Schools of economic thought


In the history of economic thought, a school of economic thought is a group of economic thinkers who share or shared a mutual perspective on the way economies function. While economists do not always fit within particular schools, particularly in the modern era, classifying economists into schools of thought is common. Economic thought may be roughly divided into three phases: premodern, early modern and modern. Systematic economic theory has been developed primarily since the beginning of what is termed the modern era.
Currently, the great majority of economists follow an approach referred to as mainstream economics. Economists generally specialize into either macroeconomics, broadly on the general scope of the economy as a whole, or microeconomics, on specific markets or actors.
Within the macroeconomic mainstream in the United States, distinctions can be made between saltwater economists and the more laissez-faire ideas of freshwater economists. However, there is broad agreement on the importance of general equilibrium, the methodology related to models used for certain purposes, and the importance of partial equilibrium models for analyzing specific factors important to the economy.
Some influential approaches of the past, such as the historical school of economics and institutional economics, have become defunct or have declined in influence, and are now considered heterodox approaches. Other longstanding heterodox schools of economic thought include Austrian economics and Marxian economics. Some more recent developments in economic thought such as feminist economics and ecological economics adapt and critique mainstream approaches with an emphasis on particular issues rather than developing as independent schools.

Contemporary economic thought

Mainstream economics

Mainstream economics is distinguished in general economics from heterodox approaches and schools within economics. It begins with the premise that resources are scarce and that it is necessary to choose between competing alternatives. That is, economics deals with tradeoffs. With scarcity, choosing one alternative implies forgoing another alternative—the opportunity cost. The opportunity cost expresses an implicit relationship between competing alternatives. Such costs, considered as prices in a market economy, are used for analysis of economic efficiency or for predicting responses to disturbances in a market. In a planned economy comparable shadow price relations must be satisfied for the efficient use of resources, as first demonstrated by the Italian economist Enrico Barone.
Economists believe that incentives and costs play a pervasive role in shaping decision making. An immediate example of this is the consumer theory of individual demand, which isolates how prices and income affect quantity demanded. Modern mainstream economics has foundations in neoclassical economics, which began to develop in the late 19th century. Mainstream economics also acknowledges the existence of market failure and insights from Keynesian economics, most contemporaneously in the macroeconomic new neoclassical synthesis. It uses models of economic growth for analyzing long-run variables affecting national income. It employs game theory for modeling market or non-market behavior. Some important insights on collective behavior have been incorporated through the new institutional economics. A definition that captures much of modern economics is that of Lionel Robbins in a 1932 essay: "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Scarcity means that available resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem. The subject thus defined involves the study of choice, as affected by incentives and resources.
Mainstream economics encompasses a wide range of views. Politically, most mainstream economists hold views ranging from laissez-faire to modern liberalism. There are also differing views on certain empirical claims within macroeconomics, such as the effectiveness of expansionary fiscal policy under certain conditions.
Disputes within mainstream macroeconomics tend to be characterised by disagreement over the convincingness of individual empirical claims and in this respect differ from the more fundamental conflicts over methodology that characterised previous periods, in which economists of differing schools would disagree on whether a given work was even a legitimate contribution to the field.

Contemporary heterodox economics

In the late 19th century, a number of heterodox schools contended with the neoclassical school that arose following the marginal revolution. Most survive to the present day as self-consciously dissident schools, but with greatly diminished size and influence relative to mainstream economics. The most significant are Institutional economics, Marxian economics and the Austrian School.
The development of Keynesian economics was a substantial challenge to the dominant neoclassical school of economics. Keynesian views entered the mainstream as a result of the neoclassical synthesis developed by John Hicks. The rise of Keynesianism, and its incorporation into mainstream economics, reduced the appeal of heterodox schools. However, advocates of a more fundamental critique of neoclassical economics formed a school of post-Keynesian economics.
Heterodox approaches often embody criticisms of perceived "mainstream" approaches. For instance:
  • feminist economics criticizes the valuation of labor and argues female labor is systemically undervalued;
  • green economics criticizes instances of externalized and intangible ecosystems and argues for them to be brought into the tangible capital asset model as natural capital; and
  • post-keynesian economics disagrees with the notion of the long-term neutrality of demand, arguing that there is no natural tendency for a competitive market economy to reach full employment.
Other viewpoints on economic issues from outside mainstream economics include dependency theory and world systems theory in the study of international relations.

Historical economic thought

Modern macro- and microeconomics are young sciences. But many in the past have thought on topics ranging from value to production relations. These forays into economic thought contribute to the modern understanding, ranging from ancient Greek conceptions of the role of the household and its choices to mercantilism and its emphasis on the hoarding of precious metals.

Austrian School

Austrian economists advocate methodological individualism in interpreting economic developments, the subjective theory of value, that money is non-neutral, and emphasize the organizing power of the price mechanism and a laissez faire approach to the economy.
  • Carl Menger
  • Eugen von Böhm-Bawerk
  • Ludwig von Mises
  • Friedrich Hayek
  • Friedrich von Wieser
  • Henry Hazlitt
  • Frank Fetter
  • Israel Kirzner
  • Murray Rothbard
  • Robert P. Murphy
  • Lew Rockwell
  • Peter Schiff
  • Marc Faber
  • Walter Block
  • Hans-Hermann Hoppe
  • Jesús Huerta de Soto
  • Fritz Machlup

    Ancient economic thought

  • Chanakya
  • Xenophon
  • Aristotle
  • Qin Shi Huang
  • Wang Anshi

    Islamic economics

Islamic economics is the practice of economics in accordance with Islamic law. The origins can be traced back to the Caliphate, where an early market economy and some of the earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".
Islamic economics seeks to enforce Islamic regulations not only on personal issues, but to implement broader economic goals and policies of an Islamic society, based on uplifting the deprived masses. It was founded on free and unhindered circulation of wealth so as to handsomely reach even the lowest echelons of society. One distinguishing feature is the tax on wealth, and bans levying taxes on all kinds of trade and transactions.
Another distinguishing feature is prohibition of interest in the form of excess charged while trading in money. Its pronouncement on
use of paper currency also stands out. Though promissory notes are recognized, they must be fully backed by reserves. Fractional-reserve banking is disallowed as a form of breach of trust.
Trade in Islamic societies saw innovations such as trading companies, big businesses, contracts, bills of exchange, long-distance international trade, the first forms of partnership such as limited partnerships, credit, debt, profit, loss, capital, and capital accumulation, circulating capital, capital expenditure, revenue, cheques, promissory notes, trusts, startup companies, savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system, lawsuits, and agency institution.
This school has seen a revived interest in development and understanding since the later part of the 20th century.
  • Muhammad
  • Abu Hanifa an-Nu‘man
  • Abu Yusuf
  • Al-Farabi
  • Shams al-Mo'ali Abol-hasan Ghaboos ibn Wushmgir
  • Ibn Sina
  • Ibn Miskawayh
  • Al-Ghazali
  • Ibn Taymiyyah
  • Al-Mawardi
  • Nasīr al-Dīn al-Tūsī
  • Ibn Khaldun
  • Al-Maqrizi
  • Muhammad Baqir al-Sadr

    Scholasticism

  • Nicole Oresme
  • Thomas Aquinas
  • School of Salamanca
  • Leonardus Lessius

    Mercantilism

Economic policy in Europe during the late Middle Ages and early Renaissance treated economic activity as a good which was to be taxed to raise revenues for the nobility and the church. Economic exchanges were regulated by feudal rights, such as the right to collect a toll or hold a fair, as well as guild restrictions and religious restrictions on lending. Economic policy, such as it was, was designed to encourage trade through a particular area. Because of the importance of social class, sumptuary laws were enacted, regulating dress and housing, including allowable styles, materials and frequency of purchase for different classes. Niccolò Machiavelli in his book The Prince was one of the first authors to theorize economic policy in the form of advice. He did so by stating that princes and republics should limit their expenditures and prevent either the wealthy or the populace from despoiling the other. In this way a state would be seen as "generous" because it was not a heavy burden on its citizens.
  • Gerard de Malynes
  • Edward Misselden
  • Thomas Mun
  • Jean Bodin
  • Jean Baptiste Colbert
  • Josiah Child
  • William Petty
  • John Locke
  • Charles Davenant
  • Dudley North
  • Ferdinando Galiani
  • James Denham-Steuart