Schools of economic thought: Classical School

The Classical school, which is regarded as the first school of economic thought, is associated with the 18th Century Scottish economist Adam Smith, and those British economists that followed, such as Robert Malthus and David Ricardo. The main idea of the Classical school was that markets work best when they are left alone, and that there is nothing but the smallest role for government. The approach is firmly one of laissez-faire and a strong belief in the efficiency of free markets to generate economic development. Markets should be left to work because the price mechanism acts as a powerful 'invisible hand' to allocate resources to where they are best employed. In terms of explaining value, the focus of classical thinking was that it was determined mainly by scarcity and costs of production. In terms of the macro-economy, the Classical economists assumed that the economy would always return to full-employment level of real output through an automatical self-adjustment mechanism. It is widely recognised that the Classical period lasted until 1870. Neo-classical

(abstract) Economic growth in the Philippines is studied using Robert Solow's neoclassical growth model, which predicts savings and population growth to have positive and negative effects, respectively, on growth of per capita output. The empirical results tend to support the predictions of the model, but some limitations are evident. Human capital or education, which underpins technological progress, shows the expected sign but is not statistically significant. This suggests the need for some extensions of the Solow model, say, along the lines of endogenous growth theory. From a policy standpoint, the results suggest that raising savings, investments, and human capital, and slowing down population growth, continue to be well advised. 13462695 (accession #) neo classical economics Present day dominant school of economic thought built on the foundation laid by the 18th century (classical) theories of Adam Smith (1723-1790) and David Ricardo (1772-1823), and refined by the 19th and 20th century theories of Alfred Marshall (1842-1924), Vilfredo Pareto (1848-1923), John Clark (1847-1938), and Irving Fisher (1867-1947). It is 'classical' in the sense that it based on the belief that competition leads to an efficient allocation of resources, and regulates economic activity that establishes equilibrium between demand and supply through the operation of market forces. It is 'neo' in the sense that it departs sharply from the classical viewpoint in its analytic approach that places great emphasis on mathematical techniques. In opposition to Keynesian economics, this school states that savings determine investment (not the other way round), and is concerned primarily with market equilibrium and growth at full employment instead of with the under-employment of resources. (Not to be confused with new classical economics). Ancient Economic Thought

The neo-classical school of economic thought is a wide ranging school of ideas from which modern economic theory evolved. The method is clearly scientific, with assumptions, and hypothesis and attempts to derived general rules or principles about the behaviour of firms and consumers. For example, neo-classical economics assumes that economic agents are rational in their behaviour, and that consumers look to maximise utility and firms look to maximise profits. The contrasting objectives of maximising utility and profits forms the basis of demand and supply theory. Another important contribution of neo-classical economics was a focus on marginal values, such as marginal cost and marginal utility. Neo-classical economics is associated with the work of William Jevons, Carl Menger and Leon Walras. New classical

-refers to the ideas from people before the Middle Ages. In the history of economic thought, early economic thought refers to ideas from before and during the Middle Ages. The earliest discussions of economics date back to ancient times, such continues as Chanakya's Arthashastra or Xenophon'sOeconomicus, and

New classical macro-economics dates from the 1970s, and is an attempt to explain macro-economic problems and issues using micro-economic concepts like rational behaviour, and rational expectations. New classical economics is associated with the work of Chicago economist, Robert Lucas. Keynesian economics

through the religious-based ideas of Jewish thought, the Scholastics, and medieval Islamicscholars. In those early times, and until the industrial revolution, economics was not a separate discipline but part ofphilosophy. Religious tenets and a concern for morality and ethics played a significant role in the views of early theorists. The concerns of those early economists involved a number of issues which they held in common, the answers to which are the basis of the structure of well-functioning societies today as much as in those early times. These include how to make markets, taxation policies, and other monetary instruments transparent and free from corruption; when is profit permissible (and how much) based on the labors of others, such as in the case of merchants, the charging of interest and when does it become unacceptable usury; and other practices that would otherwise destroy the well-being of ordinary law-abiding people on which strong and unified states were built. While their ideas were not always complete, and in some cases involved long-lasting debates rather than answers, much similarity can be found in their efforts. It is also of note that early economic thinking, closely tied to philosophical and/or religious tenets, generally took into account the welfare of the common man, the worker, rather than seeking ways to benefit a few elite individuals, themselves or others.

Keynesian economists broadly follow the main macro-economic ideas of British economist John Maynard Keynes. Keynes is widely regarded as the most important economist of the 20th Century, despite falling out of favour during the 1970s and 1980s following the rise of new classical economics. In essence, Keynesian economists are sceptical that, if left alone, free markets will inevitably move towards a full employment equilibrium. They Keynesian approach is interventionist, coming from a belief that the self interest which governs micro-economic behaviour does not always lead to long run macro-economic development or short run macro-economic stability. Keynesian economics is essentially a theory of aggregate demand, and how best best to manipulate it through macro-economic policy. ------------------------------------------------------------------------------------------Economic growth in the Philippines: theory and evidence (title) Canlas, Dante B. (author) PUB. DA October 2003 (pub. date) SOURCE Journal of Asian Economics;Oct2003, Vol. 14 Issue 5, p759 (source) Academic Journal (source type) Article (doc. type)

Hesiod, Through work men grow rich in flocks and substance... In the opinion of the Austrian school of economics the first economist is thought to be Hesiod , by the fact of his having written on the fundamental subject of the scarcity of resources, in Works and Days. His contribution to economic thought is at least in his relevancy to the practice of economical activity in the depositing and lending of grain, as his writings are "... the chief resource for details as to Grecian agriculture ..." and that according to Loudon (1825) he provided " ... directions for the whole business of family economy in the country". Xenophon, (greek historian) The influence of Babylonian and Persian thought on Greek administrative economics is present in the work of Greek historian Xenophon. Discussion of economic principles are especially present in hisOeconomicus, Cyropaedia, Hiero, and Ways and Means. Hiero is a minor work which includes discussion of leaders stimulating private production and technology through various means including public recognition and prizes. Ways and Means is a short treatise on economic development, and showed an understanding of the importance of taking advantage of economies of scale and advocated laws promoting foreign merchants. The Oeconomicus discusses the administration of agricultural land. In the work, subjective personal value of goods is analyzed and compared with exchange value. Xenophon uses the example of a horse, which may be of no use to a person who does not know how to handle it, but still has exchange value. Although this broadens the idea of value based in individual use to a more general social concept of value that comes through exchange, scholars note that this is not a market theory of value. In CyropaediaXenophon presents what in hindsight can be seen as the foundation for a theory of fair exchange in the market. In one anecdote, the young Cyrus is to judge the fairness of an exchange made between a tall and a short boy. The tall boy forces the pair to exchange tunics, because the tall boy's tunic is too short, shorter than the short boys, which is too tall for him. Cyrus rules the exchange fair because it results in a better fit for both boys. Cyrus' mentors were not pleased with Cyrus' basing his decision on the values involved, as a just exchange must be voluntary. Later in the biography, Xenophon discusses the concept of division of labor, referencing specialized cooks and workers in a shoemaking shop. Scholars have noted that Adam Smith's early notes about this concept "read like a paraphrase of Xenophon's discussion of the role of the carpenter as a "jack of all trades" in small cities and as a specialist in large cities. Marx attributes to Cyropaedia the idea that the division of labor correlates to the size of a market. Xenophon also presents an example of mutual advantage from exchange in a story about Cyrus coordinating an exchange of surplus farmland from Armenians, who were herders, and surplus grazing land from Chaldeans, who were farmers. Plato, Of Plato's works those considered the most important to study of economics are Nomoi, Politeia and Politikos (Backhaus). In his work Laws (dialogue) Plato writes on the three things as important to a person of these mind he stated as the most important, then body and lastly estate (). In Phaedo, Plato makes the first distinction between things which are thought necessary and those thought a luxury (Bonar).

Plato promoted the exercise of temperance in respect to the pursuit of material wealth such that by strengthening moderation a person there-by preserves the order of their psyche. In The Republic he gives an account of the manner by which a state is to be formed with the skills (techne) of individuals supporting economic substainability. With respect to the identification of skill Plato's writing inthe Republic also deals with the specialization of skills as the concept of division of labour (Wagner 2007). Aristotle , Allocation of scarce resources was a moral issue to Aristotle, and in book I of his Politics, Aristotle expresses that consumption was the objective of production, and the surplus should be allocated to the rearing of children, and personal satiation ought to be the natural limit of consumption. (To Aristotle, the question was a moral one: in his era child mortality was high.) In transactions, Aristotle used the labels of "natural" and "unnatural". Natural transactions were related to the satisfaction of needs and yielded wealth that was limited in quantity by the purpose it served. Un-natural transactions aimed at monetary gain and the wealth they yielded was potentially without limits. He explained the un-natural wealth had no limits because it became an end in itself rather than a means to another endsatisfaction of needs. This distinction is the basis for Aristotle's moral rejection of usury. Later, in book VII Chapter 1 of Politics, Aristotle asserts external goods have a limit, like any other instrument, and all things useful are of such a nature that where there is too much of them they must either do harm, or at any rate be of no use, to their possessors and some interpret this as capturing a concept of diminishing marginal utility, though there has been marked disagreement about the development and role of marginal utility considerations in Aristotle's value theory. Certainly this book formulates an ordinal hierarchy of values, which later appeared in Maslow's contribution to motivation theory. Aristotle's Nicomachean Ethics, particularly book V.v, has been called the most economically provocative analytic writing in ancient Greece. Therein, Aristotle discusses justice in distribution and exchange. Still considering isolated exchanges rather than markets, Aristotle sought to discuss just exchange prices between individuals with different subjective values for their goods. Aristotle suggested three different proportions to analyze distributive, corrective, and reciprocal or exchange transactions: the arithmetic, the geometric, and the harmonic. The harmonic proportion implies a strong commitment to the subjective values of the traders. Sixth century AD philosopher Boethius used the example of 16 as the harmonic mean of 10 and 40. 16 is the same percentage larger than 10 as it is smaller than 40 (60 percent of 10 is 6, while 60 percent of 40 is 24). Thus if two bargainers have subjective prices for a good of 10 and 40, Aristotle points out that in exchange, it is most fair to price the good at 16, due to the equality proportional differences from their price to the new price. Another nuance in this analysis of exchange is that Aristotle also saw a zone of consumer surplus or mutual advantage to both consumers that had to be divided. Ancient India, Chulavamsa records that Parakramabahu I of Sri Lanka had debased the currency of Ancient Sri Lanka in order to produce monies to support his large scale infrastructure projects. Parakramabahu I also pioneered free trade during his reign; a war was fought with Burma to defend free trade.

Ancient China, Chinese scholar-officials would often debate about the role government should have in the economy, such as setting monopolies in lucrative industries and instating price controls. Confucian factions tended to oppose extensive government controls, while "Reform" or legalist factions favored intervention.{{Citation needed|date=March 2011}} The Confucians' rationale for opposing government intervention was that the government should not "compete for profit with the people"{{Citation needed|date=March 2011}}, as it would tend to exploit the population whenever it was involved in mercantile activity. Alternative School of Thoughts

believe that output is demand determined. That is, autonomous spending determines the level of activity. There are a few implications to this simple proposition. First, the level of autonomous spending will only generate full employment of productive resources by chance, and unemployment is a permanent feature of the economic system. Second, as the level of income equilibrates savings to investment, the rate of interest must be a monetary (not real phenomenon). Additionally, heterodox economists argue that effective demand is valid in the long run. In sum, if one believes that prices reflect, for a given technology, the way classes struggle for higher income shares within the process of reproducing the material conditions for survival (including processes in which there is accumulation), and one believes that output and the process of accumulation are driven by the exogenous forces of demand, one may be called heterodox. ECONOMIC COW MODELS
SOCIALISM; You have 2 cows. You give one to your neighbor. COMMUNISM; You have 2 cows. The State takes both and gives you some milk. 'FASCISM; You have 2 cows. The Statetakes both and sells you some milk. NAZISM:You have 2 cows. The government takes both and shoots you. BUREAUCRATISM; You have 2 cows. The State takes both, shoots one, milks the other and then throws the milk away. TRADITIONAL CAPITALISM; You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income. DEMOCRACY: You have 2 cows. Your neighbor has none. You vote people into office who tax your cows, forcing you to sell one to raise money to pay for the tax. The people you voted for then take the tax money and buy a cow and give it to your neighbor. You feel righteous. AMERICAN CAPITALISM; You have twocows. You sell one, and force the other to produce the milk of four cows.Later, you hire a consultant to analyse why the cow has dropped dead. FRENCH CAPITALISM; You have two cows. You go on strike, organize a riot,and block the roads, because you wantthree cows. A GERMAN CAPITALISM; You have 2 cows. You re-engineer them so they live for 100 years, eat once a month and milk themselves. A JAPANESE CAPITALISM; You have 2 cows. You redesign them so they are 1/10 the size of an ordinary cow, and produce the milk of 20 cows. You thencreate a clever cow cartoon image called cowkimon and market them worldwide. ITALIAN CAPITALISM; You have two cows, but you dont know where they are. You decide to have lunch. SWISS CAPITALISM; You have 5,000 cows. None of them belong to you. You charge the owners for storing them. CHINESE CAPITALISM; You have two cows. You have 300 people milking them. You claim that you have full employment and high bovine productivity. You arrest the newsman who reported the real situation. RUSSIAN CAPITALISM; You have 2 cows. You count them and learn that you have 5 cows. You count them again and learn that you have 42 cows.You count them again and learn that you have 2 cows. You stop counting cows and open another bottle of Vodka. INDIAN CAPITALISM; You have two cows. You worship them. BRITISH CAPITALISM; You have two cows. Both are mad. IRAQI CAPITALISM; Everyone thinks you have lots of cows. You tell them that you have none. Nobody believes you, so they bomb the crap out of youand invade your country. You still have no cows but at least you are nowa Democracy. AUSTRALIAN CAPITALISM; You have two cows. Business seems pretty good.You close the office and go for a few beers to celebrate. NEW ZEALAND CAPITALISM; You have two cows. The one on the left looks very attractive. GREEK CAPITALISM; You have two cows borrowed from French and German banks. You eat both of them. The banks call to collect their milk, but you cannot deliver so you call the IMF. The IMF loans you two cows. You eat both of them. Souece: Cure for Boredom

Keynesian Economics, A school of thought developed by John Maynard Keynes built on the proposition that aggregate demand is the primary source of business cycle instability, especially recessions. The basic structure of Keynesian economics was initially presented in Keynes' book The General Theory of Employment, Interest, and Money, published in 1936. For the next forty years, the Keynesian school dominated the economics discipline and reached a pinnacle as a guide for federal government policy in the 1960s. It fell out of favor in the 1970s and 1980s, as monetarism, neoclassical economics, supply-side economics, and rational expectations became more widely accepted, but it still has a strong following in the academic and policymaking arenas. Heterodox economics, Is often defined as potpourri of of schools, too many to mention. Further, most of these heterodox schools are defined against marginalism (or neoclassical economics, which is also a fragmented school of economic thought). In this sense, the heterodox camp is defined in a negative (against orthodox) and fragmented (depending on what aspect of orthodoxy is contested) way. I think that is a counter productive approach, and that heterodoxy should be seen as a set of principles. A positive (in its own terms) and unified (in the sense of the minimum set of propositions that are universally accepted) definition of heterodoxy is necessary. Two things are central from my point of view. First, heterodox economists are concerned with the amplified reproduction of society, and this implies that the production and distribution of the social surplus is central for their theories. This is part of a tradition that harks back to classical political economy. The determinantion of the surplus implies that distribution is determined exogenously by social and institutional conditions (be that the real wage as affected by the bargaining position of the labor class, or the rate of profit as determined by the monetary rate of interest influenced by the central bank). Further, the determination of surplus, for an externally determined distribution, and a given technology, provides an explanation of relative prices (value). It is important to note that there are several particular theoretical ways of approaching each of these questions associated to the reproduction of the economy. For example, some Marxists emphasize that relative prices are proportional to the amounts of labor directly and indirectly needed to produce the commodities. Sraffa provides a different approach, that is compatible with Marx's views of the working of the economy. Post Keynesian groups that emphasize the determination of prices according to full cost pricing are also compatible with this general preocupation about the determination of the social surplus. In other words, several schools of thought are heterodox in the acceptance of the necessity of understanding how the surplus is generated and distributed, even if they have different theories (that are not always compatible among them). The second essential proposition that defines heterodoxy is related to the theory of output and employment determination. Heterodox economists

SOCIALISM: You have 2 cows. You give one to your neighbor. (Editors note: So Obamas going to give me my neighbors cow? What if Im lactose intolerant? =P) COMMUNISM: You have 2 cows. The State takes both and gives you some milk. (Editors note: And here I thought Communism was when the government bails out your cows by taking an ownership stake in them and then tries to tell you how to milk them. My bad.) FASCISM: You have 2 cows. The State takes both and sells you some milk. NAZISM: You have 2 cows. The State takes both and shoots you. BUREAUCRATISM: You have 2 cows. The State takes both, shoots one, milks the other, and then throws the milk away (Editors note: The authors left out the part where the state pays Lockheed Martin $50,000 for the gun because it has a cost-plus contract and the gun happens to be gold-plated.) TRADITIONAL CAPITALISM: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income. (Editors note: Unless you invested with Bernie Madoff. Then you just have some bulls***.) SURREALISM: You have two giraffes. The government requires you to take harmonica lessons. AN AMERICAN CORPORATION: You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyze why the cow has dropped dead. (Editors note: The consultants are more interested in the Key Success Factors regarding how the cow could produce the milk of four cows in the first place.) ENRON VENTURE CAPITALISM: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new president of the United States, leaving you with nine cows. No balance sheet provided with the release. The public then buys your bull. (Editors note: The authors left out the use of Special Purpose Vehicles.) A FRENCH CORPORATION: You have two cows. You go on strike, organize a riot and block the roads because you want three cows. (Editors note: Hopefully the French people dont want milk with their cake.) A JAPANESE CORPORATION: You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called Cowkimon and market it worldwide. (Editors note: Apparently there is such a thing as a Hello Kitty cow . Scary.) A GERMAN CORPORATION: You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves. (Editors note: As a loyal Volkswagen customer, I really do love that Geman engineering.) AN ITALIAN CORPORATION: You have two cows, but you dont know where they are. You decide to have lunch. (Editors note: Hm. Maybe this is why Parmalat was responsible for Europes biggest bankruptcy. *rim shot*) A RUSSIAN CORPORATION: You have two cows. You count them and learn you have five cows. You count them again and learn you have 42 cows. You count them again and learn you have 2 cows. You stop counting cows and open another bottle of vodka. (Editors note: If the Russian oil companies are any indication, this should go more like You have 42 cows. The public doesnt believe that you are not going to steal most of the profit from the 42 cows for yourself, so they will only invest at the level that they would if you had 5 cows. But you know that

you have 42 cows, so you dont want to sell any of your stake, even though if you did people would be willing to pay you for more of your 42 cows. See YUKOS.) A SWISS CORPORATION: You have 5000 cows. None of them belong to you. You charge the owners for storing them. (Editors note: I am assuming that this is a bank analogy? Its certainly not a watch analogy) A CHINESE CORPORATION: You have two cows. You have 300 people milking them. You claim that you have full employment and high bovine productivity. You arrest the newsman who reported the real situation. (Editors note: And then the newsman gets rescued by Bill Clinton and signs a book deal.) AN INDIAN CORPORATION: You have two cows. You worship them. A BRITISH CORPORATION: You have two cows. Both are mad. AN IRAQI CORPORATION: Everyone thinks you have lots of cows. You tell them that you have none. No one believes you, so they bomb the **** out of you and invade your country. You still have no cows, but at least now you are part of Democracy. AN AUSTRALIAN CORPORATION: You have two cows. Business seems pretty good. You close the office and go for a few beers to celebrate. A NEW ZEALAND CORPORATION You have two cows. The one on the left looks very attractive. (Editors Note: Sorry Toby. Socialism is an economic system characterised by social ownership of the means of production and co-operative management of the economy. "Social ownership" may refer to cooperative enterprises, common ownership, state ownership, citizen ownership of equity, or any combination of these. There are many varieties of socialism and there is no single definition encapsulating all of them. They differ in the type of social ownership they advocate, the degree to which they rely on markets or planning, how management is to be organised within productive institutions, and the role of the state in constructing socialism. Communism (from Latin communis common, universal) is a revolutionary socialist movement to create a classless, moneyless and stateless social order structured upon common ownership of the means of production, as well as a social, political and economic ideology that aims at the establishment of this social order. This movement, in its Marxist Leninist interpretations, significantly influenced the history of the 20th century, which saw intense rivalry between the "socialist world" (socialist states ruled by communist parties) and the "Western world" (countries with capitalist economies). Fascism is a form of radical authoritarian nationalism that came to prominence in early 20th-century Europe. Fascists seek to unify their nation through a totalitarian state that promotes the mass mobilization of the national community, relying on a vanguard party to initiate a revolution to organize the nation on fascist principles. Hostile to liberal democracy, socialism, and communism, fascist movements share certain common features, including the veneration of the state, a devotion to a strong leader, and an emphasis on ultranationalism and militarism. Fascism views political violence, war, and imperialism as a means to achieve national rejuvenation and asserts that stronger nations have the right to obtain land and resources by displacing weaker nations.