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Schools of economic thought describes the variety of approaches in the history of economic theory noteworthy enough to be described as a 'school of thought'. While economists do not always fit into particular schools, particularly in modern times, classifying economists into schools of thought is common. Economic thought may be roughly divided into three phases: premodern (Greco-Roman, Indian, Persian, Arab, and Chinese), early modern (mercantilist, physiocrats) and modern (beginning with Adam Smith and classical economics in the late 18th century). Systematic economic theory has been developed mainly since the beginning of what is termed the modern era.

Currently, the great majority of economists follow an approach referred to as mainstream economics (sometimes called 'orthodox economics'). Within the mainstream, distinctions can be made between the Saltwater school (associated with Berkeleymarker, Harvardmarker, MITmarker, Pennsylvaniamarker, Princetonmarker, and Yalemarker), and the more laissez-faire ideas of the Freshwater school (represented by the Chicago school of economics, Carnegie Mellon Universitymarker, the University of Rochestermarker and the University of Minnesotamarker. Both of these schools are associated with the neoclassical synthesis. 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.

Ancient economic thought



Islamic economics

Islamic economics is the practice of economics in accordance with Islamic law. The origins can be traced back to the Caliphate, where the first market economy and 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 (in the form of both Zakat and Jizya), and bans levying taxes on all kinds of trade and transactions (Income/Sales/Excise/Import/Export duties etc).Another distinguishing feature is prohibition of interest in the form of excess charged while trading in money. Its pronouncement onuse 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.

It saw innovations such as trading companies, big businesses, contracts, bills of exchange, long-distance international trade, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal), circulating capital, capital expenditure, revenue, cheques, promissory notes, trusts (see Waqf), 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 20th century.



Scholasticism



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 faire, 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.



Physiocrats

In his Austrian Perspective on the History of Economic Thought, Murray Rothbard argued that the modern history of economics should properly begin with the physiocrats rather than with Adam Smith.



Classical political economy

Classical economics, also called classical political economy, was the original form of mainstream economics of the Eighteenth and Nineteenth Centuries. Classical economics focuses on the tendency of markets to move to equilibrium and on objective theories of value. Neo-classical economics differs from classical economics primarily in being utilitarian in its value theory and using marginal theory as the basis of its models and equations. Marxist economics also descends from classical theory. Anders Chydenius (1729–1803) was the leading classical liberal of Nordic history. A Finnishmarker priest and member of parliament, he published a book called The National Gain in 1765, in which he proposes ideas of freedom of trade and industry and explores the relationship between economy and society and lays out the principles of liberalism, all of this eleven years before Adam Smith published a similar and more comprehensive book, The Wealth of Nations. According to Chydenius, democracy, equality and a respect for human rights were the only way towards progress and happiness for the whole of society.



French liberal school



German historical school



English historical school



French historical school



Utopian economics



Marxian economics

Marxian economics descended from the work of Karl Marx and Fredrich Engels. This school focuses on the labor theory of value and what Marx considered to be the exploitation of labour by capital. Thus, in Marxian economics, the labour theory of value is a method for measuring the exploitation of labour in a capitalist society, rather than simply a theory of price.



State socialism



Ricardian socialism



Christian socialism



Anarchist economics

Anarchist economics is a set of theories which seeks to outline modes of production and exchange that are not governed by coercive social institutions. Anarcho-capitalists desire a society where the dynamics of competitive free markets are allowed to operate free of compulsory state control; many other anarchist economists, on the other hand, believe economies cannot be truly free unless capitalist property and the capitalist mode of production are abolished.



Distributism

Distributism is an economic philosophy that was originally formulated in the late 19th century and early 20th century by Catholic thinkers to reflect the teachings of Pope Leo XIII's encyclical Rerum Novarum, and Pope Pius's XI encyclical Quadragesimo Anno. It seeks to pursue a third way between capitalism and socialism, desiring to order society according to Christian principles of justice while still preserving private property.



Institutional economics



New institutional economics



Neoclassical economics

Neoclassical economics is the dominant form of economics used today and has the highest amount of adherents among economists. It is often referred to by its critics as Orthodox Economics. The more specific definition this approach implies was captured by Lionel Robbins in 1932: "the science which studies human behavior as a relation between scarce means having alternative uses." Scarcity means that available resources are insufficient to satisfy all wants and needs; if there is no scarcity and no alternative uses of available resources, then there is no economic problem.



Lausanne school



Austrian school

The Austrian economic school rejects some important (and others minor) classical and neo-classical theories such as the labor theory of value, induction of theory from statistical data, 'loose money,' the importance of mathematics and economic modeling, and the desirability of government intervention in the market outside of the preservation of private property and the force of contract. They explain the choices and actions of human beings through subjective evaluations and marginal utility (contributing this idea to neo-classical economics). They follow deductive chains of causal reasoning to discover theories of action. They hold that the entrepreneur is the driving force of economic growth.

One of the main thrusts of the Austrian School is the rejection of the Boom-Bust cycle as a normal economic pattern, holding that such cycles are symptomatic of currency manipulation by central planners.

The school, while often controversial, has been historically influential, drawing praise (for example) from former Federal Reserve Chairman Alan Greenspan during his earlier years, though the predominance of Austrian economists generally agree that Greenspan later rejected Austrian economic principles. Perhaps the best known Austrian economist is Friedrich von Hayek, who was awarded the Nobel Prize in Economics "for pioneering work in the theory of money and economic fluctuations and for penetrating analysis of the interdependence of economic, social and institutional phenomena."

Austrian economics has recently risen significantly in adherents during evident economic convulsions as the countering school of thought to allegedly disruptive interventionist policies as permitted or even encouraged in other schools of economic thought.



Stockholm school



Keynesian economics

Keynesian economics has developed from the work of John Maynard Keynes and focused on macroeconomics in the short-run, particularly the rigidities caused when prices are fixed. It has two successors. Post-Keynesian economics is an alternative school - one of the successors to the Keynesian tradition with a focus on macroeconomics. They concentrate on macroeconomic rigidities and adjustment processes, and research micro foundations for their models based on real-life practices rather than simple optimizing models. Generally associated with Cambridge, Englandmarker and the work of Joan Robinson (see Post-Keynesian economics). New-Keynesian economics is the other school associated with developments in the Keynesian fashion. These researchers tend to share with other Neoclassical economists the emphasis on models based on micro foundations and optimizing behavior, but focus more narrowly on standard Keynesian themes such as price and wage rigidity. These are usually made to be endogenous features of these models, rather than simply assumed as in older style Keynesian ones (see New-Keynesian economics).



Chicago school



Carnegie school



Neo-Ricardianism



Modern schools

  • Mainstream economics is a term used to distinguish economics in general 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 represent incentives and costs as playing a pervasive role in shaping decision making. An immediate example of this is the consumer theory of individual demand, which isolates how prices (as costs) and income affect quantity demanded. Modern mainstream economics builds primarily on neoclassical economics, which began to develop in the late 1800s. Mainstream economics also acknowledges the existence of market failure and insights from Keynesian economics. 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 (for example, emergence of organizations) 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. Economics generally is the study of how people allocate scarce resources among alternative uses.


  • Complexity economics: One of the more recent schools of thought in modern economics (dating from the late 1970s early 1980s), complexity economics views economic systems as complex adaptive systems rather than as closed equilibrium systems. Some of the earliest studies in this new field were done by researchers at the Santa Fe Institute in New Mexico, USA.


  • Agent-Based Computational Economics (ACE): ACE is the computational study of economic processes modeled as dynamic systems of interacting agents. Here "agent" is broadly interpreted as a bundle of data and methods representing a social, biological, or physical entity constituting part of a computationally constructed "virtual world."




Current heterodox schools

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 eventually entered the mainstream as a result of the Keynesian-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 orthodox economics formed a school of Post-Keynesian economics.

More recent heterodox developments include evolutionary economics (though this term is also used to describe institutional economics), feminist, Green economics, econo-physics, Post-autistic economics, and Thermoeconomics

Most heterodox views are politically left-wing and critical of capitalism. The most notable exception is Austrian economics, which is politically aligned with libertarianism. Some proponents of Evolutionary economics share this viewpoint.

Famous schools or trends of thought referring to a particular style of economics practiced at and disseminated from well-defined groups of academicians that have become known worldwide, may be generally summarized as follows:



In the late 20th Century three of the areas of study which are producing change in economic thinking are: risk-based rather than price-based models, imperfect economic actors, and treating economics as a biological science, based on evolutionary norms rather than abstract exchange. The study of risk has been influential, which viewed variations in price over time as more important than actual price. This particularly applies to financial economics where risk-return tradeoffs are the crucial decisions to be made. The most important area of growth has been in the study of information and decision. Examples of this school include the work of Joseph Stiglitz. Problems of asymmetric information and moral hazard, both based around information economics, profoundly affect modern economic dilemmas like executive stock options, insurance markets, and Third-World debt relief. Finally, there are a series of economic ideas rooted in the conception of economics as a branch of biology, including the idea that energy relationships rather than price relationships determine economic structure, and the use of fractal geometry to create economic models. (See Energy Economics.) In its infancy is the application of non-linear dynamics to economic theory, as well as the application of evolutionary psychology. So far the most visible work has been in the area of applying fractals to market analysis, particularly arbitrage. (See Complexity in Economics.) Another infant branch of economics is neuroeconomics. This combines neuroscience, economics, and psychology to study how we make choices.

Viewpoints within mainstream economics

Mainstream economics encompasses a wide (but not unbounded) range of views. Politically, most mainstream economists hold views ranging from laissez-faire to modern liberalism. There are also divergent views on particular issues within economics, such as the effectiveness and desirability of Keynesian macroeconomic policy. Although, historically, few mainstream economists have regarded themselves as members of a "school", many would identify with one or more of neoclassical economics, monetarism, Keynesian economics, new classical economics, Austrian School, or behavioral economics.

Viewpoints outside economics

Other viewpoints on economic issues from outside economics include dependency theory and world systems theory. An example of another economic system which has recently been advocated is the participatory economics model. This uses neither market methods nor centralised methods for allocation, but incorporates many local positive and negative feedback loops in order to respond to the most positive human values. One example of this school of thought is the Post Autistic Economics movement.

Viewpoints of economics and energy thought

Georgescu-Roegen reintroduced into economics, the concept of entropy from thermodynamics (as distinguished from what, in his view, is the mechanistic foundation of neoclassical economics drawn from Newtonian physics) and did foundational work which later developed into evolutionary economics. His work contributed significantly to Thermoeconomics and to ecological economics.

See also



Notes

  1. The Cambridge economic history of Europe, p. 437. Cambridge University Press, ISBN 0521087090.
  2. Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81, 83, 85, 90, 93, 96].
  3. Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers.
  4. Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), Medieval Trade in the Mediterranean World: Illustrative Documents, Columbia University Press, ISBN 0231123574.
  5. Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", American Journal of Comparative Law 53, pp. 785–834 [798–9].
  6. Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1): 79–96 [92–3]
  7. Ray Spier (2002), "The history of the peer-review process", Trends in Biotechnology 20 (8), p. 357-358 [357].
  8. Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press.
  9. Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13].
  10. Roemer, J.E. (1987). "Marxian Value Analysis".
  11. Mandel, Ernest (1987). "Marx, Karl Heinrich".
  12. Cleveland, C. and Ruth, M. 1997. When, where, and by how much do biophysical limits constrain the economic process? A survey of Georgescu-Roegen's contribution to ecological economics. Ecological Economics 22: 203-223.
  13. Daly, H. 1995. On Nicholas Georgescu-Roegen’s contributions to economics: An obituary essay. Ecological Economics 13: 149-54.
  14. Mayumi, K. 1995. Nicholas Georgescu-Roegen (1906-1994): an admirable epistemologist. Structural Change and Economic Dynamics 6: 115-120.
  15. Mayumi,K. and Gowdy, J. M. (eds.) 1999. Bioeconomics and Sustainability: Essays in Honor of Nicholas Georgescu-Roegen. Cheltenham: Edward Elgar.
  16. Mayumi, K. 2001. The Origins of Ecological Economics: The Bioeconomics of Georgescu-Roegen. London: Routledge.


References




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