Economics as an area of study is not just a subject that has academic value but is also one that shapes the systems on the basis of which nations are run, affecting millions of people. It is therefore of great significance to understand the ideas that shaped these systems. Over the years economic thought has gone through several changes as a result of the involvement of different economists. These changes were based on the circumstantial understanding of each individual economist of the situation from separate lenses. Although not a pure science, economics is considered to be a human science. A key aspect of sciences relies on how it progresses as a result of changes through falsification. The progression of economic thought can also be justified by the process of falsification which essentially means to declare a prior theory/knowledge framework false on the grounds of newly attained knowledge.
While there have been numerous economists over the decades that have proposed varied overviews of economic explanations, however, the history of economics can be outlined through Classical economics, Keynesian Economics, Monetarist Economics, the Neo-Classical Synthesis and contemporary Economics.
Classical Economics comprising of economists such as Adam Smith, Thomas Malthus and David Ricardo, originated in the late 18th century from Adam Smith, matured into different versions/corrections till the late 19th century. Classical economics stemmed from Adam Smith’s theory that the manifestation of an individual’s self-interest leads to social benefit. David Ricardo, much like Adam Smith, promoted the benefits of free trade, private ownership and a market-based economy through the theory of comparative advantage.
While this was applicable in a time when the functioning of an economy was not as complex as it is today and relied majorly on an agrarian outlook, however, it started to be challenged by other economists as the years passed and the outcomes of the Industrial Revolution became more and more pertinent in the society. Disputing the capitalist and market-based structure of an economy, Karl Marx and Friedreich Engels were pioneers in proposing the idea of the communist manifesto which believes that the hierarchy will eventually drive the workers to overthrow their bosses, hence, leading to a classless and stateless system.
Despite the opposition to a free market-based economy, the world was dominated by the capitalist system with simultaneous communist uprisings. This gained increased traction during the Russian Revolution and formation of the Soviet Union which was built on the very principle of communism. Alongside the establishment of the Soviet Union, the Great Depression affected nations worldwide and neither were classical economists able to curate a solution to this scenario nor were they able to explain how it happened.
John Maynard Keynes proposed a solution to this issue through his work, known as Keynesian Economics. The main argument in his book was to correct a recession with government intervention in the form of monetary and fiscal policies to increase output and decrease unemployment. Although not entirely in alignment with communism, Keynes’s theory did promote social equality and aimed at reducing the income gap through the kind of measures that were to be taken under government intervention. Therefore, directly challenging the principles of classical economics.
Due to the large-scale consequences of the Great Depression, many economies started employing socialism in their systems. This meant that even though private ownership will be possible, there will be government regulation of industries, large markets and public services. With the rise in the acceptance of the Keynesian model, the Monetarist school of Economics kept focussing on maintaining price stability and argued that money supply should be increased slowly and predictably to allow for steady growth. This school of thought was more reliant on capitalist ideology as it urged that the economy is far too complex to be manipulated with monetary/fiscal policies and that the Great Depression occurred as a result of botched government policies.
Economics today is an amalgamation of both the Keynesian and Monetarist views and is called the New Neoclassical Synthesis. Besides this, contemporary economics has seen a surge in the importance granted to the developmental aspect of the subject. This can be seen through the works of economists such as Amartya Sen and Jean Derez who talk about aspects of the economy that do not directly affect economic growth but rather use development as a pathway to reach the ultimate goal of economic growth. For instance, the definition and relativity of poverty according to Amartya Sen’s capability approach and the importance of health equity as outlined by Jean Derez’s work showcases the growing importance of looking at economics as more than just a subject but rather an institution that needs to cater to the masses for it to be effective.
Looking at the varied theories, schools of thought and progression in Economics it can be inferred that the system is ever-changing as a result of circumstantial findings or realisations, as seen in the case of John Keynes, and the contradictions or attempt at falsification by an opposing school of thought which either leads to a synthesis, as seen in NeoClassical Economics or the complete disposal of a previously accepted notion such as those proposed by Classical Economists.