Economic History

Classical Economists

Classical economics is defined by a focus on studying supply instead of demand.
Classical economists believe that supply will create its own demand.
Free markets are also a key feature of classical economics, with economists such as Adam Smith saying that phenomena such as the "invisible hand" will lead to people acting in self interest to have a benefit for the greater good.

Adam Smith

Adam Smith was a Scottish social philosopher that is often called "The Father of Economics".
He lived during the 18th century and is best known for his work The Nature and Causes of the Wealth of Nations, which is often shortened to the Wealth of Nations.

In the Wealth of Nations, Adam Smith advocates for free trade between countries and the importance of the specialization which it allows.
He also introduced vital economic concepts such as the "invisible hand".
His works were the groundwork for classical economics.

Jean Baptiste Say

Jean Baptiste Say was a classical French economist that lived during the late 18th and early 19th centuries.
He is best known for the coining of "Say's Law", which states that supply creates its own demand.

Say's law says that entrepreneurship and the supply of goods/services leads to profit, wages, income, and spending resulting in an overall increase in demand as consumers now have a greater ability to spend (the source of demand is production).
Say's law is the foundation for the circular model of economics.

David Ricardo

David Ricardo was a British economist and politician that lived during the late 18th and early 19th centuries.
He is influential for his coining of comparative advantage.
Comparative advantage is the ability of an economy to produce a good or service in a more efficient or economically competitive way than its peers.
Economies with comparative advantages for a specific resource often trade with other countries, which have a harder time producing the same resource.

Neoclassical Economics

Neoclassical economics, also nicknamed "The Marginal Revolution" led to the conception of new ideas and thinking methods.
The theory of marginal utility and increased focus on demand are signature features of this school of thought.

It was during the rise of neoclassical economics that economics became recognized as an actual science.
Economic thought became more mathematical and scientific.
This led to the more prominent use of models and graphs.
The assumption that the producer and consumer are rational was also first introduced by neoclassical economists.

Important Neoclassical Economists

William Stanley Jevons

William Stanley Jevons was an American economist from the 19th century.
He is notable for the his contribution to the marginal revolution and introduction of concepts such as Jevons' Paradox.

Jevons' Paradox states that gains in fuel efficiency, will increase the use of that fuel.
This thought has gained more importance with recent efforts to reduce pollution.

Leon Walras

Leon Walras was a 19th-20th century French economist, best known for his creation of the perfect competition theory.
The perfect competition theory is a hypothetical situation where lowering prices, and therefore improving efficiency is the only way for firms to compete.
Perfect competition is useful for many theoretical studies of economics.

Carl Menger

Carl Menger was a 19th-20th century Austrian economist.
He is most notable for focusing on values and aiding in the creation of the theory of marginal utility and the subjective theory of value.

Alfred Marshall

Alfred Marshall was a 19th-20th century English economist.
He is most notable for writing the book Principles of Economics.
His book structured the ideas of supply and demand, marginal utility, and costs of production as a coherent whole.

Utility

Utility is the most important concept of Neoclassical economics.
It is he measure of the satisfaction derived from consuming a good or service.

Marginal utility refers to the extra or additional utility derived from consuming one more unit of a good or service.
Marginal utility reduces as more of a good or service is consumed.

Socialism

Capitalism led to great prosperity, however, it also created income/wealth inequality and prioritization of profit above all including working conditions, fair wages, etc.
Socialism was an alternative economic system to capitalism, that aims to solve the problems of capitalism; but has problems of its own.

Karl Marx

Karl Marx was a 19th century German philosopher and economist notable for his idea of Socialism, which was a very controversial but popular economic political system.
His most famous writing is the book Das Capital.
Karl Marx founded by an alternative economic system known as the command system where the government strives to allocate resources equitably.
This would develop into socialism.

Keynesian Revolution

The Keynesian revolution was a school of economic thought led by American economist John M. Keynes.
The Keynesian Revolution took place during the 20th century.

The Keynesian revolution focused mainly on the General Theory of Employment, interest and money.
Keynesian economics mainly states the importance of government intervention through Fiscal and Monetary policy to promote economic stability.
During a recession the government should run a budget deficit and spend money to boost the economy.
From 1970s stagflation occurred, which led to high unemployment and high inflation, especially in economies using Keynesian policies.
This would cause Keynesian economics to lose a lot of popularity.

Monetarism

Monetarism is an economic theory that focuses on macroeconomics and the effect of supply of money and central banking.
Monetarism's main belief is that central banks should restrict the money supply to the same rate as national output.
More money supply than output leads to inflation.
Monetarism was formulated by American economist and statistician Milton Friedman.

Monetarism was formulated to challenge Keynesian economics and to prevent the Staglfation of the 1970s from occurring again.
High budget deficits, lower interest rates, the oil embargo and the collapse of managed currency rates contributed to stagflation.

Monetarists believe the main determinant of economic grwoth is the total amount of money in the economy and so their focus was mainly on monetary policy and money supply.
Monetarists state that money supply should grow at the same pace as output and that governments should not try to manage demand.

21st Century

Economics in the 21st century has changed in many ways, listed below.

Increased collaboration among other academic disciplines, mainly psychology.

Previously, economists have always assumed that producers and consumers act rationally. This means that they know the utility and cost of the product relative to others, and will always act in a logical and selfish way (for consumers buying the cheapest products with most utility, for firms maximizing profit).
However, in reality, people rarely act rationally, and there are numerous factors that influence their decisions.

A growing interest in behavioral economics to understand why and how economic agents make decisions.

Increasing awareness about the relationship between economic activity and the environment.
Increasing awareness about the relationship between economic activity and society.

Increased focus on shifting to a circular economic model - an economic model where waste or pollution are phased out and materials are reused in production.
There is now an urgent need to switch from our current linear economy to a circular economy.

Linear Economy

Harvest natural resources from Earth.
Produce from resources.
Throw away products.
Linear economies can only exist for a limited time, as the environment of the Earth increasingly worsens.

Circular Economy

Harvest natural resources from Earth.
Produce from resources.
Reuse and recycle products to make new products.
If efficient enough, circular economies can go on indefinitely.

Doughnut Economy

The doughnut economy is a visual model for sustainable development that was developed by British economist Kate Raworth.
Producing enough to satiate social needs but not too much, otherwise would go through the economic ceiling.

Sources

https://commons.wikimedia.org/wiki/File:Doughnut_(economic_model).jpg