Editing Economics (section)

== History of economic thought ==
{{Main|History of economic thought|History of macroeconomic thought}}
{{Missing information|section|information and behavioural economics, contemporary microeconomics|date=September 2020}}

=== From antiquity through the physiocrats ===
[[File:Lorrain.seaport.jpg|thumb|upright=1.2|A 1638 painting of a French seaport during the heyday of [[mercantilism]]|alt=A seaport with a ship arriving]]
Questions regarding distribution of resources are found throughout the writings of the [[Boeotia]]n poet [[Hesiod]] and several economic historians have described Hesiod as the "first economist".<ref>{{unbulleted list citebundle
|1 = {{cite book|last=Gordan|first=Barry J.|title=Economic analysis before Adam Smith: Hesiod to Lessius|publisher=MacMillan|date=1975|page=3|isbn=978-1-349-02116-1|doi=10.1007/978-1-349-02116-1|url=https://books.google.com/books?id=YReyCwAAQBAJ&pg=PA3}}
|2 = {{cite book|last=Brockway|first=George P.|title=The End of Economic Man: An Introduction to Humanistic Economics|edition=4th|date=2001|page=128|publisher=W. W. Norton & Company |isbn=978-0-393-05039-4 |url=https://books.google.com/books?id=i8ZhZFqUl7kC|access-date=18 September 2020|archive-date=14 April 2021|archive-url=https://web.archive.org/web/20210414142715/https://books.google.com/books?id=i8ZhZFqUl7kC|url-status=live}}
}}</ref> However, the word [[Oikos]], the Greek word from which the word economy derives, was used for issues regarding how to manage a household (which was understood to be the landowner, his family, and his slaves<ref>{{Cite book |last=Backhouse |first=Roger |url=https://www.worldcat.org/oclc/59475581 |title=The Penguin history of economics |date=2002 |publisher=Penguin Adult |isbn=0-14-026042-0 |oclc=59475581 |access-date=3 June 2022 |archive-date=30 July 2022 |archive-url=https://web.archive.org/web/20220730075150/https://www.worldcat.org/title/penguin-history-of-economics/oclc/59475581 |url-status=live }}</ref>) rather than to refer to some normative societal system of distribution of resources, which is a more recent phenomenon.<ref>Cameron, Gregory. (2008). Oikos and Economy: The Greek Legacy in Economic Thought.</ref><ref>{{Cite web|title=Oikos Meaning in Bible – New Testament Greek Lexicon – New American Standard|url=https://www.biblestudytools.com/lexicons/greek/nas/oikos.html|access-date=2021-11-19|website=biblestudytools.com|language=en|archive-date=19 November 2021|archive-url=https://web.archive.org/web/20211119121115/https://www.biblestudytools.com/lexicons/greek/nas/oikos.html|url-status=live}}</ref><ref>{{Cite web|last=Jameson|first=Michael H.|date=2015-12-22|title=houses, Greek|url=https://oxfordre.com/classics/view/10.1093/acrefore/9780199381135.001.0001/acrefore-9780199381135-e-3169|access-date=2021-11-19|website=Oxford Research Encyclopedia of Classics|language=en|doi=10.1093/acrefore/9780199381135.013.3169|isbn=978-0-19-938113-5|archive-date=19 November 2021|archive-url=https://web.archive.org/web/20211119121120/https://oxfordre.com/classics/view/10.1093/acrefore/9780199381135.001.0001/acrefore-9780199381135-e-3169|url-status=live}}</ref> [[Xenophon]], the author of the [[Oeconomicus]], is credited by [[Philology|philologues]] for being the source of the word economy.<ref>{{Cite book |last=Lowry |first=S. Todd |title=Xenophons Oikonomikos, Über einen Klassiker der Haushaltsökonomie |publisher=Verlag Wirtschaft und Finanzen |year=1998 |isbn=3878811276 |location=[[Düsseldorf]] |pages=77 |language=de}}</ref> [[Joseph Schumpeter]] described 16th and 17th century [[Second scholasticism|scholastic]] writers, including [[Tomás de Mercado]], [[Luis de Molina]], and [[Juan de Lugo]], as "coming nearer than any other group to being the 'founders' of scientific economics" as to [[Monetary economics|monetary]], [[interest#Theories of interest|interest]], and [[microeconomics|value]] theory within a [[natural law|natural-law]] perspective.<ref>{{cite book |last=Schumpeter |first=Joseph A. |date=1954 |title=History of Economic Analysis |publisher=Routledge |pages=97, 101, 112|isbn=978-0-415-10888-1 |url=https://books.google.com/books?id=pl4DABZfGREC&pg=PA97}}</ref>

Two groups, who later were called "mercantilists" and "physiocrats", more directly influenced the subsequent development of the subject. Both groups were associated with the rise of [[economic nationalism]] and [[History of capitalism#Merchant capitalism and mercantilism|modern capitalism]] in Europe. [[Mercantilism]] was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature, whether of merchants or statesmen. It held that a nation's wealth depended on its accumulation of gold and silver. Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing inexpensive raw materials to be used in manufacturing goods, which could be exported, and for state regulation to impose protective [[tariff]]s on foreign manufactured goods and prohibit manufacturing in the colonies.<ref>{{unbulleted list citebundle|{{cite encyclopedia |title=Mercantilism |encyclopedia=Encyclopædia Britannica |date=26 August 2016 |url=https://www.britannica.com/topic/mercantilism |access-date=24 October 2017 |archive-date=31 October 2017 |archive-url=https://web.archive.org/web/20171031160310/https://www.britannica.com/topic/mercantilism |url-status=live }}|{{harvp|Blaug|2017|page=343}}.}}</ref>

[[Physiocrats]], a group of 18th-century French thinkers and writers, developed the idea of the economy as a [[circular flow]] of income and output. Physiocrats believed that only agricultural production generated a clear surplus over cost, so that agriculture was the basis of all wealth.<ref>{{Cite journal|last=Bertholet|first=Auguste|date=2021|title=Constant, Sismondi et la Pologne|url=https://www.slatkine.com/fr/editions-slatkine/75250-book-05077807-3600120175625.html|journal=Annales Benjamin Constant|volume=46|pages=78–81|access-date=20 January 2022|archive-date=12 May 2022|archive-url=https://web.archive.org/web/20220512143530/https://www.slatkine.com/fr/editions-slatkine/75250-book-05077807-3600120175625.html|url-status=live}}</ref> Thus, they opposed the mercantilist policy of promoting manufacturing and trade at the expense of agriculture, including import tariffs. Physiocrats advocated replacing administratively costly tax collections with a single tax on income of land owners. In reaction against copious mercantilist trade regulations, the physiocrats advocated a policy of ''[[laissez-faire]]'',<ref>{{Cite book |last1=Bertholet |first1=Auguste |url=https://www.sgeaj.ch/wp-content/uploads/2024/12/bertholet-kapossy-la-physiocratie-et-la-suisse-2023.pdf |title=La Physiocratie et la Suisse |last2=Kapossy |first2=Béla |publisher=Slatkine |year=2023 |isbn=9782051029391 |location=Geneva |language=fr}}</ref> which called for minimal government intervention in the economy.<ref>{{unbulleted list citebundle
|1 = {{cite encyclopedia|title=Physiocrat|encyclopedia=Encyclopædia Britannica Online|date=7 March 2014|url=https://www.britannica.com/topic/physiocrat|access-date=24 October 2017|archive-date=25 October 2017|archive-url=https://web.archive.org/web/20171025023645/https://www.britannica.com/topic/physiocrat|url-status=live}}
|2 = {{cite book|last=Blaug|first=Mark|title=Economic Theory in Retrospect|url=https://books.google.com/books?id=4nd6alor2goC&pg=PA24|edition=5th|year=1997|publisher=Cambridge University Press|isbn=978-0-521-57701-4|pages=24–29, 82–84}}
}}</ref>

[[Adam Smith]] (1723–1790) was an early economic theorist.<ref>{{cite book|last=Hunt|first=E. K.|title=History of Economic Thought: A Critical Perspective|url=https://books.google.com/books?id=duYaugxYHdIC&pg=PA36|year=2002|publisher=M.E. Sharpe|isbn=978-0-7656-0606-8|page=36}}</ref> Smith was harshly critical of the mercantilists but described the physiocratic system "with all its imperfections" as "perhaps the purest approximation to the truth that has yet been published" on the subject.<ref>{{cite book|last=Skousen|first=Mark|title=The Making of Modern Economics: The Lives and Ideas of the Great Thinkers|url=https://archive.org/details/makingo_sko_2001_00_5649|url-access=registration|year=2001|publisher=M.E. Sharpe|isbn=978-0-7656-0479-8|page=[https://archive.org/details/makingo_sko_2001_00_5649/page/36 36]}}</ref>

=== Classical political economy ===
{{Main|Classical economics}}
[[File:AdamSmith.jpg|thumb|upright=0.8|The publication of [[Adam Smith]]'s ''[[The Wealth of Nations]]'' in 1776 is considered to be the first formalisation of economic thought.|alt=Picture of Adam Smith facing to the right]]
The publication of [[Adam Smith]]'s ''[[The Wealth of Nations]]'' in 1776, has been described as "the effective birth of economics as a separate discipline."{{sfnp|Blaug|2017|p=343}} The book identified land, labour, and capital as the three factors of production and the major contributors to a nation's wealth, as distinct from the physiocratic idea that only agriculture was productive.

Smith discusses potential benefits of specialisation by [[division of labour]], including increased [[labour productivity]] and [[gains from trade]], whether between town and country or across countries.<ref>{{cite web |author-link=Alan Deardorff |last=Deardorff |first=Alan V. |date=2016 |title=Division of labor |website=Deardorffs' Glossary of International Economics |publisher=University of Michigan |url=http://www-personal.umich.edu/~alandear/glossary/d.html#DivisionOfLabor |access-date=1 March 2012 |archive-date=16 March 2020 |archive-url=https://web.archive.org/web/20200316082342/http://www-personal.umich.edu/~alandear/glossary/d.html#DivisionOfLabor |url-status=live }}</ref> His "theorem" that "the division of labor is limited by the extent of the market" has been described as the "core of a [[Theory of the firm|theory of the functions of firm]] and [[industrial organization|industry]]" and a "fundamental principle of economic organization."<ref>{{cite journal |author-link=George J. Stigler |last=Stigler |first=George J. |date=June 1951 |title=The Division of Labor Is Limited by the Extent of the Market |journal=Journal of Political Economy |volume=59 |issue=3 |pages=185–193 |jstor=1826433 |url=https://www.sfu.ca/~allen/stigler.pdf |doi=10.1086/257075 |s2cid=36014630 |access-date=26 August 2017 |archive-date=25 August 2016 |archive-url=https://web.archive.org/web/20160825225559/http://www.sfu.ca/~allen/stigler.pdf |url-status=live }}</ref> To Smith has also been ascribed "the most important substantive proposition in all of economics" and foundation of [[Allocation of resources|resource-allocation]] theory—that, under [[Competition (economics)|competition]], resource owners (of labour, land, and capital) seek their most profitable uses, resulting in an equal rate of return for all uses in [[Economic equilibrium|equilibrium]] (adjusted for apparent differences arising from such factors as training and unemployment).<ref>{{cite journal |last=Stigler |first=George J. |date=December 1976 |title=The Successes and Failures of Professor Smith |journal=Journal of Political Economy |volume=84 |issue=6 |pages=1199–1213 |jstor=1831274 |doi=10.1086/260508|s2cid=41691663 }} Also published as {{cite report |title=The Successes and Failures of Professor Smith |work=Selected Papers, No. 50 |url=http://testwww.chicagobooth.edu/research/selectedpapers/sp50c.pdf |publisher=Graduate School of Business, University of Chicago |date= |access-date=16 August 2010 |archive-date=25 August 2016 |archive-url=https://web.archive.org/web/20160825213630/http://testwww.chicagobooth.edu/research/selectedpapers/sp50c.pdf |url-status=live }}</ref>

In an argument that includes "one of the most famous passages in all economics,"{{sfnp|Samuelson|Nordhaus|2010|p=30|loc=ch. 2, "Markets and Government in a Modern Economy", The Invisible Hand}} Smith represents every individual as trying to employ any capital they might command for their own advantage, not that of the society,{{efn|"Capital" in Smith's usage includes [[fixed capital]] and [[circulating capital]]. The latter includes wages and labour maintenance, money, and inputs from land, mines, and fisheries associated with production.{{sfn|Smith|1776|loc=Bk. II: ch. 1, 2, and 5}}}} and for the sake of profit, which is necessary at some level for employing capital in domestic industry, and positively related to the value of produce.{{sfnp|Smith|1776|loc=Bk. IV: Of Systems of political Œconomy, ch. II, "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home", IV.2.3 para. 3–5 and 8–9}} In this:

{{blockquote|He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.{{sfnp|Smith|1776|loc=Bk. IV: Of Systems of political Œconomy, ch. II, "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home", para. 9}} }}

The [[Reverend]] [[Thomas Robert Malthus]] (1798) used the concept of [[diminishing returns]] to explain low living standards. [[Human population]], he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of a rapidly growing population against a limited amount of land meant diminishing returns to labour. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level.<ref>{{cite book |last=Malthus |first=Thomas |date=1798 |title=An Essay on the Principle of Population |publisher=J. Johnson Publisher|title-link=An Essay on the Principle of Population }}</ref>{{Primary source inline|date=November 2021}} Economist [[Julian Simon]] has criticised Malthus's conclusions.<ref>{{cite book|last=Simon|first=Julian Lincoln|title=The Ultimate Resource|year=1981|publisher=Princeton University Press|title-link=The Ultimate Resource}}; and {{cite book|last=Simon|first=Julian Lincoln|title=The Ultimate Resource 2|url=https://books.google.com/books?id=wVyDwYqq5fMC&pg=PP1|year=1996|publisher=Princeton University Press|isbn=978-0-691-00381-8}}</ref>

While Adam Smith emphasised production and income, [[David Ricardo]] (1817) focused on the distribution of income among landowners, workers, and capitalists. Ricardo saw an inherent conflict between landowners on the one hand and labour and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits. Ricardo was also the first to state and prove the principle of [[comparative advantage]], according to which each country should specialise in producing and exporting goods in that it has a lower ''relative'' cost of production, rather relying only on its own production.<ref>{{cite book |first=David |last=Ricardo |date=1817 |title=On the Principles of Political Economy and Taxation |publisher=John Murray|title-link=On the Principles of Political Economy and Taxation }}</ref> It has been termed a "fundamental analytical explanation" for [[gains from trade]].<ref>{{cite encyclopedia|author-link=Ronald Findlay |first=Ronald |last=Findlay |date=2008 |edition=2nd |editor-first1=Steven N. |editor-last1=Durlauf |editor-first2=Lawrence E. |editor-last2=Blume |chapter-url=http://www.dictionaryofeconomics.com/article?id=pde2008_C000254 |doi=10.1057/9780230226203.0274 |title=The New Palgrave Dictionary of Economics |pages=28–33 |isbn=978-0-333-78676-5 |chapter=Comparative advantage |publisher=Palgrave Macmillan UK |access-date=16 August 2010 |archive-date=11 October 2017 |archive-url=https://web.archive.org/web/20171011021521/http://www.dictionaryofeconomics.com/article?id=pde2008_C000254 |url-status=live }}</ref>

Coming at the end of the classical tradition, [[John Stuart Mill]] (1848) parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between the market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene.<ref>{{cite book |last=Mill |first=John Stuart |date=1848 |title=Principles of Political Economy |publisher=John W. Parker Publisher|title-link=Principles of Political Economy }}</ref>

Value theory was important in classical theory. Smith wrote that the "real price of every thing&nbsp;... is the toil and trouble of acquiring it". Smith maintained that, with rent and profit, other costs besides wages also enter the price of a commodity.{{sfnp|Smith|1776|loc=Bk. 1, Ch. 5, 6}} Other classical economists presented variations on Smith, termed the '[[labour theory of value#The theory's development|labour theory of value]]'. Classical economics focused on the tendency of any market economy to settle in a final [[Steady-state economy#Concept of the stationary state in classical economics|stationary state]] made up of a constant stock of physical wealth (capital) and a constant population size.

=== Marxian economics ===
{{Main|Marxian economics}}
[[File:Karl Marx 001.jpg|thumb|upright=0.8|The [[Marxian economics|Marxist]] [[critique of political economy]] comes from the work of German philosopher [[Karl Marx]].|alt=Photograph of Karl Marx facing the viewer]]
Marxist (later, Marxian) economics descends from classical economics and it derives from the work of [[Karl Marx]]. The first volume of Marx's major work, {{lang|de|[[Das Kapital]]}}, was published in 1867. Marx focused on the [[labour theory of value]] and [[theory of surplus value]]. Marx wrote that they were mechanisms used by capital to exploit labour.<ref name="Roemer">{{unbulleted list citebundle
|1 = {{cite encyclopedia |author-link=John Roemer |last=Roemer |first=J. E. |date=1987 |dictionary=The New Palgrave Dictionary of Economics |publisher=Palgrave Macmillan |editor-first1=John |editor-last1=Eatwell |editor-first2=Murray |editor-last2=Milgate |editor-first3=Peter |editor-last3=Newman |chapter-url=http://www.dictionaryofeconomics.com/article?id=pde1987_X001420 |doi=10.1057/9780230226203.3052 |isbn=978-0-333-78676-5 |chapter=Marxian value analysis |pages=1–6 |access-date=19 October 2017 |archive-date=20 October 2017 |archive-url=https://web.archive.org/web/20171020033131/http://www.dictionaryofeconomics.com/article?id=pde1987_X001420 |url-status=live }}
|2 = {{cite encyclopedia |author-link=Ernest Mandel |last=Mandel |first=Ernest |date=1987 |title=The New Palgrave Dictionary of Economics |publisher=Palgrave Macmillan |editor-first1=John |editor-last1=Eatwell |editor-first2=Murray |editor-last2=Milgate |editor-first3=Peter |editor-last3=Newman |pages=372, 376 |url=http://www.dictionaryofeconomics.com/article?id=pde1987_X001419 |doi=10.1057/9780230226203.3051 |isbn=978-0-333-78676-5 |chapter=Marx, Karl Heinrich (1818–1883) |access-date=19 October 2017 |archive-date=20 October 2017 |archive-url=https://web.archive.org/web/20171020032814/http://www.dictionaryofeconomics.com/article?id=pde1987_X001419 |url-status=live |url-access=subscription }}
}}</ref> The labour theory of value held that the value of an exchanged commodity was determined by the labour that went into its production, and the theory of surplus value demonstrated how workers were only paid a proportion of the value their work had created.<ref name="THOMAS FULLER">{{cite news|url=https://www.nytimes.com/2009/09/18/world/asia/18laos.html|work=The New York Times|first=Thomas|last=Fuller|title=Communism and Capitalism Are Mixing in Laos|date=17 September 2009|access-date=24 February 2017|archive-date=22 February 2017|archive-url=https://web.archive.org/web/20170222010636/http://www.nytimes.com/2009/09/18/world/asia/18laos.html|url-status=live}}</ref>

Marxian economics was further developed by [[Karl Kautsky]] (1854–1938)'s ''The Economic Doctrines of Karl Marx'' and ''[[The Class Struggle (Erfurt Program)]]'', [[Rudolf Hilferding]]'s (1877–1941) ''[[Finance Capital]]'', [[Vladimir Lenin]] (1870–1924)'s ''[[The Development of Capitalism in Russia]]'' and ''[[Imperialism, the Highest Stage of Capitalism]]'', and [[Rosa Luxemburg]] (1871–1919)'s ''[[The Accumulation of Capital]]''.

=== Neoclassical economics ===
{{Main|Neoclassical economics}}

At its inception as a social science, ''economics'' was defined and discussed at length as the study of production, distribution, and consumption of wealth by Jean-Baptiste Say in his ''Treatise on Political Economy or, The Production, Distribution, and Consumption of Wealth'' (1803). These three items were considered only in relation to the increase or diminution of wealth, and not in reference to their processes of execution.{{efn|"This science indicates the cases in which commerce is truly productive, where whatever is gained by one is lost by another, and where it is profitable to all; it also teaches us to appreciate its several processes, but simply in their results, at which it stops. Besides this knowledge, the merchant must also understand the processes of his art. He must be acquainted with the commodities in which he deals, their qualities and defects, the countries from which they are derived, their markets, the means of their transportation, the values to be given for them in exchange, and the method of keeping accounts. The same remark is applicable to the agriculturist, to the manufacturer, and to the practical man of business; to acquire a thorough knowledge of the causes and consequences of each phenomenon, the study of political economy is essentially necessary to them all; and to become expert in his particular pursuit, each one must add thereto a knowledge of its processes." {{harv|Say|1803|page=XVI}} }} Say's definition has survived in part up to the present, modified by substituting the word "wealth" for "goods and services" meaning that wealth may include non-material objects as well. One hundred and thirty years later, [[Lionel Robbins, Baron Robbins|Lionel Robbins]] noticed that this definition no longer sufficed,{{efn|"And when we submit the definition in question to this test, it is seen to possess deficiencies which, so far from being marginal and subsidiary, amount to nothing less than a complete failure to exhibit either the scope or the significance of the most central generalisations of all." {{harv|Robbins|2007|p=5}} }} because many economists were making theoretical and philosophical inroads in other areas of human activity. In his ''[[An Essay on the Nature and Significance of Economic Science|Essay on the Nature and Significance of Economic Science]]'', he proposed a definition of economics as a study of human behaviour, subject to and constrained by scarcity,{{efn|"The conception we have adopted may be described as analytical. It does not attempt to pick out certain kinds of behaviour, but focuses attention on a particular aspect of behaviour, the form imposed by the influence of scarcity. {{harv|Robbins|2007|p=17}} }} which forces people to choose, allocate scarce resources to competing ends, and economise (seeking the greatest welfare while avoiding the wasting of scarce resources). According to Robbins: "Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses".{{sfnp|Robbins|2007|p=16}} Robbins' definition eventually became widely accepted by mainstream economists, and found its way into current textbooks.<ref>{{cite conference |title=Defining Economics: the Long Road to Acceptance of the Robbins Definition |first1=Roger E. |last1=Backhouse |first2=Steven G. |last2=Medema |work=Lionel Robbins's essay on the Nature and Significance of Economic Science, 75th anniversary conference proceedings |date=10 December 2007 |pages=209–230 |url=http://darp.lse.ac.uk/papersdb/LionelRobbinsConferenceProveedingsVolume.pdf#page=213 |conference= |access-date=30 July 2014 |archive-date=4 March 2016 |archive-url=https://web.archive.org/web/20160304060656/http://darp.lse.ac.uk/papersdb/LionelRobbinsConferenceProveedingsVolume.pdf#page=213 |url-status=live }} also published in {{cite journal |title=Defining Economics: The Long Road to Acceptance of the Robbins Definition |journal=Economica |date=October 2009 |volume=76 |issue=Supplement 1 |pages=805–820 |jstor=40268907 |doi=10.1111/j.1468-0335.2009.00789.x|last1=Backhouse |first1=Roger E |last2=Medema |first2=Steve G |s2cid=148506444 |doi-access=free }}</ref> Although far from unanimous, most mainstream economists would accept some version of Robbins' definition, even though many have raised serious objections to the scope and method of economics, emanating from that definition.{{sfnp|Backhouse|Medema|2007|page=223|ps=: "There remained division over whether economics was defined by a method or a subject matter but both sides in that debate could increasingly accept some version of the Robbins definition."}}

A body of theory later termed "neoclassical economics" formed from about 1870 to 1910. The term "economics" was popularised by such neoclassical economists as [[Alfred Marshall]] and [[Mary Paley Marshall]] as a concise synonym for "economic science" and a substitute for the earlier "[[political economy]]".<ref name="MarshallMarshall1888" /><ref name="Jevons1879"/> This corresponded to the influence on the subject of mathematical methods used in the [[natural science]]s.<ref name="Clark">{{cite book |last=Clark |first=Barry |title=Political Economy: A Comparative Approach |url=https://books.google.com/books?id=3wpiDzS45PsC&pg=PP1 |edition=2nd |year=1998 |publisher=Praeger |isbn=978-0-275-95869-5}}</ref>

Neoclassical economics systematically integrated [[supply and demand]] as joint determinants of both price and quantity in market equilibrium, influencing the allocation of output and income distribution. It rejected the classical economics' [[labour theory of value]] in favour of a [[marginal utility]] theory of value on the demand side and a more comprehensive theory of costs on the supply side.<ref>{{cite encyclopedia |chapter=Marginalist economics |chapter-url=http://www.dictionaryofeconomics.com/article?id=pde1987_X001393 |access-date=27 October 2017 |last=Campus |first=Antonietta |date=1987 |editor-last1=Eatwell |editor-first1=John |edition=first |volume=III |pages=1–6 |doi=10.1057/9780230226203.3031 |isbn=978-0-333-78676-5 |archive-url=https://web.archive.org/web/20171027231849/http://www.dictionaryofeconomics.com/article?id=pde1987_X001393 |archive-date=27 October 2017 |dictionary=The New Palgrave Dictionary of Economics |editor-first2=Murray |editor-last2=Milgate |editor-first3=Peter |editor-last3=Newman |url-status=live}}</ref> In the 20th century, neoclassical theorists departed from an earlier idea that suggested measuring total utility for a society, opting instead for [[ordinal utility]], which posits behaviour-based relations across individuals.<ref name="Hicks" /><ref>{{cite encyclopedia |title=The New Palgrave Dictionary of Economics |publisher=Palgrave Macmillan UK |access-date=27 October 2017 |last=Black |first=R.D. Collison |date=2008 |editor-last1=Durlauf |editor-first1=Steven N. |edition=2nd |pages=577–581 |doi=10.1057/9780230226203.1781 |isbn=978-0-333-78676-5 |archive-url=https://web.archive.org/web/20171028042451/http://www.dictionaryofeconomics.com/article?id=pde2008_U000047 |archive-date=28 October 2017 |editor-first2=Lawrence E. |editor-last2=Blume |chapter-url=http://www.dictionaryofeconomics.com/article?id=pde2008_U000047 |chapter=Utility |url-status=live}}</ref>

In [[microeconomics]], neoclassical economics represents incentives and costs as playing a pervasive role in shaping [[decision making]]. An immediate example of this is the [[consumer theory]] of individual demand, which isolates how prices (as costs) and income affect quantity demanded.<ref name="Hicks"/> In [[macroeconomics]] it is reflected in an early and lasting [[neoclassical synthesis]] with Keynesian macroeconomics.<ref name="Blanchard2008"/><ref name="Hicks">{{cite journal |author-link=John Hicks |last=Hicks |first=J.R. |date=April 1937 |title=Mr. Keynes and the "Classics": A Suggested Interpretation |journal=Econometrica |volume=5 |issue=2 |pages=147–159 |jstor=1907242 |doi=10.2307/1907242 }}</ref>

Neoclassical economics is occasionally referred as ''orthodox economics'' whether by its critics or sympathisers. Modern [[mainstream economics]] builds on neoclassical economics but with many refinements that either supplement or generalise earlier analysis, such as [[econometrics]], [[game theory]], analysis of [[market failure]] and [[imperfect competition]], and the [[neoclassical model]] of [[economic growth]] for analysing long-run variables affecting [[national income]].

Neoclassical economics studies the behaviour of [[individual]]s, [[household]]s, and [[organisation]]s (called economic actors, players, or agents), when they manage or use [[Scarcity|scarce]] resources, which have alternative uses, to achieve desired ends. Agents are assumed to act rationally, have multiple desirable ends in sight, limited resources to obtain these ends, a set of stable preferences, a definite overall guiding objective, and the capability of making a choice. There exists an economic problem, subject to study by economic science, when a [[Decision theory|decision]] (choice) is made by one or more players to attain the best possible outcome.<ref>{{cite journal |first=Leigh |last=Tesfatsion |title=Agent-Based Computational Economics: Growing Economies from the Bottom Up |journal=[[Artificial Life (journal)|Artificial Life]] |date=Winter 2002 |volume=8 |issue=1 |pages=55–82 |url=https://www2.econ.iastate.edu/tesfatsi/acealife.pdf |pmid=12020421 |doi=10.1162/106454602753694765 |citeseerx=10.1.1.194.4605 |s2cid=1345062 |access-date=24 June 2020 |archive-date=26 November 2020 |archive-url=https://web.archive.org/web/20201126182912/https://www2.econ.iastate.edu/tesfatsi/acealife.pdf |url-status=live }}</ref>

=== Keynesian economics ===
{{Main|Keynesian economics}}
[[File:Lopokova and Keynes 1920s cropped.jpg|thumb|upright=0.8|alt=John Maynard Keynes|[[John Maynard Keynes]], a key economics theorist]]
Keynesian economics derives from [[John Maynard Keynes]], in particular his book ''[[The General Theory of Employment, Interest and Money]]'' (1936), which ushered in contemporary [[macroeconomics]] as a distinct field.<ref>{{unbulleted list citebundle
|1 = {{cite book |last=Keynes |first=John Maynard |title=The General Theory of Employment, Interest and Money |publisher= Macmillan|year=1936 |location=London |isbn=978-1-57392-139-8 |title-link=The General Theory of Employment, Interest and Money }}
|2 = {{harvp|Blaug|2017|p=347}}
}}</ref> The book focused on determinants of national income in the short run when prices are relatively inflexible. Keynes attempted to explain in broad theoretical detail why high labour-market unemployment might not be self-correcting due to low "[[effective demand]]" and why even price flexibility and monetary policy might be unavailing. The term "revolutionary" has been applied to the book in its impact on economic analysis.<ref>{{unbulleted list citebundle
|1 = {{cite encyclopedia |last=Tarshis |first=L. |author-link=Lorie Tarshis |date=1987 |title=The New Palgrave Dictionary of Economics |publisher=Palgrave Macmillan |edition= |editor-first1=John |editor-last1=Eatwell |editor-first2=Murray |editor-last2=Milgate |editor-first3=Peter |editor-last3=Newman |volume=III |pages=47–50 |url=http://www.dictionaryofeconomics.com/article?id=pde1987_X001226 |doi=10.1057/9780230226203.2888 |isbn=978-0-333-78676-5 |chapter=Keynesian Revolution |access-date=27 October 2017 |archive-date=28 October 2017 |archive-url=https://web.archive.org/web/20171028042612/http://www.dictionaryofeconomics.com/article?id=pde1987_X001226 |url-status=live |doi-access=free |url-access=subscription }}
|2 = {{harvp|Samuelson|Nordhaus|2010|p=5}}
|3 = {{harvp|Blaug|2017|p=346}}
}}</ref>

During the following decades, many economists followed Keynes' ideas and expanded on his works. [[John Hicks]] and [[Alvin Hansen]] developed the [[IS–LM model]] which was a simple formalisation of some of Keynes' insights on the economy's short-run equilibrium. [[Franco Modigliani]] and [[James Tobin]] developed important theories of [[Consumption (economics)|private consumption]] and [[investment]], respectively, two major components of [[aggregate demand]]. [[Lawrence Klein]] built the first [[large-scale macroeconometric model]], applying the Keynesian thinking systematically to the [[Economy of the United States|US economy]].<ref>Blanchard et al. (2017), p. 510.</ref>

=== Post-WWII economics ===

Immediately after World War II, Keynesian was the dominant economic view of the United States establishment and its allies, Marxian economics was the dominant economic view of the Soviet Union nomenklatura and its allies.

==== Monetarism ====
{{Main|Monetarism}}

Monetarism appeared in the 1950s and 1960s, its intellectual leader being [[Milton Friedman]]. Monetarists contended that monetary policy and other monetary shocks, as represented by the growth in the money stock, was an important cause of economic fluctuations, and consequently that monetary policy was more important than fiscal policy for [[stabilization policy|purposes of stabilisation]].<ref>Blanchard et al. (2017), p. 511.</ref><ref name="fed">{{cite web|url=http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm|title=Remarks by Governor Ben S. Bernanke|publisher=The Federal Reserve Board|date=8 November 2002|first=Ben|last=Bernanke|access-date=22 February 2009|archive-date=24 March 2020|archive-url=https://web.archive.org/web/20200324160935/https://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm|url-status=live}}</ref> Friedman was also skeptical about the ability of central banks to conduct a sensible active monetary policy in practice, advocating instead using simple rules such as a steady rate of money growth.<ref>Blanchard et al. (2017), p. 512.</ref>

Monetarism rose to prominence in the 1970s and 1980s, when several major central banks followed a monetarist-inspired policy, but was later abandoned because the results were unsatisfactory.<ref>Blanchard et al. (2017), p. 483–484.</ref><ref name="Historical">{{cite web |title=Federal Reserve Board - Historical Approaches to Monetary Policy |url=https://www.federalreserve.gov/monetarypolicy/historical-approaches-to-monetary-policy.htm |website=Board of Governors of the Federal Reserve System |access-date=29 October 2023 |language=en |date=8 March 2018}}</ref>

==== New classical economics ====
{{Main|New classical macroeconomics}}

A more fundamental challenge to the prevailing Keynesian paradigm came in the 1970s from [[new classical macroeconomics|new classical economists]] like [[Robert Lucas Jr.|Robert Lucas]], [[Thomas Sargent]] and [[Edward Prescott]]. They introduced the notion of [[rational expectations]] in economics, which had profound implications for many economic discussions, among which were the so-called [[Lucas critique]] and the presentation of [[Real business-cycle theory|real business cycle models]].<ref>Blanchard et al. (2017), pp. 512–516.</ref>

==== New Keynesians ====
{{Main|New Keynesian economics}}

During the 1980s, a group of researchers appeared being called [[New Keynesian economics|New Keynesian economists]], including among others [[George Akerlof]], [[Janet Yellen]], [[Gregory Mankiw]] and [[Olivier Blanchard]]. They adopted the principle of rational expectations and other monetarist or new classical ideas such as building upon models employing micro foundations and optimizing behaviour, but simultaneously emphasised the importance of various [[market failure]]s for the functioning of the economy, as had Keynes.<ref>Blanchard et al. (2017), pp. 516–517.</ref> Not least, they proposed various reasons that potentially explained the empirically observed features of [[Nominal rigidity|price and wage rigidity]], usually made to be endogenous features of the models, rather than simply assumed as in older Keynesian-style ones.

====New neoclassical synthesis====
{{Main|New neoclassical synthesis}}

After decades of often heated discussions between Keynesians, monetarists, new classical and new Keynesian economists, a synthesis emerged by the 2000s, often given the name ''the [[new neoclassical synthesis]]''. It integrated the rational expectations and optimizing framework of the new classical theory with a new Keynesian role for nominal rigidities and other market imperfections like [[imperfect information]] in goods, labour and credit markets. The monetarist importance of monetary policy in stabilizing<ref>{{cite journal |last1=Woodford |first1=Michael |title=Convergence in Macroeconomics: Elements of the New Synthesis |journal=American Economic Journal: Macroeconomics |date=2009 |volume=1 |issue=1 |pages=267–279 |doi=10.1257/mac.1.1.267 |jstor=25760267 |url=https://www.jstor.org/stable/25760267 |issn=1945-7707}}</ref> the economy and in particular controlling inflation was recognised as well as the traditional Keynesian insistence that fiscal policy could also play an influential role in affecting [[aggregate demand]]. Methodologically, the synthesis led to a new class of applied models, known as [[dynamic stochastic general equilibrium]] or DSGE models, descending from real business cycles models, but extended with several new Keynesian and other features. These models proved useful and influential in the design of modern monetary policy and are now standard workhorses in most central banks.<ref>Blanchard et al. (2017), pp. 517–518.</ref>

==== After the 2008 financial crisis====
After the [[2008 financial crisis]], macroeconomic research has put greater emphasis on understanding and integrating the financial system into models of the general economy and shedding light on the ways in which problems in the financial sector can turn into major macroeconomic recessions. In this and other research branches, inspiration from [[behavioural economics]] has started playing a more important role in mainstream economic theory.<ref>Blanchard et al. (2017), pp. 518–519.</ref> Also, [[Heterogeneity in economics|heterogeneity]] among the economic agents, e.g. differences in income, plays an increasing role in recent economic research.<ref>{{cite web |last1=Guvenen |first1=Fatih |title=Macroeconomics with Heterogeneity: A Practical Guide |url=https://www.nber.org/system/files/working_papers/w17622/w17622.pdf |website=www.nber.org |publisher=National Bureau of Economic Research |access-date=29 October 2023}}</ref>

=== Other schools and approaches ===
{{Main|Schools of economic thought}}

Other schools or trends of thought referring to a particular style of economics practised at and disseminated from well-defined groups of academicians that have become known worldwide, include the [[Freiburg School]], the [[School of Lausanne]], the [[Stockholm school (economics)|Stockholm school]] and the [[Chicago school of economics]]. During the 1970s and 1980s [[mainstream economics]] was sometimes separated into the [[Saltwater and freshwater economics|Saltwater approach]] of those universities along the [[East Coast of the United States|Eastern]] and [[West coast of the United States|Western]] coasts of the US, and the Freshwater, or [[Chicago school (economics)|Chicago school]] approach.<ref name=gordonessays>{{Citation | last = Gordon | first = Robert J. | author-link = Robert J. Gordon | title = Productivity Growth, Inflation, and Unemployment | publisher = [[Cambridge University Press]] | year = 2003 | pages = 226–227 | url = https://books.google.com/books?id=VXINsDT1sFwC |isbn = 978-0-521-53142-9}}</ref>

Within macroeconomics there is, in general order of their historical appearance in the literature; [[classical economics]], [[neoclassical economics]], [[Keynesian economics]], the [[neoclassical synthesis]], [[monetarism]], [[new classical economics]], [[New Keynesian economics]]<ref>{{Cite book |last=Gali |first=Jordi |date=2015 |title=Monetary Policy, Inflation and the Business Cycle: An Introduction to the New Keynesian Framework and Its Applications |url=https://books.google.com/books?id=5GuYDwAAQBAJ&pg=PA5 |edition=2nd |publisher=Princeton University Press |isbn=978-0-691-16478-6 |pages=5–6}}</ref> and the [[new neoclassical synthesis]].<ref>{{cite web |last=Woodford |first=Michael |title=Convergence in Macroeconomics: Elements of the New Synthesis |work=The New Consensus |date=January 2008 |url=http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf |access-date=31 August 2021 |url-status=live|archive-url=https://web.archive.org/web/20081221064431/http://www.columbia.edu:80/~mw2230/Convergence_AEJ.pdf |archive-date=21 December 2008 }}</ref>

Beside the [[mainstream economics|mainstream]] development of economic thought, various alternative or [[Heterodox economics|heterodox economic theories]] have evolved over time, positioning themselves in contrast to mainstream theory.<ref name=Lee>{{cite journal |last1=Lee |first1=Frederic S. |title=Heterodox Economics |journal=The New Palgrave Dictionary of Economics |date=2008 |pages=1–7 |doi=10.1057/978-1-349-95121-5_2487-1|isbn=978-1-349-95121-5 }}</ref> These include:<ref name=Lee/>
* [[Austrian School]], emphasizing [[human action]], [[property rights]] and the freedom to contract and transact to have a thriving and successful economy.<ref>{{cite web |title=WHAT IS AUSTRIAN ECONOMICS? |date=16 May 2014 |url=https://mises.org/what-austrian-economics |access-date=February 13, 2022 |archive-date=23 October 2020 |archive-url=https://web.archive.org/web/20201023162020/https://mises.org/what-austrian-economics |url-status=live }}</ref> It also emphasises that the state should play as small role as possible (if any role) in the regulation of economic activity between two transacting parties.<ref>{{cite web|title=The Austrian Theory of Efficiency and the Role of Government|url=https://mises.org/library/austrian-theory-efficiency-and-role-government-0|date=November 9, 2019|access-date=14 February 2022|archive-date=14 February 2022|archive-url=https://web.archive.org/web/20220214010751/https://mises.org/library/austrian-theory-efficiency-and-role-government-0|url-status=live}}</ref> [[Friedrich Hayek]] and [[Ludwig von Mises]] are the two most prominent representatives of the Austrian school.
* [[Post-Keynesian economics]] concentrates on macroeconomic rigidities and adjustment processes. It is generally associated with the [[University of Cambridge]] and the work of [[Joan Robinson]].<ref>{{cite encyclopedia |last=Harcourt |first=G.C. |date=1987 |title=The New Palgrave: A Dictionary of Economics |edition= |editor-first1=John |editor-last1=Eatwell |editor-first2=Murray |editor-last2=Milgate |editor-first3=Peter |editor-last3=Newman |volume=III |pages=47–50 |chapter-url=http://www.dictionaryofeconomics.com/article?id=pde1987_X001728 |doi=10.1057/9780230226203.3307 |isbn=978-0-333-78676-5 |chapter=Post-Keynesian economics |publisher=Palgrave Macmillan UK |url=http://www.e-elgar.com/shop/isbn/9781852788018 |access-date=13 February 2020 |archive-date=12 April 2020 |archive-url=https://web.archive.org/web/20200412222941/https://www.e-elgar.com/shop/gbp/post-keynesian-economics-9781852788018.html |url-status=live |url-access=subscription }}</ref>
* [[Ecological economics]] like [[environmental economics]] studies the interactions between human economies and the ecosystems in which they are embedded,<ref>{{cite journal |last1=Xepapadeas |first1=Anastasios |title=Ecological Economics |journal=The New Palgrave Dictionary of Economics |date=2008 |pages=1–8 |doi=10.1057/978-1-349-95121-5_2141-1|isbn=978-1-349-95121-5 }}</ref> but in contrast to environmental economics takes an oppositional position towards general mainstream economic principles. A major difference between the two subdisciplines is their assumptions about the [[Substitute good|substitution possibilities]] between human-made and [[natural capital]].<ref>{{cite web |last1=Berlin |first1=D. I. W. |title=DIW Berlin: A Matter of Opinion : How Ecological and Neoclassical Environmental Economists Think about Sustainability and Economics |url=https://www.diw.de/sixcms/detail.php?id=diw_01.c.450284.de |website=www.diw.de |access-date=29 October 2023 |language=de |date=2006}}</ref>

Additionally, alternative developments include [[Marxian economics]], [[constitutional economics]], [[institutional economics]], [[evolutionary economics]], [[dependency theory]], [[structuralist economics]], [[world systems theory]], [[econophysics]], [[econodynamics]], [[feminist economics]] and [[biophysical economics]].<ref>{{cite news |first=Nathanial |last=Greenwolde |date=23 October 2009 |title=New School of Thought Brings Energy to 'the Dismal Science' |work=[[The New York Times]] |url=https://www.nytimes.com/gwire/2009/10/23/23greenwire-new-school-of-thought-brings-energy-to-the-dis-63367.html |access-date=24 February 2017 |archive-date=29 November 2016 |archive-url=https://web.archive.org/web/20161129124417/http://www.nytimes.com/gwire/2009/10/23/23greenwire-new-school-of-thought-brings-energy-to-the-dis-63367.html |url-status=live }}</ref>

[[Feminist economics]] emphasises the role that gender plays in economies, challenging analyses that render gender invisible or support gender-oppressive economic systems.<ref>{{Cite book |chapter=Feminist Economics |author= Julie A. Nelson |title= The New Palgrave Dictionary of Economics |chapter-url= https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_2210-1 |date=2016-01-01|pages= 1–6 |doi= 10.1057/978-1-349-95121-5_2210-1 |isbn= 978-1-349-95121-5 |access-date=2023-12-07 }}</ref> The goal is to create economic research and policy analysis that is inclusive and gender-aware to encourage gender equality and improve the well-being of marginalised groups.