History of Economic Thought

INTRODUCTION
 Reasons for studying History of
Economic Thought

 Gives economist a better understanding

and better appreciation of contemporary
economic issues.
Economics thoughts and economic policies
change in response to social and economic
issues
But many economic problems remain the
same.
Insights and solutions evolved overtime.
 The Roots of Economic
Thoughts
 “The early strands of economic thinking
can be linked to antiquity” according to Grant /
Brue; 2007.
 The word economics comes from a
Greek word “oeconomicus” meaning
“management of household”.
 The period before the 1500A.D. several
“economist”/Philosophers have their
own interpretations about economics.
 The Roots of Economic
Thoughts – Before 1500 A.D.
 Aristotle (384-322 B.C.) participated in
the economic thinking by differentiating
natural and natural art of acquisition.
Natural acquisition: e.g. activities like
farming. Fishing, and hunting – producing
goods for life necessities.
Unnatural acquisition: acquiring goods
beyond what one actually needs.
 The Roots of Economic
Thoughts – Before 1500 A.D.
 Plato (427-447 B.C.) wrote on the
“benefits of human specialization
within an ideal city state” – which later
repeated by Adam Smith in the
division of labor.
His book contains several economic
thoughts including his opposition towards
lending with interest.
 The Roots of Economic
Thoughts – Before 1500 A.D.

 St. Thomas Aquinas (1225-1274) he

wrote on the idea related to price
His idea is that neither the buyer
nor the seller should take
advantage of one another.
 The Roots of Economic
Thoughts – Before 1500 A.D.
The period before the 1500A.D. is a period
(epoch) where there was very little
trade. Most goods are produced for
self consumption.
Money and credits were not widely
used.
Strong national states and integrated national
economies were not fully developed and not
yet fully evolved.
No schools of economic thoughts
had been formed.
 The Roots of Economic
Thoughts – After 1500 A.D.
 Market and trade expands with great
geographical explorations
 Money economy superseded the self-
sufficient economy.
 National states with unified economies
became dominant forces.
 Economic schools arose representing
systematic bodies of thought.
 Policy has been formed.
 The Roots of Economic
Thoughts – After1500s
 is known as the “age of political
economy” 1500 A.D.
 The focus is more on the coherence
organization of the economic
thinking – turning the fragments of the
economic ideas into systematic
theories.
 The Roots of Economic
Thoughts – After1500s
 The economic thinking has displayed a
significant degree of continuity over
centuries.
 Founders of new theories may draw
from the ideas of their predecessors and
developed them further.
 There are also some which oppose to
the earlier ideas and further develop
their own thinking towards new
directions.
 The Roots of Economic
Thoughts – After1500s
 Therefore we see that numerous
modern ideas have some similarities to
the never-adopted or long repudiate
concepts of past epoch.
 E.g. the supply-side economics of the US in the
1980s return to domestic good standard, an idea
that was promoted by economist and adopted
by nations in the 1800s (but fell out of favor
following the depression period of the 1930s.
 The Roots of Economic
Thoughts – After1500s
E.g. The idea of human capital – developed
by Adam Smith and John Stuart Mill lay
dormant until it was revitalized and expand
further by Theodore Schultz and Gary
Becker in post-1960.
E.g. The gloomy pronouncements by
Thomas Robert Malthus in 1978 are now
heard in a modified form by a handful of
economists in the 1970s who predicted that
shortages of resources would soon come
about and the world economy is going to
collapse.
 The Roots of Economic
Thoughts – After1500s

 E.g. The emergence of the new

classical macroeconomics in the 1980s
and 1990s, appearing as a challenge to
the prevailing Keynesian views,
repackaged some of the old classicism
of the previous century.
 The Roots of Economic
Thoughts – After1500s
 Hence, economic theory of economic
thought seems to move in spiral (not in
circles).
 Economic theories and policies
frequently do return to similar one of the
earlier era, but they are on different
planes under different conditions.
 The difference are as significant as the
similarities – both are worth examining.
 1.3 Economics is a science
 Economics is not an exact science like the natural
sciences e.g. physics, chemistry etc.
 Economics cannot be conducted in a laboratory or under
controlled conditions.
 Economy is a social science – studying various
economic activities in society.
 There is no controlled experiments on society
Data are collected from the society as and when
events occur and they are analyzed through the
application of models, statistics and econometrics to
perceive the underlying relationships.
REASONS FOR STUDYING HISTORY OF
ECONOMIC THOUGHT
 Society changes through time due to
advances in science and technology.
 With regard to economic theory –
First, it allows us to gain an
understanding of how an economy
works.
Second, the economic theory helps
society to reach its economic goals.
Society progresses faster in achieving
economic goals through knowledge in
economics.
 REASONS FOR STUDYING HISTORY OF
ECONOMIC THOUGHT

 With regard to economic thoughts;

First, such study enhance one’s
understanding of the contemporary
economic thought. Mark Blaugh,
“contemporary theory wears the scars of
yesterday’s problems now resolved,
yesterday’s blunders now corrected, and
cannot be fully understood except as a
legacy handed down from the past.”
Reasons for studying History of
Economic Thought
 Second. Vast amount of analysis and
evidence that economist have generated
over the decades, can be used as closer
check on any irresponsible
generalizations.
 This should help us in making fewer
errors than in the past when making
personal decisions and when
formulating national and local
economic policies.
 Reasons for studying History of
Economic Thought
 Finally, above all it provides
perspectives and understanding of our
past, of changing of ideas and problems
and of our direction.
 It helps us appreciate that no group
has the monopoly on the truth and
that many groups and individuals
have contribute to the richness and
diversity of our intellectual, cultural
and material inheritance.
Reasons for studying History of
Economic Thought
 A study of the evolution of the economic
thoughts and the changing social
background associated with it can
illuminate changes in other areas, such
as politics, arts, literature, music
philosophy and science.
 On the other hand the understanding of
these areas of knowledge can help to
explain the changing of the economic
ideas.
 The Main School of
Thoughts
 Some of the main school of thoughts are
shown below in chronological order:
 Mercantilist School 1500 to 1776
 Physiocratic School 1756 to 1776
 Classical School 1776 to 1871
 Marginalist School 1871 to 1890
 Neoclassical School 1890 to present time
 Keynesian School 1836 to present time
 Chicago Monetarist School 1948 to present time