- Laissez-faire
- Laissez-faire is the view that government should leave markets largely alone, doing little beyond protecting property and enforcing contracts.
- Mercantilism
- Mercantilism is the view that a nation grows rich by exporting more than it imports and building up gold and silver, with the state steering trade.
Six schools of thought followed the mercantilists and physiocrats
Can you name the six schools of economic thought that followed the mercantilists and physiocrats, in the order they arose?
Each card gives the school's main idea and a person linked to it.
Classical economists, from Adam Smith to the mid-nineteenth century, held that free markets allocate resources well and that supply creates its own demand.
Can you think of an example?
Smith's The Wealth of Nations (1776) showed how dividing work into tasks raises output. David Ricardo argued in 1817 that countries gain by specialising and trading.
Karl Marx argued that capitalism's profits come from the unpaid labour of workers, and that its crises and class conflict would bring it to an end.
Can you think of an example?
In Das Kapital, whose first volume appeared in the second half of the nineteenth century, Marx argued that workers produce more than the wage they are paid.
Marginalists, from the late nineteenth century, explained prices by choices at the margin: the extra satisfaction from one more unit, weighed against its price.
Can you think of an example?
In 1890 Alfred Marshall joined demand and supply, likening them to the two blades of a pair of scissors. This approach still underlies microeconomics.
Keynesians hold that total demand can fall short of what an economy can produce, leaving lasting unemployment, so government should manage demand.
Can you think of an example?
John Maynard Keynes wrote The General Theory of Employment, Interest and Money in the Great Depression of the 1930s, when output had fallen but capacity had not.
Monetarists and new classical economists hold that an economy corrects itself over time, and that managing demand cannot hold unemployment below its natural rate for long.
Can you think of an example?
Milton Friedman argued in 1967 that inflation and unemployment trade off only temporarily, never permanently.
Behavioural economists bring psychology into economics, studying how people's choices depart from the rational model in ways that can be predicted.
Can you think of an example?
Daniel Kahneman and Amos Tversky reported in 1979 that a loss pains people more than an equal gain pleases them.