Overview of economic schools of thought

Perhaps more so than any other social science, economics has been divided into many different schools of thought, supporting different methodologies and ideologies. This is an incomplete summary of some of the major schools of thought in economics outlining their methodological differences.

The neo classical school of thought began with the marginalist revolution in the late 19th century with the works of Alfred Marshall and Léon Walras. After being displaced by Keynesianism, it resurfaced with the works of Milton Friedman in the 1970's. Neo Classicals emphasize:

• General equilibrium: models involve contrasting supply and demand brought to equilibrium by changes in price.
• Methodological individualism: behaviour of the market is derived from formal models of individual behaviour.
• Mathematical formalism and heavy use of econometrics.
• Instrumentalism: theories are to be judged mainly by the accuracy of their predictions, rather than the realism of their assumptions.

Neo classicals tend to view government intervention as unnecessary and possibly counterproductive, due to the perceived self-correcting nature of markets in the long run.

The New Keynesian school developed from the synthesis of neo-classical microeconomics with a Hicksian interpretation of Keynes. It is arguably now the dominant school of economics, being taught in most major universities. New Keynesian economics is similar, methodologically, to modern neoclassical economics with the exception that it acknowledges the possibility for market disequilibrium in the short run, meaning government intervention may be appropriate in times of crisis.

The Austrian school developed from the work of Austrian marginalist thinkers such as Carl Menger, Eugen von Böhm-Bawerk, Ludwig von Mises, and Friedrich Hayek, as well as American economist Murray Rothbard. Methodologically, Austrian economists emphasize:

• The self-organizing power of markets.
• Methodological individualism: that the economy can be best understood by looking at the behaviour of individuals.
• Deductivism: theories are formulated by logical deduction from a set of self-evident axioms.
• Disdain for mathematical modeling and econometrics. Human behaviour is seen as too complicated to be accurately captured by formal models.

Austrians tend to favour deregulation and a minimal role for the State, promoting, for example, competing currencies.

Post Keynesian economics developed from the theories of John Maynard Keynes and his colleagues at Cambridge - Roy Harrod, Richard Kahn, Joan Robinson, Nicholas Kaldor, Michal Kalecki and Pierro Sraffa.^[1] Post Keynesians emphasize:

• Effective demand: the tendency for production to expand to meet the demand for goods and services.
• The role of fundamental uncertainty and expectations.
• Critical Realism: that economic models should start from realistic, proven, assumptions in order to understand the underlying processes in the economy.
• Organicism: groups in the economy have emergent properties that cannot be understood by looking at individual behaviour.

Post Keynesians tend to favour strong government intervention within the context of a capitalist system.

• Keen, Steve (2001). Debunking Economics (1e), p. 300. Zed Books, London. ISBN 978-1-85649-992-7.