Major Schools of Economic Theory -

Major Schools of Economic Theory -

Major Schools of Economic Theory Adam Smith, father Of modern economics Introduction The word economics is derived from the Greek word oikonmikos which means skilled in household management. Although the word is very hold the discipline of

economics is a relatively recent development. Modern economic thought emerged in the 17th and 18th centuries as the western world transformed from an agrarian to an industrial society. Despite the enormous differences between then and now, the economic problems with which society struggles remain the same: How do we decide what to produce with our limited resources?

How do we ensure stable prices and full employment of our resources? How do we provide a rising standard of living both for ourselves and for future generations? Mercantilists and Mercantilism Thomas Paine

Mercantilism was the economic philosophy that held a nations wealth came primarily from the accumulation of gold and silver. Nations without mines could obtain gold and silver only by selling more goods than they bought from abroad. Physiocrats Physiocrats, was a group of 18th century

philosophers, developed the idea of the the economy as a circular flow of income and output. They also advocated laissezfaire economics. They opposed the Mercantilist idea of promoting trade at the expense of agriculture. Francois Quesnay Classical School of Economics The Wealth of

Nations by Adam Smith In the Wealth of Nations, Adam Smith identified the three factors of production: land, labor, and capital. Smith believed the ideal economy was a selfregulating one. That is to say, that it automatically satisfies the needs of the populace. He called as the invisible hand. Smith also supported the idea of laissez-faire

capitalism. David Ricardo focused on the distribution of wealth among landowners on one side and capital on the other. He believed when population growth and capital pressed down on a fixed supply of land, that this would push rents up and wages and profits down.

Thomas Malthus used the idea of diminishing returns to explain low living standards. He believed that a rapidly growing population against a limited amount of land meant diminishing returns to labor. He believed this would lead to chronically low wages, which would limit the standard of living. He also questioned idea of a market economy that would be able to produce

full employment. John Stuart Mill parted company from the other Classical economists in the area of distribution of income. Mill believed that society may be efficient in allocating resources but not in distributing income. He maintained that society must get involved. Marginalist School Marginalist economists emphasized that prices also depend

on the level of demand, which in turn depends upon the amount of consumer satisfaction provided by individual goods and services. They provided modern macroeconomics with basic analytical tools of demand and supply and consumer utility. Finally they pushed the idea that land, labor, and capital receive returns equal to their contributions to production. Sometimes this was used to justify existing distribution of income.

Marxist School The Marxist School challenged Classical theory. Karl Marx saw capitalism as an evolutionary phase in economic development. He believed capitalism would eventually destroy itself. Marx believed in the labor theory of value which states that all production belongs to labor because workers produce all value in society. He also believed that the market system allows capitalists, (the owners of machinery and factories) to

exploit workers by denying them a fair share of what they produce. He believed workers would eventually rise up and overthrow this type of capitalism. Institutionalist School Institutionalists believed in government controls and social reform to bring about a more equal distribution of income.

Reacting to the worldwide depression, John Maynard Keynes broke from the Classical tradition and wrote General Theory of Employment, Interest, and Money. In the Classical view, most economists believed that in a recession, wages and prices would decline to restore full employment. Keynes believed that the direct government intervention was

necessary to increase total spending. These theories are the modern Rationale for the use of government Spending and taxing to stabilize the economy (fiscal policy). Summary Monetarism updates the Quantity Theory, the macroeconomic analysis before Keynes. It reemphasizes the role of monetary growth.

Rational Expectations Theory provides a contemporary rationale for the pre-Keynesian tradition of limited government in the economy. Supply-side Economics recalls the Classical Schools concern with economic growth as a fundamental prerequisite for improving societys material well-being. It emphasizes the need for incentives to save and invest if the nations economy is to grow.

Recently Viewed Presentations

  • Evolutionary Robotics (ER) - Robofest

    Evolutionary Robotics (ER) - Robofest

    Introduction to RoboLab CJ Chung Lawrence Technological University What Is RoboLab? A 'Graphical' programming language For the RCX based on LabVIEW In 1997, LabView was used for Sojourner project By designing a flow chart with given icons the programmer can...
  • ER VERBS -

    ER VERBS -

    ER VERBS Present tense conjugation of ER Verbs in Spanish 4 Types of Verbs in Spanish AR verbs ER verbs IR verbs Irregular verbs How To Conjugate an ER Verb Choose an ER verb Comer (to eat) Chop off the...
  • A walk around Roundball Wood Introduction Roundball Wood

    A walk around Roundball Wood Introduction Roundball Wood

    If you then return to the wood you continue your journey through a maze of Badger houses and then a leafy footpath through a crowd of Ferns. This then leads you past the fallen birch tree and towards the field...
  • Considering the Neurological

    Considering the Neurological

    Overview. Clinical findings that present as common musculoskeletal conditions can increase the level of suspicion of more serious pathologies. Known as 'red flags', they often have non-mechanical elements that place individuals at higher risk of a more serious condition
  • 1. The standard form of a quadratic equation

    1. The standard form of a quadratic equation

    Every parabola has a vertex. For graphs opening up, the vertex is a minimum (low point). For graphs opening down, the vertex is a maximum (high point). The x-coordinate of the vertex is equal to . To find the x...
  • Impact of Quality Matters Professional Development on Course ...

    Impact of Quality Matters Professional Development on Course ...

    QM revisions not directly linked to student evaluations . ... (2018). Learning to teach online: Measuring the influence of faculty development training on teaching effectiveness through a TPACK lens. The Internet in Higher Education, 38, 28-35.


    The Enterotube® II contains 12 different agars enabling the performance ENTEROTUBE INOCULATION INOCULATION OF ENTEROTUBE 1. Remove both caps of the Enterotube® II and with the straight end of the inoculating wire, pick off the equivalent of a colony from...
  • From Human Prehistory to the Early Civilizations

    From Human Prehistory to the Early Civilizations

    From Human Prehistory to the Early Civilizations Neolithic Humans Paleolithic -Mesolithic Humans are very new to the planet and have only existed about 2-2.5 million years! Less than 5% of the time that mammals have existed!