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The history of economic thought

29 Mar 2020 at 10:09hrs | Views
Classical economics lays the basis for modern day economic thought. The Classical Economists included Adam Smith, David Ricardo, Thomas Malthus. These touted capitalism and free markets as drivers of production, distribution and exchange.

Adam Smith wrote the, "The Wealth of Nations" However let me hasten to clarify that before Classical Economists there was Mercantilism which was based on barter trade. After Classical Economics then came Monetarism led by the Chicago School of Economics under Professor Milton Friedman.

Their philosophy was that Inflation is always and everywhere a monetary phenomenon. Both Classical and Monetary Economists said that market forces would move the economy into equilibrium where demand equals supply. This is called market clearing.

At this stage there is full employment of resources including capital and labour. But the Great Depression of 1933 proved classicals wrong. Unemployment hit Europe. This led to Keynesian Economics led by Professor Milton Keynes. He advocated for gvt expenditure to create employment of resources to move Europe out the Great Depression. In fact Keynes that gvt expenditure was key even if it meant digging holes and filling them up.

So Keynes is the founder of deficits. Worried by deficits Economists revisited the market doctrine. This group was Neo-Classical Economists who went back to market forces and advocated for free markets. Examples are Paul Samuelson, Lucas and others. After Neoclassical failed there came Structural Economists who advocated for strong institutions.

Armatya Sen is one of them. These were informed by structural Bottlenecks happening in Latin America in the 1970s. Then came Welfarism as a discipline of economics led by Walras.

In the 1980s the Washington Consensus revived market economics and ingnited market-led structural adjustment programs which failed. Then came the Developmental Economists like Joseph Stiglitz. To be continued...

Source - Dr Tapiwa Mashakada
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