The Most Important Economic Schools of Thought | Economics Explained

An economy is a collection of production and consumption processed that are all working

towards solving the central economic problem.

The problem is that we only have access to a finite amount of resources, but the potential

for human consumption of goods and services is pretty much limitless.

This is the foundation of economics, every study, every paper, every theory, economic

policy, or experiment is ultimately an attempt to find a solution to a problem, that by its

very nature, has no solution.

Economics is considered a social science, and although some other scientists from more

“rigorous” fields don’t always welcome it into their little club, it still follows

the same processes to explore the world around us.

And, as with science, or anything that is extremely complex for that matter, there are

disagreements between practitioners at all levels of academia and throughout the entire

history of the subject.

The economic schools of thought are very broad ways that economists are clumped into basic

groups.

Now the first thing to know about all of these schools of thought is that they all agree

with one another on most issues.

In the same way that two physicists will obviously agree with one another that and object at

rest will remain at rest, but might disagree about string theory.

Two economists will obviously agree that there are opportunity costs for every unit of production,

but they might disagree on the long term implications of a consumption tax.

The reason you are much more likely to hear about disagreements in economics rather than

physics are threefold.

One, the foundation of economics is an unanswerable question, so there is a certain element of

philosophy and morality in this academic pursuit, no matter how much economists attempt to sterilize

it with mathematics.

Two, economies are really hard to experiment on.

If there is some radical new theory about effective taxation, the only real way to see

if it will work is to get that tax law passed in a country and study the results.

If the experiment doesn’t work, then oh well you just destroyed a nation.

This difficulty in testing theories also means that a lot of fringe ideas are hard to disprove

in the same way they would be in a chemistry lab.

And three, economics is something we all feel day in and day out.

The economy impacts our financial situations, our governments, retirements, environments,

crime rates, and basically anything else that is going to make news headlines.

As with anything that people are invested in they form opinions around it.

And those opinions are held by everybody from nobel laureate career economists to that crazy

guy advocating for a seed-based economy.

If this contention wasn’t enough then there is one other issue that makes these schools

of thought difficult to deal with, and that is that there are no strong borders between

them.

There are plenty of economists that agree with some of the principles of one school

of thought and then disagree wildly on some other area’s.

Which is actually a good thing.

But more on that later.

For now, to try and make sens of this wild world we are going to look at three major

schools, Classical, Austrian, and Keynesian.

To show the differences between these schools we are going to look at the way they suggest

solving the central economic problem in key areas.

What they suggest the role of government is.

What do they think the role of the individual is.

What they propose doing in an economic crisis.

And finally what is the key to delivering a wealthier happier economy?

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Now economies have always been a thing, and before people even knew what they were doing

they were attempting to satisfy their desires with the limited resources they had available

to them.

This went on for an extremely long time and great empires rose and lived and died all

harboring economies that they didn’t think to specifically study.

Everybody from Aristotle to Jesus presented an answer to the question, but nobody had

yet thought to ask what the question was.

(insert jeopardy) Can I have how to satisfy unlimited demands with limited resources for

1,000 alex? --- (“that is correct”)

this all turned around though in the 18th century with a man called adam smith, who