Adam Smith, David Ricardo, T.R.Malthus and J.S. Mill are the leading economists of the classical school. Like the physiocrats, the classical economists believed in laissez faire, and market economy based on free trade.
Adam smith was interested in the nature and causes of the wealth of nations. We can call him the first development economist. Ricardo was interested in the problems of distribution. Malthus,who gave the theory of population was interested in finding out why some countries were prosperous at one time and why they were poor at other times. In other words, he was interested in studying the prosperity and the poverty of nations. J.S. Mill believed in individualism as well as socialism. He advocated socialist reforms in distribution as the laws of distribution were different from the laws of production.
The historical school was dominant in Germany during the second half of the 19th century. It was a revolt against the classical school. While the classical economists believed that the laws of economics were of universal application, the economists of the historical school argued that the laws of economics were relative. Thus, while the classical economists advocated free trade, the historical school advocated protection for new industries through tariffs.
Karl Marx (1818-1883) was the founder of scientific socialism. He was a great critic of the capitalist system which was exploitative in nature and predicted that capitalism would give way to socialism. According to Marx, 'all history is a history of class struggle'. The teachings of Marx resulted in the birth of a socialist State in Russia and China. Planning which is the gift of former Soviet Russia to the world is based on socialist philosophy.
The Marginal Revolution that took place in the latter half of the 19th century is important for theory, especially the theory relating to value.
Today, we speak of human development. And man is brought to the centre stage. It was Alfred Marshall who pointed out that economics was on one side a study of wealth and on the other and more important side a part of the study of man.
The institutional school is a 20th century phenomenon and it is of American origin. It emphasizes the role of institutions in economic life. The term 'institutions' includes customs, social habits, laws, ways of living and modes of thinking. For example, slavery is an institution. We celebrate certain days as festivals. That is also an institution.
J.A. Schumpeter (1883-1993) considered economic life mainly as a process of change and development. According to him, innovating entrepreneurs play a key role in the process of economic development.
J.M. Keynes is considered the Father of New Economics. During the 1920s and 1930s, when the capitalist countries were affected by the Great Depression marked by bad trade and mass unemployment, Keynes suggested a greater role for government and a bold fiscal policy to tide over the crisis. The New Deal policy of America was greatly influenced by Keynesian policy.
Since 1950s, economic thought has focused on growth and development.
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