Schools of economic theory

Brian takes me to task for using the term "neo-classical" when I more properly meant Keynesian/Monetarist. A quick double check with the Concise Encyclopedia of Economics shows that neo-classical is correct but a bit vague. Since I am on this subject I thought it might be worthwhile to look at the various schools of economic thought and make a few comments about each.

Austrian school economics concentrates on human action as the basis for deducing economic theory. Austrians are often taken to task for not following the "scientific process" because experimentation is impossible. My personal thought is that Mises screwed up by outright dismissal of experimentation in an early chapter of Human Action. He could (and did elsewhere) point out that economic experiments have two problems: humans do not act normal in controlled experiments, and it is impossible to sort out a single independent variable in larger contexts.

Neo-classical economics takes from many different schools of economics to develop a meta-theory of economics. The neo-classical economics are the "mainstream" today. Neo-classical economics tries to fit in with the "real" sciences by describing everything in mathematical terms and attempting experimental verification of theory. While neo-classical economists ignored Keynesian theory in the 70's and 80's, Keynesian theory has again become popular amongst some neo-classical economists. What differentiates neo-classical from classical theory is how value is determined. Classical theory says an item has intrinsic value, whereas neo-classical theory holds that value is determined by market supply and demand for the item.

Keynesian theory holds that governments must tune the economy through monetary and fiscal stimuli. It is a subset of neo-classical theory.

Chicago-school or Monetarist economics can be properly considered a part of neo-classical theory. However, the Chicago school drops Keynesian theory for their own Monetarist theory.

Marxist economics is based on the labor-theory of value. That is that all value is determined by the amount of labor put into it. Marxist economic theory has been largely discredited.

Share this

I stand by my earlier

I stand by my earlier correction. With the definition you have provided, Neo-classical is too wide and diverse a set of thinking (bounded only by the commonalities of marginalism & mathematics/empiricism) to say that the "school" has made such-and-such prescription.

The concept that the government can (and should) manipulate the economy to yield economic bounty is Keynesian, and Monetarism (in my view) is a variant of Keynes- using the same mathematical constructs, but emphasizing monetary instead of fiscal policy (as well as the legitimacy of total state control over the banking industry).

Thus it is more precise, IMHO, to say 'keynesian' in your post instead of 'neo-classical', since NC can mean a wide variety of things.

I changed to "keynesian" in

I changed to "keynesian" in the original post and am sticking with it because it is indeed more precise. Ayway, it was great excuse to go look up some economic history during my lunch break.