Major Economic Schools of Thought

In the physical sciences, there is a large body of theory which has been widely accepted as correct. The disagreements are found only in very new concepts, like dark matter in space or global warming. Eventually these disputes are resolved by experiments and the gathering of more information.

It is much more difficult to resolve disagreements in economics. Since the subject matter of economics deals with the interactions of millions of men and women, controlled experiments are impossible. Gathering of information helps to disprove or substantiate theories, but is seldom conclusive.

As a result, there are today several different schools of economic thought with fundamental disagreements about basic concepts. These schools include Socialists, Monetarists, Keynesians, and Free Market Economists (sometimes called Austrians). In this website, we discuss the theories of all of these schools of thought, while concentrating on the free market approach.

This diagram lists the four most widely discussed economic schools.  Economics as a formal subject of study began with Adam Smith in 1776 with the publication of The Wealth of Nations.  His ideas led to the free market ideas of Von Mises and Hayek which form the central theme of this website.

Karl Marx published Das Kapital in 1867. He held that the value of products was determined by the amount of labor that went in to creating them. His theories provided the basis for Communism which was adopted by Russia in 1917, China in 1949 and many other countries until its collapse in 1989.

John Maynard Keynes published The General Theory of Employment, Interest and Money in 1936. Keynes spearheaded a revolution in economic thinking.  He argued that aggregate demand determined the overall level of economic activity. The problem of unemployment, Keynes explained, could be solved by massive government spending. Following the outbreak of World War II, Keynes’s ideas concerning economic policy were adopted by leading Western economies and written into law in the US in the Full Employment Act of 1946.

Monetarism stems from the work of Milton Friedman, who at first accepted Keynesian economics and then criticized it on its own terms. His influential book, A Monetary History of the United States, 1867-1960,  argued that “inflation is always and everywhere a monetary phenomenon.” Friedman advocated a central bank policy aimed at keeping the supply and demand for money at equilibrium, as measured by growth in productivity and demand.

About Arthur Middleton Hughes

Arthur is currently Vice President of The Database Marketing Institute based in Fort Lauderdale, FL. Arthur is the author of 11 books, the latest of which is Strategic Database Marketing 4th Edition (McGraw-Hill 2012). A BA graduate of Princeton with an MPA in Economics and Public Affairs, Arthur taught economics at he University of Maryland for 32 years. He is an Austrian Economist.
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