Station Information - History of economic thought

Economic thought may be roughly divided into three phases: Premodern (Greek, Roman, Arab), Early modern (mercantilist, physiocrats) and Modern (since Adam Smith in the late 18th century). Systematic economic theory has been developed mainly since the birth of the modern era.

Table of contents

1 Premodern economic thought
2 Early modern economic thought
3 Modern economic thought
4 Economics and political thought
5 External links

Premodern economic thought

Several ancient philosophers made various economic observations. Among them Aristotle is probably the most important.

Mediaeval Arabs also made contributions to the understanding of economics. In particular, Ibn Khaldun of Tunis (1332-1406) wrote on economic and political theory in his Prolegomena, showing for example, how population density is related to the division of labour which leads to economic growth and so in turn to greater population in a virtuous circle.

Early Western precursors of economics engaged in the scholastics theological debates during the middle ages. An important topic of discussion was the determination of the just price of a good. In the religious wars following the Reformation in the 16th century, ideas about free trade appeared, later formulated in legal terms by Hugo de Groot or Grotius (Mare liberum).

Early modern economic thought

During the Early Modern period, mercantilists came closer to establishing an economic theory. This diverse school mirrored the emergence of nation states in Western Europe and they emphasized keeping a positive balance of payments.

During the Enlightenment, the French physiocrats were among the first to consider economics in and of itself. The most important physiocrat was arguably Francois Quesnay (other contemporary French thinkers include Richard de Cantillon and Anne Turgot).

Modern economic thought

The physiocrats were soon overshadowed by Adam Smith's Wealth of Nations, published in 1776. Today it is customary to consider Smith the founder of economic theory - and the classical economics that developed after him to be the beginnings of formal economic study.

The history of the various schools of thought in economics can be loosely categorised as follows:

Schoolmen, mercantilism, physiocrats, utilitarianism
Classical economics, developed by David Ricardo, Malthus and John Stuart Mill in the 19th Century.
Neoclassical economics, arising from the Neoclassical Revolution which incorporated the marginal theory of value in the late 19th century. It is associated with e.g. Marshall
Marxist economics is usually classified as a variant of neoclassical economics and is based on the writings of Karl Marx.
The Austrian school, with its stress on Economic subjectivism and its rejection of economic modelling, developed by Carl Menger, Friedrich Hayek and Ludwig von Mises.
German Historical School and institutionalists, mainly American (Thorstein Veblen, Commons, Mitchell and followers; 1899-)

For an overview of macroeconomic schools, see macroeconomics. In brief, this includes mainly,

Contemporary alternative schools outside the mainstream of economic thought include:

Post Keynesian economics, which regards regards neoclassical economics as fundamentally flawed and develops a radically different analysis.
Green economists, a loose group of theories associated with feminism, postmodernism, and the ecology movement.
Modern variants of Marxist economics, such as Marxian and Post Marxist economics.

Neoclassical economics dominates in undergraduate textbooks. The core of contemporary economics rests on the microeconomic theory of neoclassical economics, but on many topics there is little agreement on which schools to develop to usefully explain existing economies. Outside mainstream economics more widely-divergent views abound.

Some extremely important tools, such as game theory, econometrics, and linear programming, do not easily fall unambiguously into only one of the schools listed above.

Economics and political thought

Throughout the history of economic thought, different political ideas have often been associated with different schools of thought about how economies operate. For example, Adam Smith used his theories of trade and of the division of labour to argue for laissez-faire government economic policies, particularly against mercantilism. Similarly, Marx developed his theories, which focus on production and labor, to advocate socialism and communism.

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. In "-ist" terminology, the participatory economics model is neither communist nor capitalist.