The major schools of economic theory are listed here. It is important that you become familiar with this information so that you can more effectively participate in our classroom discussions.
Classical Economics:
Classical economics emerged in the 18th and 19th centuries and is associated with economists like Adam Smith and David Ricardo. It emphasises the idea of a self-regulating market system guided by the invisible hand, where individuals pursuing their self-interest lead to optimal outcomes for society. Key principles include laissez-faire policies, the labor theory of value, and the belief that markets tend to achieve full employment and long-term equilibrium.
Neoclassical Economics:
Neoclassical economics builds upon classical economics and is the dominant economic theory today. It focuses on individual behaviour and choices in a market economy, emphasising the role of supply and demand in determining prices and resource allocation. Neoclassical economists believe that markets are efficient and tend to reach equilibrium, with government intervention limited to correcting market failures.
Keynesian Economics:
Named after John Maynard Keynes, Keynesian economics emerged during the Great Depression. It stresses the importance of government intervention to stabilise the economy during periods of economic downturns. Keynesians advocate for fiscal and monetary policies, such as government spending and interest rate adjustments, to stimulate demand and maintain full employment.
Monetarism:
Monetarism is associated with Milton Friedman and focuses on the role of money supply in influencing economic outcomes. Monetarists argue that stable and predictable growth in the money supply is essential to achieve long-term economic stability. They advocate for a rules-based approach to monetary policy and believe that excessive government intervention can lead to inflationary pressures.
Austrian School:
The Austrian School of economics originated in the late 19th century and emphasises the subjective nature of human action and the importance of individual decision-making. Austrian economists, like Friedrich Hayek and Ludwig von Mises, argue against central planning and advocate for free markets as the most efficient way to allocate resources. They highlight the role of entrepreneurship and spontaneous order in the economy.
Marxist Economics:
Marxist economics is based on the works of Karl Marx and Friedrich Engels. It views economic history as a struggle between social classes and predicts the inevitable collapse of capitalism, leading to a communist society. Marxists critique capitalism for its inherent inequality and exploitation of labor, advocating for the collective ownership of means of production.
Institutional Economics:
Institutional economics, associated with economists like Thorstein Veblen, focuses on the impact of social institutions and norms on economic behavior and outcomes. It considers the role of institutions, such as laws, customs, and social practices, in shaping economic systems and the distribution of resources.
Behavioural Economics:
Behavioral economics incorporates insights from psychology into economic analysis. It recognises that individuals often make decisions that deviate from the perfectly rational assumptions of traditional economics. Behavioural economists study how cognitive biases and heuristics influence economic choices and outcomes.
Environmental Economics:
Environmental economics addresses the economic impact of environmental issues and explores ways to balance economic growth with environmental sustainability. It considers market-based solutions, such as pollution taxes and cap-and-trade systems, to internalise environmental costs and promote sustainable practices.
Development Economics:
Development economics examines the economic and social issues faced by developing countries. It aims to understand the root causes of poverty and inequality and explores strategies to promote economic growth, improve living standards, and reduce disparities.