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Classical Economics: The Eighteenth Century 1776

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Classical Economics: The Eighteenth Century 1776

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Adam Smith came up with some fundamental idea about the prominent theory of "invisible hand". It captures the essence of how individual self-interest can, under certain conditions, lead to collective benefits.

However, it is also important to recognize its limitations and the need for a nuanced understanding of market dynamics. The “invisible hand” continues to influence debates on economic policy, market regulation, and the role of government in modern economies.

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The first Supply and Demand Graphical Model

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The first Supply and Demand Graphical Model

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Alfred Marshall's work was filled with diagrams to illustrate the theories and models which further influence the way that economists approached the world, using mathematics and more scientific approach to explain economic behaviour.

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David Ricardo, Thomas Malthus, John Stuart Mill and Jean-Baptiste Say

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More Developed Classical Economics: Nineteenth Century

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More Developed Classical Economics: Nineteenth Century

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David Ricardo is popular for the work on the international trade. Unlike Smith, Ricardo developed the law of "comparative advantage".

Jean-Baptiste Say is known for "Say's Law of Markets".Words means supply creates its own demand. The conclusion of Say's law is focusing on the supply side which is corresponded to the classical economics in rejecting government interventions that restrict the operation of free markets.

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Classical theories believe that value of a product is determined by the costs of labour and other inputs in the production process, supported by their labour theory of value.

In contrast, the neoclassical side argues that the value of a good is determined by the value that consumers place on the good, based on the amount of utility that it brings them, in other word, demand plays the role of a price determinant.

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Marx believed that the contradictions within capitalism would eventually lead to its downfall. He argued that the working class, as the exploited majority, would become increasingly conscious of its exploitation and organize to overthrow the capitalist system. Free market could not be depended upon to serve the best interests of workers and there would be a need for the government to take over the means of production, in a systme called communism.

Marx’s ideas have inspired numerous political movements and revolutions, including the Russian Revolution of 1917 and the establishment of socialist states in the 20th century. His works continue to be studied and debated in various academic disciplines, including economics, political science, and sociology.

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Twentieth Century: The Keynesian Macroeconomics

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Twentieth Century: The Keynesian Macroeconomics

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Keynes raised the role of the government in a new aspect. The traditional thinking was that the role was in helping create the conditions necessary for maximum production. Still, government intervention should be carefully limited and focused on the supply side.

In contrast, Keynes' General Theory grappled the problem presented in the unemployment during the Great Depression. Instead of putting attention on the supply side, the radical idea was demand.

The General Theory ran counter to the neo classical economists. It went against the automatically stabilizing markets.

Keynes proposed all economic agents should go into debt and "run budget deficits" to surge the aggregate demand.

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New Classical Economics: Monetarism (late 1960s)

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New Classical Economics: Monetarism (late 1960s)

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Theory: Monetarists, led by economists like Milton Friedman, believe that monetary policy is the most effective tool for managing economic activity. They argue that controlling the money supply is key to influencing inflation and overall economic stability. They advocate for a steady, predictable increase in the money supply, often aligned with the growth of the economy’s potential output. This approach aims to provide a stable economic environment by avoiding sudden or unpredictable changes in the money supply.

Implication: Unlike Keynesian economics, which often supports active fiscal policies (such as government spending and taxation adjustments) to manage economic fluctuations, Monetarism emphasizes the limitations and inefficiencies of such fiscal interventions. Monetarists argue that fiscal policy can be less effective due to implementation lags and political constraints. Instead, they propose that monetary authorities should adhere to clear, long-term rules regarding money supply growth, which they believe will lead to more stable and predictable economic conditions.

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The new classical school builds on the work of the neo classical school through the theory of "rational expectations". This depicts the rise in wages and prices due to the inflation under the anticipate of economic agents caused by the governments expansionary policies.

New classical school suggests government should never try to manage the level of demand in the economy.

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Behavioural economics aims to understand the decision making process of actual human being so that governments can design the most effective policies to encourage consumers to make better choice.

Nudge theory helps consumers voluntarily to make a better choice.

Critics argued the concerns governments might create when judging what is the best for people.

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Reframing Economics in the twenty-first century: Circular Economy and other Economies

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Reframing Economics in the twenty-first century: Circular Economy and other Economies

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Linear economy: take-make-waste

Circular economy: regenerative, restorative. This approach is cost saving and compliance with national environmental regulation.

Embedded economy: the other version of circular economy with an interdependence exists between the economy, society and the environment.

The doughnut economy: reinforces the idea of gender equality, social equality, political voice and peace and justice.