by taxes



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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 firsteconomic and social transformationbrought by the Industrial Revolution

They supported a free-market economy,

arguing it was a natural system basedupon freedom and property

Jeremy Bentham, Jean-BaptisteSay,Thomas Malthus,David Ricardo,JohnStuart 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 andtherefore 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 ²predominantly 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, The advent of the global financial crisis in 2007 has caused a

resurgence in Keynesian thought



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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

Walras¶s Elements of Pure Economics (1874±1877).

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 aswell as the short run, so that a competitive market economy hasno natural or automatic tendency towards full employment

The positive contribution of Post Keynesian economics[8] has

extended beyond the theory of aggregate employment to theoriesof income distribution, growth, trade and development in whichdemand plays a key role

In the field of monetary theory, Post Keynesian economists wereamong the first to emphasise that the money supply responds tothe 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 economicbehaviour.

emphasizes a broader study of

institutions and views markets as a resultof the complex interaction of thesevarious institutions (e.g. individuals,firms, states, social norms).

Thorstein Veblen, Wesley Mitchell, andJohn R. Commons

economic thoughts

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