1.
Overview of the Schools of Economic Thought
There are four major schools
of economic thought today. An
understanding of these four schools of thought is necessary for an
understanding of economics. The
four schools are Marxist, Keynesian, Monetarist, and Austrian.
Marxist
economic thought is based on the writings of Karl Marx and Friedrich Engels,
who wrote in the mid to late 1800's.
Essentially, Marxist thought is based on economic determinism wherein
societies go through the developmental stages of primitive communism, slave
systems, feudalism, capitalism, socialism and finally communism. In each of these stages the economic
system determines the views of those living during that system. Each includes a class struggle which
leads inevitably to the next stage of societal development. Thus feudalism has a class struggle
between landlord and serf which produces the next stage, capitalism. In capitalism the two classes are
capitalist and worker. The
conflict between capitalist and worker results in the overthrow of capitalism
by the working class thus ushering in socialism and ending class
conflicts. Socialism leads to the
ultimate fate of humanity--communism.
Keynesian views are named for
the writings of John Maynard Keynes, particularly his 1936 book
The General Theory.
In this incredibly
difficult book Keynes set forth an aggregated view of economic variables--total
supply, total demand--working directly upon one another with no necessary tie
to the actions of the individual decision-maker. Thus a "macro" economics was established. Keynesians call for government to
manage total demand--too little demand leads to unemployment while too much
demand leads to inflation. Thus a
dichotomy was established in theory:
either the problem of inflation would attend or the problem of
unemployment, but never both simultaneously. Keynes viewed the free market as generating either too much
or too little demand, inherently. Thus
the need (ever so conveniently for the job prospects of Keynesian economists!)
for demand management by government informed by the wisdom of the
Keynesians.
Monetarist views are best represented by Milton Friedman
and his followers who retained the
Keynesian "macro" approach. However, while viewing the economy in this manner
Monetarists lay the emphasis not on spending so much as on the total supply of
money--thus the name Monetarist.
In other than the macro economic issues--inflation, unemployment and the
ups and downs of the business cycle--Monetarists tend to take the individual
actor as the basis of their economic reasoning in areas such as regulation,
function of prices, advertising, international trade, etc.
The
Austrian school was begun by Carl Menger in the late 1800's and was ultimately
developed to its fullest by Ludwig von Mises--both of Austria. The Austrian school developed a body of
thought with a conscious emphasis on the acting individual as the ultimate
basis for making sense of all economic issues. Along with this individualist emphasis is a subjectivist
view of value and an orientation that all action is inherently future-oriented. This book is written in the Austrian
tradition.
-
Friedman, Milton
Capitalism and Freedom,
(Chicago: University of Chicago Press, 1962)
-
Keynes, John Maynard
The General Theory of Employment, Interest and Money,
(New York: Harcourt, Brace & Co., 1936)
-
Marx, Karl and Friedrich Engels
The Communist Manifesto,
(New York: Pocket Books, 1964)
-
Mises, Ludwig von
Historical Setting of the Austrian School,
(Auburn, Alabama: Ludwig von Mises Institute, 1984)
-
Rothbard, Murray N.
The Essential Ludwig von Mises,
(Auburn, Alabama: The Ludwig von Mises Institute, 1983)
-
Schumpeter, Joseph
History of Economic Analysis,
( New York: Oxford University Press, 1978)
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