History of Economic Thought IBEB

What were Aristotle’s key economic ideas?

He argued that exchange requires a potential surplus that both parties can share. He introduced the idea of diminishing marginal returns and laid early groundwork for thinking about value and exchange—even though he did not yet see the economy as a whole system.

How did the Scholastics contribute to economic thought?

They were medieval priests and university teachers concerned with moral and social issues. They focused on determining a “just price” in the interest of society and developed the concept of the “natural price”—the price that would prevail under free and effective competition without monopolies or waste.

What are the central tenets of mercantilist economic theory?

This doctrine emphasized a positive balance of trade to build national wealth and power. It advocated limiting imports (except for raw materials) while promoting exports to bring in gold and silver. The view was that a favorable trade balance enhanced military and economic strength, although it often led to protectionism that impeded market efficiency.

What did David Hume contribute to economic thought?

He offered a monetary theory for an open economy. He argued that changes in the money stock do not affect the real economy in the long run, stressing that international adjustments would follow domestic money shocks—a view that prefigures later formulations of the quantity theory of money.

What is François Quesnay known for in economic history?

He was a physiocrat and stressed that agriculture was the true source of wealth. He also advocated for “laissez faire, laissez passer”—the idea that government should allow free competition and free trade

What were the overall contributions of the physiocrats?

This school of thought believed that only agricultural production generated a net economic surplus. They argued that a nation’s wealth was rooted solely in the productive use of land and that government intervention should be minimal, promoting free competition and trade to harness the natural economic order. (Key members include Quesnay, among others.)

What are Adam Smith’s major contributions to economics?

He developed a price theory based on the labor theory of value, showing that relative prices reflect production costs (labor, land, and capital). He introduced the idea that the division of labor increases productivity and the concept of the “invisible hand” of competition, while stressing that although competition efficiently allocates resources, it does not guarantee a just distribution of wealth.

What did Thomas Malthus propose in his theories?

He is best known for his population growth theory. He argued that population grows geometrically while food production grows arithmetically, leading to inevitable shortages unless preventive (reducing births) or positive (increasing deaths) checks occur. He also developed a theory of market gluts where insufficient effective demand could result in economic stagnation.

How did David Ricardo shape classical economic thought?

He refined price theory by incorporating relative production costs—both labor and capital—into determining prices. He introduced the theory of comparative advantage, which became a cornerstone of international trade theory, and explained that while temporary gluts might occur, Say’s law (supply creates its own demand) generally held. His work also examined rents as residual payments above break-even costs.

What were John Stuart Mill’s key contributions?

He built on classical ideas by incorporating the demand side into price determination, arguing that market prices adjust until imports equal exports. He critiqued the wage fund theory—observing that unions can affect wages—and advanced both philosophical and economic theories that bridged classical and emerging marginalist ideas.

What did Antoine Augustin Cournot contribute to economics?

He was one of the first to apply mathematics to economics. He formulated a theory of price formation in markets with a few firms (duopolies or monopolies) and clearly articulated the law of demand, laying early foundations for the analysis of imperfect competition.

What is Jules Dupuit known for?

He introduced the concept of the marginal utility curve, helping to quantify how additional units of a good provide diminishing satisfaction. His work on marginal analysis paved the way for later marginalist thinkers in consumer choice theory.

What were Johan Von Thünen’s contributions to economic theory?

He developed the theory of location by examining how transportation costs and the diminishing marginal returns of labor influence the spatial organization of production. His insights into how marginal productivity affects land use remain influential in regional economics.

What are the highlights of William Stanley Jevons’s work?

He championed the use of mathematics in economics and made a clear distinction between marginal and total utility. His formulation of the law of diminishing marginal utility helped resolve puzzles like the water–diamond paradox, and he introduced the equimarginal principle in decision-making, influencing both microeconomic theory and international trade analysis.

How did Carl Menger influence economic thought?

He argued that prices are determined by the total utility derived from goods rather than just marginal utility. He emphasized that the value of an input comes from its contribution to the final consumer product, its utility is gained from this finished product (e.g. brick→house).

What is Leon Walras known for?

He was pivotal in developing the marginalist view and is best known for formulating the mathematical general equilibrium model. His work analyzed how markets for all goods and factors of production simultaneously reach equilibrium, greatly influencing later neoclassical economics.

What were Karl Marx’s main economic ideas?

He offered a dynamic theory of history based on class struggle and the conflict between production forces (technology, capital, labor skills) and static relations of production (property and social relations). He introduced the labor theory of value, argued that capitalists extract surplus value from workers (exploitation), and predicted that technological unemployment and a falling rate of profit would eventually lead to revolutionary change and the rise of socialism.

What did Alfred Marshall contribute to economics?

 He synthesized classical and marginalist ideas to develop a modern price theory based on the intersection of demand and supply (the Marshallian cross). He introduced concepts such as price elasticity of demand, consumer surplus, and externalities, and emphasized the importance of time in distinguishing between short- and long-term adjustments in markets.

What were Knut Wicksell’s contributions?

He integrated monetary factors with economic theory by focusing on how the natural rate of interest (determined by capital supply and demand) differs from the bank rate. He explained that deviations between these rates lead to inflation or deflation, laying the groundwork for stabilizing monetary policy and influencing later theorists.

What is Irving Fisher’s legacy in economics?

He made contributions to monetary theory and interest rate analysis. The equilibrium interest rate is determined by a combination of the impatience rate and the investment opportunity rate. Additionally, he extended the quantity theory of money to show how changes in the money supply disturb spending decisions and price levels, influencing modern macroeconomic thought.

What did Edward Chamberlin contribute to market theory?

He analyzed markets characterized by imperfect competition and product differentiation. He developed the theory of monopolistic competition, showing that in the short run firms can earn profits while in the long run free entry drives profits to zero. His work also addressed the consequences of price discrimination and the concept of monopsony (a single buyer market).

What are Joan Robinson’s key contributions?

She described monopolistic competition and paid special attention to how price determination works under imperfect competition. She emphasized the implications of product differentiation and the existence of monopsonies, thereby deepening the understanding of markets that are not perfectly competitive.

How did George Stigler influence modern economic thought?

He is best known for his studies on industrial structure, market functioning, and the economics of regulation. He argued that variations in prices—even for identical products—could be explained by the costs of obtaining information, laying the foundation for the modern economics of information.

What are George Akerlof’s major contributions?

He introduced the concept of asymmetric information—the idea that one party in a transaction may have more or better information than the other. His famous “market for lemons” study demonstrated how quality uncertainty can lead to adverse selection and market inefficiency. He also contributed to efficiency wage theory, explaining wage rigidity and frictional unemployment by how higher wages attract better and more effective workers.

What is Jeremy Bentham known for in welfare economics?

He is the founder of utilitarianism. He believed that the measure of a society’s well‑being could be determined by the total happiness or “utility” it produces, and that money is only valuable insofar as it contributes to happiness. He also argued that government intervention was sometimes necessary to promote overall welfare.

What did Vilfredo Pareto contribute to economic theory?

He advanced welfare economics by developing the concept of Pareto optimality, which holds that an allocation is optimal if no one can be made better off without making someone else worse off. He also laid the groundwork for modern indifference curve analysis by treating utility as ordinal rather than cardinal.

What are Arthur Pigou’s major contributions?

He worked on partial equilibrium analysis and introduced the idea that income redistribution could improve welfare due to the diminishing marginal utility of money. He was the first to formally analyze externalities—where private marginal costs or benefits diverge from social ones—thereby justifying government intervention to correct market failures.

How has Amartya Sen impacted welfare economics and social choice theory?

He expanded welfare economics by addressing issues of inequality, poverty, and social choice. He introduced the importance of preference intensity and interpersonal comparisons, influencing public policy by improving poverty statistics and advocating for democratic governance to combat famine and inequality.

What are the key ideas of John Maynard Keynes?

He revolutionized macroeconomics with his emphasis on aggregate demand, especially during economic downturns. In his General Theory, he argued that nominal wages are inflexible downward and that insufficient effective demand can lead to prolonged unemployment. He advocated for active fiscal and monetary policies—such as government spending and interest rate adjustments—to stabilize the economy.

What contributions did John Hicks make to economic theory?

He created the theory of substitution and income effects. He also introduced the IS/LM model, which explains how fiscal and monetary policies shift national income and interest rates, thereby modernizing and extending equilibrium analysis in macroeconomics.

What are Kenneth Arrow’s major theoretical contributions?

He mathematically proved the existence of equilibrium solutions in general equilibrium theory. He also mathematically convinced economists to take uncertainty, moral hazard, and adverse selection seriously and add it to the economic models.

What is Sir Roy Harrod known for in growth theory?

He developed one side of the Harrod-Domar Growth Model, emphasizing that economic growth depends on the rate of saving and investment. His work illustrated that if investment growth falls short of production capacity, an economy may experience underemployment or stagnation.

What did Evsey Domar contribute to growth theory?

He complemented earlier work by modeling how investment leads to increases in the capital stock and national output. His analysis stressed that balanced growth requires investment growth to match both population growth and improvements in production capacity.

What are the central ideas in Joseph Schumpeter’s theory of economic development?

He explained business cycles through waves of innovation driven by entrepreneurial activity. He introduced the concept of “creative destruction,” where new innovations displace established firms, driving long‑term economic development by continually reshaping the market.

What is Robert Solow known for in growth theory?

He developed a neoclassical model of economic growth that built on earlier frameworks by incorporating capital–labor substitution and technological progress. He showed that in the long run, improvements in living standards are driven almost entirely by technological progress as economies settle into a steady state.

What are Milton Friedman’s key contributions to economics?

He made groundbreaking advances in consumption analysis and monetary theory. His permanent income hypothesis argued that people base their consumption on long-term average income rather than short-term fluctuations, reducing the impact of fiscal stimulus. He also contended that the Great Depression was largely caused by a contraction in the money supply and famously advocated for a monetary rule with steady, predictable growth.

What did Angus Deaton contribute to economic analysis?

He focused on consumption demand and welfare in developing countries. He developed the Almost Ideal Demand System (AIDS) to better understand consumer choices and improve the measurement of poverty using consumption data. His empirical tests also showed that income shocks strongly affect consumption patterns contrary to Friedman’s belief.

How did Gary S. Becker extend economic analysis?

He applied microeconomic principles—maximizing behavior, equilibrium, and efficiency—to topics traditionally outside the market sphere. He analyzed discrimination (by incorporating “taste” into utility functions), fertility and family decisions (using a family output function), crime (by modeling decisions as rational cost–benefit calculations), and human capital investment, thereby broadening the scope of economic inquiry.

What is Ragnar Frisch’s significance in econometrics?

He is considered one of the founders of econometrics. He pioneered methods for identifying relationships in economic data and contributed to the development of business cycle theory by using econometric methods in macroeconomic modeling.

What were Jan Tinbergen’s contributions to economics?

He was a pioneer in building large-scale numerical models to forecast economic trends and inform policy—especially in addressing economic depressions. His work advanced the practical application of econometric models for stabilization and development policies.

How did Trygve Haavelmo influence econometrics?

He advanced the statistical foundation of econometrics by focusing on identification and the simultaneous determination of economic relationships. His work stressed that economic relationships should remain autonomous from other system changes and introduced techniques to correct for simultaneity and identification problems.

What is Clive Granger known for in time-series econometrics?

He developed cointegration methods that allow economists to connect short-term fluctuations with long-term trends. These methods ensure that relationships between economic variables are properly interpreted when they are jointly influenced by external factors.

What were Robert Engle’s major contributions?

He developed methods to analyze and model the volatility of economic time series. By identifying time-varying volatility patterns, his work improved forecasts and risk assessments in financial markets.

What is James J. Heckman’s contribution to econometrics?

He developed methods to correct for selection bias in econometric analyses—often known as the “Heckman correction.” His techniques help researchers obtain unbiased estimates when samples are self-selected.

What did Daniel McFadden contribute to econometrics?

He is renowned for his work on discrete choice models. He made models that use regression methods to take into account the binary nature (a yes/no answer instead of numerical answers) of variables.

What is David Card known for in modern empirical economics?

He demonstrated the power of natural experiments to uncover causal effects in labor economics. His study of minimum wage increases, for example, challenged conventional wisdom by showing that job losses were not as significant as previously thought.

What contributions did Joshua Angrist make to the study of causality in economics?

He advanced methods for identifying causal relationships using instrumental variables and natural experiments, significantly contributing to what is now known as the “credibility revolution” in empirical economics.

How has Guido Imbens influenced empirical economic research?

He developed statistical methods to properly estimate causal effects in the presence of treatment effect heterogeneity, providing robust tools for analyzing natural experiments and randomized control trials.

What is Ronald Coase’s legacy in economic theory?

He is best known for his insights into transaction costs and property rights, encapsulated in what is now called the “Coase Theorem.” He demonstrated that when transaction costs are low, private bargaining can lead to efficient outcomes regardless of the initial allocation of rights.

What did Robert Lucas contribute to the Chicago School and macroeconomics?

 He emphasized the importance of rational expectations and integrating microeconomic foundations into macroeconomic analysis. His work challenged traditional Keynesian views by showing that economic agents adjust their behavior in anticipation of policy changes.

What are the key ideas of the Chicago School of Economics?

This school of thought stresses that individuals are rational, utility-maximizing agents and that markets naturally self-regulate with minimal government intervention. Its scholars argued that government interventions often distort market outcomes. (Members: Friedman, Stigler, Coase, Becker, Lucas.)

What was the Marginalist Revolution and who were its main contributors?

This movement shifted economic analysis from total or average measures to the margin by introducing concepts such as marginal utility and diminishing marginal returns, thereby providing the theoretical tools to analyze consumer choice and production decisions. (Key contributors: Cournot, Dupuit, Von Thünen, Jevons, Menger, Walras.)

How did welfare economics evolve and which economists were central to its development?

Welfare economics seeks to maximize social well‑being by analyzing optimal allocations and correcting market failures. Early thinkers laid the groundwork, later formalizing optimality conditions and externality analysis. Over time, figures from utilitarianism to modern social choice have influenced debates on income redistribution and public policy. (Notable contributors: Bentham, Pareto, Pigou, Sen.)

What defines the Keynesian School and who are its key figures?

Developed in response to the Great Depression, this school of thought focuses on aggregate demand, wage and price rigidity, and the need for active fiscal and monetary policies to restore full employment. (Key figure: Keynes; later contributions include those by Hicks and Arrow.)

What are the major themes in development econometrics?

This area applies statistical techniques to understand economic growth, policy impacts, and business cycles. It evolved from early large-scale models and has been refined by methods addressing cointegration, volatility, and selection bias in empirical research. (Key contributors include: Frisch, Tinbergen, Haavelmo, Granger, Engle, Heckman, McFadden, Card, Angrist, Imbens.)

What are the main features of the Neo‑Classical School?

Building on classical ideas, this school integrates both demand and supply in price determination using rigorous mathematics. It emphasizes equilibrium, rational consumer choice, and the role of money in influencing short‑term dynamics while expecting long‑term market-clearing outcomes. (Notable contributors: Marshall, Wicksell, Fisher.)

Who are considered the classical economists and what united their views?

They focused on the production side of the economy, analyzing how labor, land, and capital determine prices and wages, while debating issues like population growth and market gluts. Their work laid the intellectual foundation for later developments in value theory and trade. (Notable members: Smith, Malthus, Ricardo, Mill.)

What ideas characterized pre‑classical economic thought?

Early thinkers focused on understandings of exchange, just pricing, and monetary theory. Although they lacked a systematic view of the entire economic system, their work on surplus generation, price fairness, and the role of money paved the way for more integrated economic theories.