These are the prevailing economic theories in the world

Throughout history, each society has had to decide what mechanisms it should adopt to adequately face its economic problems and seek solutions accepted by its population. For this reason, the so-called economic systems have emerged, which are nothing more than different ways of organizing a society with the aim of solving its basic economic problems: What to produce? How to produce? Who to produce for?

As you can imagine, There have been many theories that have arisen on which economic system is more effective or on which form of organization is better for each society. This debate is still going on today and we can find economists who defend one position and economists who defend the opposite.

In order not to get lost, we will review the main economic doctrines that have existed throughout history: the classical school, Marxism, the neoclassical school and the Keyneasian school.

The classical school

This current of economic thought began in 1776 with the publication of the work “The Wealth of Nations” from Adam Smith and even today it is defended tooth and nail by a significant number of economists. Besides Adam Smith, other great authors of this school were David Ricardo, Thomas Malthus, Jean-Baptiste Say, and Johm Stuart Mill.

Adam Smith 2
Adam Smith

The main idea of ​​this doctrine is that the economy tends towards equilibrium on its own and without the need for regulation by the state. That is, free competition establishes production, the satisfaction of needs and the distribution of income. Popular among classical economists is the expression “Let it go, let it pass” (letting go, letting go), convinced that the best government is the one that intervenes the least in the economy. These economists are the forerunners of economic liberalism and capitalism.

Classical economists argue that It is the private economic agents who, seeking to satisfy their own interests, manage to increase the common good without intending it.. They achieve this guided by the “invisible hand” of the market, a famous term coined by the father of liberalism, Adam Smith.

The classical school respects the idea that the main source of wealth comes from trade. In addition, they provided important analytical methods for studying the economy as a whole. Adam Smith, for example, brought to economics the principle that the division of labor and specialization are fundamental factors in achieving economic growth.

Marxism

Over the years, within the classical school a critical current emerged with the paradigms of economic liberalism: marxism. This theory focuses on the figure of Karl Marx (1818-1883) and in his best known work: “The Capital”. For Marx, all historical epochs are a consequence of the productive structure of society and he defends that history is nothing more than a continuous scene of class struggle between exploiters and exploited.

Marx
Karl Marx

One of the most important contributions of Marx in his work was the labor theory of value. According to this, the value of the products is fixed by the amount of work that is incorporated into production, so that only a part of this value reaches the workers in the form of wages, while most of it goes to remuneration to the owners of factories and capital.

For Marx, fierce competition among capitalists leads to the use of increasingly capital-intensive ways of producing goods and services in order to expand production at the expense of competitors, leading to a progressive concentration of capital in some areas. few hands. At the same time, there is a decrease in the salary of employees and a worsening of the population’s living conditions.

As a consequence of these factors, the resources of the markets are depleted, unable to absorb the supply of the producers, and major cyclical crises occur that force state intervention to regulate economic activity. This dynamic would cause a social revolution that would end the capitalist system and lead to the implantation of a communist system.

The neoclassical school

It emerged in the mid-nineteenth century from the development of the marginal theory of valueTherefore, its fundamental and revolutionary contribution to classical economic thought is the so-called marginalism, which introduces new methods and approaches into economic science, specifically the microeconomic one.

marshal
Alfred Marshall

Neoclassical thought focuses on four basic points:

  • Economic phenomena are explained by the measurement of the last moment or “margin”, since the valuation of the same is the base of the decision making.
  • Its field of action is the individual economic units, that is, the microeconomics.
  • His method of analysis is very similar to that used by classical economists: abstract and deductive. It starts from what is considered an ideal situation of the economy, free competition, and from there the others are studied as variants.
  • The subjective aspects when making economic decisions.

The diffusion, extension and rise of neoclassical thought are due, in addition to the firmness of its ideas and demonstrations, to the fact that its contributions came from authors who carried out their studies independently and in several countries at the same time. The most relevant were Willian Stanley Jevons, Carl Menger, Leon Walras y Alfred Marshall.

The Keynesian school

The main ideologues of the Keynesian school are based on the work of John Maynard Keynes titled “General theory of occupation, interest and money”, which was published in 1936. Keynes moves away from the current topics of economic thought in this work, decisively influencing the economic policies of the industrial countries after the Second World War.

Keynes
John Maynard Keynes

The Keynesian school recognizes that the market is not perfect and that it has flaws in its operation, so State intervention in economic activity is necessary and essential to correct them. Keynes is the main precursor of the mixed economy system and the Welfare State as we know it today.

Keynes’s contributions gave rise to a new liberalism that, while maintaining the free enterprise system, gave the State a leading role that had been denied by classical and neoclassical economists. The problem is that over time the public spending of the different governments that opted for this formula has skyrocketed and the different Welfare States are becoming economically unviable.

Bibliography | Economy. Edelvives.

In The Salmon Blog | Causes of Unemployment: Neoclassical Theory vs Keynesian Theory


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