Economic Schools of Thought: From Mercantilism to Neoclassical Economics

Posted on Oct 7, 2024 in Social sciences

Economic Schools of Thought

Mercantilism (15th-18th Centuries)

Mercantilism viewed wealth as the ultimate goal, achieved through trade, particularly in precious metals. Key mercantilist figures included Misselden, Mun, and Colbert.

Mercantilist Assumptions:

  • Objective: Develop industry, increase exports, and accumulate wealth.
  • Focus: Favorable balance of trade, employment growth.

Mercantilist Instruments:

  • Lower interest rates to stimulate investment.
  • Reduced trade protection to promote commerce.
  • Population growth to expand the labor pool.
  • Increased money supply.
  • Continuous intervention in the economy.

Classical Economics

Classical economists, influenced by natural law, advocated for laissez-faire and limited government intervention. Key figures include Adam Smith, Bentham, Senior, Malthus, and Ricardo.

Classical Inputs:

  • Bentham: State intervention should be limited to necessary areas.
  • Adam Smith: The state’s role should focus on defense, justice, and public works.
  • Senior: Unemployment benefits should be below wages to incentivize work.
  • Malthus/Ricardo: Opposed to “poor laws” and advocated for public education. Disagreed on public debt.

Marxist Contribution

Marxism critiques capitalism, arguing that it leads to the exploitation of the proletariat and recurring crises.

Marxist Effects:

  • Asymmetrical power and income distribution.
  • Economic depressions and monopolies.
  • The state as an instrument of capitalists.

O’Connor’s Provision:

Modern society is divided into public, competitive, and monopoly sectors, leading to a “beggar state” and exacerbating class struggle.

Neoclassical Ideas

Neoclassical economists, such as Jevons, Walras, and Marshall, emphasized market equilibrium, mathematical analysis, and the importance of market forces.

Neoclassical State Role:

  • Ensure competitive markets.
  • Protect property rights.
  • Administer justice.
  • Maintain order in exchanges.

Neoclassical economists strongly supported free markets and advocated for a limited role for the public sector in the economy.