Development of economic theory

1Classical Economics

-Emerged in the late 18th and early 19th centuries

-Emphasised free markets and “invisible hand” theory 

-Key figures include Adam Smith(wealth of nations 1776), David Ricardo, and John Stuart Mill, who argued that individuals pursuing their own interest would benefit society as a whole.

Supply and demand as key market forces

2Neo-Classical Economics

emerged in 1870.
-assumes that consumer utility, not production cost, mainly determines a product's value.(D>S)                            

-emphasizes that consumer perception of value, not production costs, determines pricing.

-Law of Diminishing Marginal Utility: each additional unit provides less utility than the previous one.

-William Jevons(UK) Carl Menger(AUS)

3-Keyensian economics

-An economic theory developed by John Keynes in the 1930s in response to the Great Depression.

-great depression showed markets do not always “correct themselves” needs gov.intervention

“in the long run, we are all dead” Keyens said

-Paradox of Thrift: everyone saving in recession= less money in economy = lower AD + incomes and savings for economy

-Animal Instincts: humans guided by emotion;not rational

-Gov use fiscal policy and should “prime the pump”- inject money into priv sector to stim otherwise stagnant economy.

4-Monetarist Economics

-Rise in the 1970s: Monetarism gained prominence as it explained stagflation (high unemployment + high growth) which keyensian economics could not explain. Argued that Money supply caused Stagflation as well as 30s depression, not failure of capitalism.

-Milton Friedman’s School of thought- believes government should control money supply to not harm the economy

-In long run money only affects price level not real output.

5-Circular Economics

- concept 1960s popularized 2000s

-Restorative and regenerative by design. It aims to eliminate waste and pollution, keep products and materials in use, and regenerate natural systems.

-Linear systems = make use dispose (consumerism)

-objective to decouple economic activity from consumption of finite rescources

-sustainable systems and product as a service; reusable, durable products fixed as service in the economy.

5- Embedded Economics

- concept 1960s popularized 2000s

-Influenced by economist Karl Polanyi and ecological economists.

-Sees economy not as seperate and self contained but as a part of society and the environment

-"Economy as a Donut" (Kate Raworth) is a modern version, where a healthy economy exists between a social foundation (no poverty) and an ecological ceiling (planetary boundaries).