Showing posts with label heterodox. Show all posts
Showing posts with label heterodox. Show all posts

Friday, 30 November 2012

Evolutionary Economics

Evolutionary economics is part of mainstream economics as well as a heterodox school of economic thought that is inspired by evolutionary biology. Much like mainstream economics, it stresses complex interdependencies, competition, growth, structural change, and resource constraints but differs in the approaches which are used to analyze these phenomena.[1]
Evolutionary economics deals with the study of processes that transform economy for firms, institutions, industries, employment, production, trade and growth within, through the actions of diverse agents from experience and interactions, using evolutionary methodology. Evolutionary economics analyses the unleashing of a process of technological and institutional innovation by generating and testing a diversity of ideas which discover and accumulate more survival value for the costs incurred than competing alternatives. The evidence suggests that it could be adaptive efficiency that defines economic efficiency. Mainstream economic reasoning begins with the postulates of scarcity and rational agents (that is, agents modeled as maximizing their individual welfare), with the "rational choice" for any agent being a straightforward exercise in mathematical optimization. There has been renewed interest in treating economic systems as evolutionary systems in the developing field of Complexity economics.[citation needed]
Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed. Rather its focus is on the non-equilibrium processes that transform the economy from within and their implications. The processes in turn emerge from actions of diverse agents with bounded rationality who may learn from experience and interactions and whose differences contribute to the change. The subject draws more recently on evolutionary game theory[2] and on the evolutionary methodology of Charles Darwin and the non-equilibrium economics principle of circular and cumulative causation. It is naturalistic in purging earlier notions of economic change as teleological or necessarily improving the human condition.[3]
A different approach is to apply evolutionary psychology principles to economics which is argued to explain problems such as inconsistencies and biases in rational choice theory. Basic economic concepts such as utility may be better viewed as due to preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one.[4]

Contents

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[edit] Predecessors

In the mid-19th century was presented[by whom?] a schema of stages of historical development, by introducing the notion that "human nature" was not constant and was not determinative of the nature of the social system; on the contrary, he made it a principle that human behavior was a function of the social and economic system in which it occurred.
Karl Marx based his theory of economic development on the premise of evolving economic systems; specifically, over the course of history superior economic systems would replace inferior ones. Inferior systems were beset by internal contradictions and inefficiencies that make them impossible to survive over the long term. In Marx's scheme, feudalism was replaced by capitalism, which would eventually be superseded by communism.[5]
At approximately the same time, Charles Darwin developed a general framework for comprehending any process whereby small, random variations could accumulate and predominate over time into large-scale changes that resulted in the emergence of wholly novel forms ("speciation").
This was followed shortly after by the work of the American pragmatic philosophers (James, Peirce, Dewey) and the founding of two new disciplines, psychology and anthropology, both of which were oriented toward cataloging and developing explanatory frameworks for the variety of behavior patterns (both individual and collective) that were becoming increasingly obvious to all systematic observers. The state of the world converged with the state of the evidence to make almost inevitable the development of a more "modern" framework for the analysis of substantive economic issues.
Thorstein Veblen (1898) coined the term "evolutionary economics" in English. He began his career in the midst of this period of intellectual ferment, and as a young scholar came into direct contact with some of the leading figures of the various movements that were to shape the style and substance of social sciences into the next century and beyond. Veblen saw the need for taking account of cultural variation in his approach; no universal "human nature" could possibly be invoked to explain the variety of norms and behaviors that the new science of anthropology showed to be the rule, rather than the exception. He emphasised the conflict between "industrial" and "pecuniary" values and in the hands of later writers this was interpreted as the "ceremonial / instrumental dichotomy" (Hodgson 2004); Veblen saw that every culture is materially-based and dependent on tools and skills to support the "life process", while at the same time, every culture appeared to have a stratified structure of status ("invidious distinctions") that ran entirely contrary to the imperatives of the "instrumental" (read: "technological") aspects of group life. The "ceremonial" was related to the past, and conformed to and supported the tribal legends; "instrumental" was oriented toward the technological imperative to judge value by the ability to control future consequences. The "Veblenian dichotomy" was a specialized variant of the "instrumental theory of value" due to John Dewey, with whom Veblen was to make contact briefly at the University of Chicago.
Arguably the most important works by Veblen include, but are not restricted to, his most famous works (Theory of the Leisure Class; Theory of Business Enterprise), but his monograph Imperial Germany and the Industrial Revolution and the 1898 essay entitled Why is Economics not an Evolutionary Science have both been influential in shaping the research agenda for following generations of social scientists. TOLC and TOBE together constitute an alternative construction on the neoclassical marginalist theories of consumption and production, respectively. Both are founded on his dichotomy, which is at its core a valuational principle. The ceremonial patterns of activity are not bound to any past, but to one that generated a specific set of advantages and prejudices that underlie the current institutions. "Instrumental" judgments create benefits according to a new criterion, and therefore are inherently subversive. This line of analysis was more fully and explicitly developed by Clarence E. Ayres of the University of Texas at Austin from the 1920s.
Kenneth Boulding was one of the advocates of the evolutionary methods in social science, as is evident from Kenneth Boulding's Evolutionary Perspective. Kenneth Arrow, Ronald Coase and Douglass North are some of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel winners who are known for their sympathy to the field.
More narrowly the works Jack Downie[6] and Edith Penrose[7] offer many insights for those thinking about evolution at the level of the firm in an industry.
Joseph Schumpeter, who lived in the first half of 20th century, was the author of the book The Theory of Economic Development (1911, transl. 1934). It is important to note that for the word development he used in his native language, the German word "Entwicklung", which can be translated as development or evolution. The translators of the day used the word "development" from the French "développement", as opposed to "evolution" as this was used by Darwin. (Schumpeter, in his later writings in English as a professor at Harvard, used the word "evolution".) The current term in common use is economic development. In Schumpeter's book he proposed an idea radical for its time: the evolutionary perspective. He based his theory on the assumption of usual macroeconomic equilibrium, which is something like "the normal mode of economic affairs". This equilibrium is being perpetually destroyed by entrepreneurs who try to introduce innovations. A successful introduction of an innovation disturbs the normal flow of economic life, because it forces some of the already existing technologies and means of production to lose their positions within the economy.[citation needed]

[edit] Present state of discussion

One of the major contributions to the emerging field of evolutionary economics has been the publication of 'An Evolutionary Theory of Economic Change' by Richard Nelson and Sidney G. Winter. These authors have focused mostly on the issue of changes in technology and routines, suggesting a framework for their analysis. If the change occurs constantly in the economy, then some kind of evolutionary process must be in act, and there has been a proposal that this process is Darwinian in nature. Then, mechanisms that provide selection, generate variation and establish self-replication, must be identified. The authors introduced the term 'steady change' to highlight the evolutionary aspect of economic processes and contrast it with the concept of 'steady state' popular in classical economics.[8]
Milton Friedman proposed that markets act as major selection vehicles. As firms compete, unsuccessful rivals fail to capture an appropriate market share, go bankrupt and have to exit.[9] The variety of competing firms is both in their products and practices, that are matched against markets. Both products and practices are determined by routines that firms use: standardized patterns of actions implemented constantly. By imitating these routines, firms propagate them and thus establish inheritance of successful practices.[10][11] A general theory of this process has been proposed by Kurt Dopfer and Jason Potts as the micro meso macro framework.

[edit] Evolutionary psychology

See also: Behavioral economics and Neuroeconomics
A different approach is to apply evolutionary psychology principles to economics which is argued to explain problems such as inconsistencies and biases in rational choice theory. A basic economic concept such as utility may be better viewed as due to preferences that maximized evolutionary fitness in the ancestral environment but not necessarily in the current one. Loss aversion may be explained as being rational when living at subsistence level where a reduction of resources may have meant death and it thus may have been rational to place a greater value on losses than on gains. People are sometimes more cooperative and altruistic than predicted by economic theory which may be explained by mechanisms such as reciprocal altruism och group selection for cooperative behavior. An evolutionary approach may also explain differences between groups such as males being less risk-averse than females since males have more variable reproductive success than females. While unsuccessful risk-seeking may limit reproductive success for both sexes, males may potentially increase their reproductive success much more than females from successful risk-seeking. Frequency-dependent selection may explain why people differ in characteristics such as cooperative behavior with cheating becoming an increasingly less successful strategy as the numbers of cheaters increase.[4]
Another argument is that humans have a poor intuitive grasp of the economics of the current environment which is very different from the ancestral environment. The ancestral environment likely had relatively little trade, division of labor, and capital goods. Technological change was very slow, wealth differences were much smaller, and possession of many available resources were likely zero-sum games were large inequalities were caused by various forms of exploitation. Humans therefore may have poor intuitive understanding the benefits of free trade (causing calls for protectionism), the value of capital goods (making the labor theory of value appealing), and may intuitively undervalue the benefits of technological development. There may be a tendency to see the number of available jobs as a zero-sum game with the total number of jobs being fixed which causes people to not realize that minimum wage laws reduce the number of jobs or to believe that an increased number of jobs in other nations necessarily decreases the number of jobs in their own nation. Large income inequality may easily be viewed as due to exploitation rather than as due to individual differences in productivity. This may easily cause poor economic policies, especially since individual voters have few incentives to make the effort of studying societal economics instead of relying on their intuitions since an individual's vote count for so little and since politicians may be reluctant to take a stand against intuitive views that are incorrect but widely held.[4]

[edit] See also

Portal iconBusiness and economics portal

[edit] Notes

  1. ^ Geoffrey M. Hodgson (1993) Economics and Evolution: Bringing Life Back Into Economics, Cambridge and University of Michigan Press. Description and chapter-link preview.
  2. ^ Daniel Friedman (1998). "On Economic Applications of Evolutionary Game Theory," Journal of Evolutionary Economics, 8(1), pp. 15-43.
  3. ^ Ulrich Witt (2008). "evolutionary economics." The New Palgrave Dictionary of Economics, 2nd Edition, v. 3, pp. 67-68 Abstract.
  4. ^ a b c Paul H. Rubin and C. Monica Capra. The evolutionary psychology of economics. In Roberts, S. C. (2011). Applied Evolutionary Psychology. Oxford University Press. doi:10.1093/acprof:oso/9780199586073.001.0001. ISBN 9780199586073. edit
  5. ^ Gregory and Stuart. (2005) Comparing Economic Systems in the Twenty-First Century, Seventh Edition, South-Western College Publishing, ISBN 0-618-26181-8
  6. ^ Jack Downie (1958) The Competitive Process
  7. ^ E. Penrose (1959) The Theory of the Growth of the Firm
  8. ^ http://en.wikipedia.org/wiki/Steady_change
  9. ^ Mazzucato, M. (2000), Firm Size, Innovation and Market Structure: The Evolution of Market Concentration and Instability, Edward Elgar, Northampton, MA, ISBN 1-84064-346-3, 138 pages.
  10. ^ Friedman, Milton (1953). Essays in Positive Economics, University of Chicago Press. Chapter preview links.
  11. ^ Page 251: Jon Elster, Explaining Technical Change : a Case Study in the Philosophy of Science, Second ed.

[edit] References

  • Aldrich, Howard E., Geoffrey M. Hodgson, David L. Hull, Thorbjørn Knudsen, Joel Mokyr and Viktor J. Vanberg (2008) ‘In Defence of Generalized Darwinism’, Journal of Evolutionary Economics, 18(5), October, pp. 577–96.
  • Hodgson, Geoffrey M. (2004) The Evolution of Institutional Economics: Agency, Structure and Darwinism in American Institutionalism (London and New York: Routledge).
  • Richard R. Nelson and Sidney G. Winter. (1982). An Evolutionary Theory of Economic Change. Harvard University Press.
  • Shiozawa, Yoshinori (2004) Evolutionary Economics in the 21st Century: A Manifext, Evolutionary and Institutional Economics Review 1(1), November, pp. 5–47.
  • Sidney G. Winter (1987). "natural selection and evolution," The New Palgrave Dictionary of Economics, v. 3, pp. 614–17.
  • Veblen, Thorstein B. (1898) ‘Why Is Economics Not an Evolutionary Science?’, Quarterly Journal of Economics, 12(3), July, pp. 373–97.

[edit] Journals

  • Journal of Economic Issues, sponcered by Association for Evolutionary Economics.
  • Journal of Evolutionary Economics. Description and article-preview links, sponcered by International Josef Schumpeter Society.
  • Journal of Institutional Economics, sponcered by European Society for Evolutionary Political Economy.
  • Evolutionary and Institutional Economics Review, sponcered by Japan Association for Evolutionary Economics.

[edit] External links

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Schools of Economic Thought

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Schools of economic thought describes the variety of approaches in the history of economic theory noteworthy enough to be described as a 'school of thought'. While economists do not always fit into particular schools, particularly in modern times, classifying economists into schools of thought is common. Economic thought may be roughly divided into three phases: premodern (Greco-Roman, Indian, Persian, Arab, and Chinese), early modern (mercantilist, physiocrats) and modern (beginning with Adam Smith and classical economics in the late 18th century). Systematic economic theory has been developed mainly since the beginning of what is termed the modern era.
Currently, the great majority of economists follow an approach referred to as mainstream economics (sometimes called 'orthodox economics'). Within the mainstream, distinctions can be made between the Saltwater school (associated with Berkeley, Harvard, MIT, Pennsylvania, Princeton, and Yale), and the more laissez-faire ideas of the Freshwater school (represented by the Chicago school of economics, Carnegie Mellon University, the University of Rochester and the University of Minnesota). Both of these schools of thought are associated with the neoclassical synthesis. Some influential approaches of the past, such as the historical school of economics and institutional economics, have become defunct or have declined in influence, and are now considered heterodox approaches.

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[edit] Ancient economic thought

Main article: Ancient economic thought

[edit] Islamic economics

Main articles: Islamic economic jurisprudence and Islamic economics in the world
Islamic economics is the practice of economics in accordance with Islamic law. The origins can be traced back to the Caliphate,[1] where an early market economy and some of the earliest forms of merchant capitalism took root between the 8th–12th centuries, which some refer to as "Islamic capitalism".[2]
Islamic economics seeks to enforce Islamic regulations not only on personal issues, but to implement broader economic goals and policies of an Islamic society, based on uplifting the deprived masses. It was founded on free and unhindered circulation of wealth so as to handsomely reach even the lowest echelons of society. One distinguishing feature is the tax on wealth (in the form of both Zakat and Jizya), and bans levying taxes on all kinds of trade and transactions (Income/Sales/Excise/Import/Export duties etc.). Another distinguishing feature is prohibition of interest in the form of excess charged while trading in money. Its pronouncement on use of paper currency also stands out. Though promissory notes are recognized, they must be fully backed by reserves. Fractional-reserve banking is disallowed as a form of breach of trust.
It saw innovations such as trading companies, big businesses, contracts, bills of exchange, long-distance international trade, the first forms of partnership (mufawada) such as limited partnerships (mudaraba), and the earliest forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal),[3] circulating capital, capital expenditure, revenue, cheques, promissory notes,[4] trusts (see Waqf), startup companies,[5] savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system,[6] lawsuits,[7] and agency institution.[8][9]
This school has seen a revived interest in development and understanding since the later part of 20th century.

[edit] Scholasticism

Main article: Scholasticism

[edit] Mercantilism

Main article: Mercantilism
Economic policy in Europe during the late Middle Ages and early Renaissance treated economic activity as a good which was to be taxed to raise revenues for the nobility and the church. Economic exchanges were regulated by feudal rights, such as the right to collect a toll or hold a faire, as well as guild restrictions and religious restrictions on lending. Economic policy, such as it was, was designed to encourage trade through a particular area. Because of the importance of social class, sumptuary laws were enacted, regulating dress and housing, including allowable styles, materials and frequency of purchase for different classes. Niccolò Machiavelli in his book The Prince was one of the first authors to theorize economic policy in the form of advice. He did so by stating that princes and republics should limit their expenditures, and prevent either the wealthy or the populace from despoiling the other. In this way a state would be seen as "generous" because it was not a heavy burden on its citizens.

[edit] Physiocrats

This section cites its sources but does not provide page references. You can help to improve it by introducing citations that are more precise. (September 2010)
Main article: Physiocrats
In his Austrian Perspective on the History of Economic Thought, Murray Rothbard argued that the modern history of economics should properly begin with the physiocrats rather than with Adam Smith.

[edit] Classical political economy

Main article: Classical economics
Classical economics, also called classical political economy, was the original form of mainstream economics of the 18th and 19th centuries. Classical economics focuses on the tendency of markets to move to equilibrium and on objective theories of value. Neo-classical economics differs from classical economics primarily in being utilitarian in its value theory and using marginal theory as the basis of its models and equations. Marxian economics also descends from classical theory. Anders Chydenius (1729–1803) was the leading classical liberal of Nordic history. A Finnish priest and member of parliament, he published a book called The National Gain in 1765, in which he proposes ideas of freedom of trade and industry and explores the relationship between economy and society and lays out the principles of liberalism, all of this eleven years before Adam Smith published a similar and more comprehensive book, The Wealth of Nations. According to Chydenius, democracy, equality and a respect for human rights were the only way towards progress and happiness for the whole of society.

[edit] American (National) School

Main article: American School (economics)
The American School owes its origin to the writings and economic policies of Alexander Hamilton, the first Treasury Secretary of the United States. It emphasized high tariffs on imports to help develop the fledgling American manufacturing base and to finance infrastructure projects, as well as National Banking, Public Credit, and government investment into advanced scientific and technological research and development. Friedrich List, one of the most famous proponents of the economic system, named it the National System, and was the main impetus behind the development of the German Zollverein and the economic policies of Germany under Chancellor Otto Von Bismarck beginning in 1879.

[edit] French liberal school

Main article: French Liberal School

[edit] German historical school

Main article: Historical school of economics
The Historical school of economics was an approach to academic economics and to public administration that emerged in 19th century in Germany, and held sway there until well into the 20th century. The Historical school held that history was the key source of knowledge about human actions and economic matters, since economics was culture-specific, and hence not generalizable over space and time. The School rejected the universal validity of economic theorems. They saw economics as resulting from careful empirical and historical analysis instead of from logic and mathematics. The School preferred historical, political, and social studies to self-referential mathematical modelling. Most members of the school were also Kathedersozialisten, i.e. concerned with social reform and improved conditions for the common man during a period of heavy industrialization. The Historical School can be divided into three tendencies: the Older, led by Wilhelm Roscher, Karl Knies, and Bruno Hildebrand; the Younger, led by Gustav von Schmoller, and also including Étienne Laspeyres, Karl Bücher, Adolph Wagner, and to some extent Lujo Brentano; the Youngest, led by Werner Sombart and including, to a very large extent, Max Weber.
Predecessors included Friedrich List. The Historical school largely controlled appointments to Chairs of Economics in German universities, as many of the advisors of Friedrich Althoff, head of the university department in the Prussian Ministry of Education 1882-1907, had studied under members of the School. Moreover, Prussia was the intellectual powerhouse of Germany and so dominated academia, not only in central Europe, but also in the United States until about 1900, because the American economics profession was led by holders of German Ph.Ds. The Historical school was involved in the Methodenstreit ("strife over method") with the Austrian School, whose orientation was more theoretical and a prioristic. In English speaking countries, the Historical school is perhaps the least known and least understood approach to the study of economics, because it differs radically from the now-dominant Anglo-American analytical point of view. Yet the Historical school forms the basis—both in theory and in practice—of the social market economy, for many decades the dominant economic paradigm in most countries of continental Europe. The Historical school is also a source of Joseph Schumpeter's dynamic, change-oriented, and innovation-based economics. Although his writings could be critical of the School, Schumpeter's work on the role of innovation and entrepreneurship can be seen as a continuation of ideas originated by the Historical School, especially the work of von Schmoller and Sombart.

[edit] English historical school

Main article: English historical school of economics
Although not nearly as famous as its German counterpart, there was also an English Historical School, whose figures included William Whewell, Richard Jones, Thomas Edward Cliffe Leslie, Walter Bagehot, Thorold Rogers, Arnold Toynbee, William Cunningham, and William Ashley. It was this school that heavily critiqued the deductive approach of the classical economists, especially the writings of David Ricardo. This school revered the inductive process and called for the merging of historical fact with those of the present period.

[edit] French historical school

[edit] Utopian economics

[edit] Marxian economics

Main article: Marxian economics
Marxian economics descended from the work of Karl Marx and Friedrich Engels. This school focuses on the labor theory of value and what Marx considered to be the exploitation of labour by capital. Thus, in Marxian economics, the labour theory of value is a method for measuring the exploitation of labour in a capitalist society, rather than simply a theory of price.[10][11]

[edit] State socialism

Main article: Socialist economics

[edit] Ricardian socialism

Main article: Ricardian socialism

[edit] Anarchist economics

Main article: Anarchist economics
Anarchist economics is a set of theories which seeks to outline modes of production and exchange that are not governed by coercive social institutions. Anarcho-capitalists desire a society where the dynamics of competitive free markets are allowed to operate free of compulsory state control; many other anarchist economists, on the other hand, believe economies cannot be truly free unless capitalist property and the capitalist mode of production are abolished.

[edit] Distributism

Main article: Distributism
Distributism is an economic philosophy that was originally formulated in the late 19th century and early 20th century by Catholic thinkers to reflect the teachings of Pope Leo XIII's encyclical Rerum Novarum, and Pope Pius's XI encyclical Quadragesimo Anno. It seeks to pursue a third way between capitalism and socialism, desiring to order society according to Christian principles of justice while still preserving private property.

[edit] Institutional economics

Main article: Institutional economics

[edit] New institutional economics

Main article: New institutional economics

[edit] Neoclassical economics

Main article: Neoclassical economics
Neoclassical economics is the dominant form of economics used today and has the highest amount of adherents among economists. It is often referred to by its critics as Orthodox Economics. The more specific definition this approach implies was captured by Lionel Robbins in a 1932 essay: "the science which studies human behavior as a relation between scarce means having alternative uses." The definition of scarcity is that available resources are insufficient to satisfy all wants and needs; if there is no scarcity and no alternative uses of available resources, then there is no economic problem.

[edit] Lausanne school

Main article: Lausanne School

[edit] Austrian school

Main article: Austrian School
Austrian economists advocate methodological individualism in interpreting economic developments, the subjective theory of value, that money is non-neutral, and emphasize the organizing power of the price mechanism (see economic calculation debate).[12] Austrian economists generally advocate a laissez faire approach to the economy.[13]

[edit] Stockholm school

Main article: Stockholm School

[edit] Keynesian economics

Main articles: Keynesian economics, Post-Keynesian economics, Neo-Keynesian economics, and New Keynesian economics
Keynesian economics has developed from the work of John Maynard Keynes and focused on macroeconomics in the short-run, particularly the rigidities caused when prices are fixed. It has two successors. Post-Keynesian economics is an alternative school—one of the successors to the Keynesian tradition with a focus on macroeconomics. They concentrate on macroeconomic rigidities and adjustment processes, and research micro foundations for their models based on real-life practices rather than simple optimizing models. Generally associated with Cambridge, England and the work of Joan Robinson (see Post-Keynesian economics). New-Keynesian economics is the other school associated with developments in the Keynesian fashion. These researchers tend to share with other Neoclassical economists the emphasis on models based on micro foundations and optimizing behavior, but focus more narrowly on standard Keynesian themes such as price and wage rigidity. These are usually made to be endogenous features of these models, rather than simply assumed as in older style Keynesian ones (see New-Keynesian economics).

[edit] Chicago school

Main article: Chicago school of economics

[edit] Carnegie school

Main article: Carnegie School

[edit] Neo-Ricardianism

Main article: Neo-Ricardianism

[edit] Modern schools

  • Mainstream economics is a term used to distinguish economics in general from heterodox approaches and schools within economics. It begins with the premise that resources are scarce and that it is necessary to choose between competing alternatives. That is, economics deals with tradeoffs. With scarcity, choosing one alternative implies forgoing another alternative—the opportunity cost. The opportunity cost expresses an implicit relationship between competing alternatives. Such costs, considered as prices in a market economy, are used for analysis of economic efficiency or for predicting responses to disturbances in a market. In a planned economy comparable shadow price relations must be satisfied for the efficient use of resources, as first demonstrated by the Italian economist Enrico Barone. Economists represent 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. Modern mainstream economics builds primarily on neoclassical economics, which began to develop in the late 19th century. Mainstream economics also acknowledges the existence of market failure and insights from Keynesian economics. It uses models of economic growth for analyzing long-run variables affecting national income. It employs game theory for modeling market or non-market behavior. Some important insights on collective behavior (for example, emergence of organizations) have been incorporated through the new institutional economics. A definition that captures much of modern economics is that of Lionel Robbins in a 1932 essay: "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." Scarcity means that available resources are insufficient to satisfy all wants and needs. Absent scarcity and alternative uses of available resources, there is no economic problem. The subject thus defined involves the study of choice, as affected by incentives and resources. Economics generally is the study of how people allocate scarce resources among alternative uses.

[edit] Current heterodox schools

In the late 19th century, a number of heterodox schools contended with the neoclassical school that arose following the marginal revolution. Most survive to the present day as self-consciously dissident schools, but with greatly diminished size and influence relative to mainstream economics. The most significant are Institutional economics, Marxian economics and the Austrian School.
The development of Keynesian economics was a substantial challenge to the dominant neoclassical school of economics. Keynesian views eventually entered the mainstream as a result of the Keynesian-neoclassical synthesis developed by John Hicks. The rise of Keynesianism, and its incorporation into mainstream economics, reduced the appeal of heterodox schools. However, advocates of a more fundamental critique of orthodox economics formed a school of Post-Keynesian economics.
More recent heterodox developments include evolutionary economics (though this term is also used to describe institutional economics), feminist, Green economics, Post-autistic economics, and Thermoeconomics
Most heterodox views are critical of capitalism. The most notable exception is Austrian economics.
Georgescu-Roegen reintroduced into economics, the concept of entropy from thermodynamics (as distinguished from what, in his view, is the mechanistic foundation of neoclassical economics drawn from Newtonian physics) and did foundational work which later developed into evolutionary economics. His work contributed significantly to thermoeconomics and to ecological economics.[14][15][16][17][18]

[edit] Other 20th century schools

Notable schools or trends of thought referring to a particular style of economics advocated by and disseminated from well-defined groups of academicians that have become known worldwide, may be generally summarized as follows:
In the late 20th century, three of the areas of study which are producing change in economic thinking are: risk-based, rather than price-based models; imperfect economic actors; and treating economics as a biological science, based on evolutionary norms rather than abstract exchange.
The study of risk has been influential, in viewing variations in price over time as more important than actual price. This applies particularly to financial economics, where risk/return tradeoffs are the crucial decisions to be made.
The most important area of growth has been in the study of information and decision. Examples of this school include the work of Joseph Stiglitz. Problems of asymmetric information and moral hazard, both based around information economics, profoundly affect modern economic dilemmas like executive stock options, insurance markets, and Third-World debt relief.
Finally, there are a series of economic ideas rooted in the conception of economics as a branch of biology, including the idea that energy relationships, rather than price relationships, determine economic structure, and the use of fractal geometry to create economic models. (See Energy Economics.) In its infancy is the application of non-linear dynamics to economic theory, as well as the application of evolutionary psychology. So far, the most visible work has been in the area of applying fractals to market analysis, particularly arbitrage. (See Complexity economics.) Another infant branch of economics is neuroeconomics. The latter combines neuroscience, economics, and psychology to study how we make choices.

[edit] Viewpoints within mainstream economics

Mainstream economics encompasses a wide (but not unbounded) range of views. Politically, most mainstream economists hold views ranging from laissez-faire to modern liberalism. There are also divergent views on particular issues within economics, such as the effectiveness and desirability of Keynesian macroeconomic policy. Although, historically, few mainstream economists have regarded themselves as members of a "school", many would identify with one or more of neoclassical economics, monetarism, Keynesian economics, new classical economics, Austrian School, or behavioral economics.

[edit] Viewpoints outside economics

Other viewpoints on economic issues from outside economics include dependency theory and world systems theory. An example of another economic system which has recently been advocated is the participatory economics model. This uses neither market methods nor centralised methods for allocation, but incorporates many local positive and negative feedback loops in order to respond to the most positive human values. One example of this school of thought is the Post-autistic economics movement.

[edit] See also

[edit] Notes

  1. ^ The Cambridge economic history of Europe, p. 437. Cambridge University Press, ISBN 0-521-08709-0.
  2. ^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1), pp. 79–96 [81, 83, 85, 90, 93, 96].
  3. ^ Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism 15 (1), pp. 47–74, Brill Publishers.
  4. ^ Robert Sabatino Lopez, Irving Woodworth Raymond, Olivia Remie Constable (2001), Medieval Trade in the Mediterranean World: Illustrative Documents, Columbia University Press, ISBN 0-231-12357-4.
  5. ^ Timur Kuran (2005), "The Absence of the Corporation in Islamic Law: Origins and Persistence", American Journal of Comparative Law 53, pp. 785–834 [798–9].
  6. ^ Subhi Y. Labib (1969), "Capitalism in Medieval Islam", The Journal of Economic History 29 (1): 79–96 [92–3]
  7. ^ Ray Spier (2002), "The history of the peer-review process", Trends in Biotechnology 20 (8), p. 357-358 [357].
  8. ^ Said Amir Arjomand (1999), "The Law, Agency, and Policy in Medieval Islamic Society: Development of the Institutions of Learning from the Tenth to the Fifteenth Century", Comparative Studies in Society and History 41, pp. 263–93. Cambridge University Press.
  9. ^ Samir Amin (1978), "The Arab Nation: Some Conclusions and Problems", MERIP Reports 68, pp. 3–14 [8, 13].
  10. ^ Roemer, J.E. (1987). "Marxian Value Analysis". The New Palgrave: A Dictionary of Economics. London and New York: Macmillan and Stockton. pp. v. 3, 383. ISBN 0-333-37235-2.
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  12. ^ http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html
  13. ^ Raico, Ralph (2011). "Austrian Economics and Classical Liberalism". mises.org. Mises Institute. http://mises.org/etexts/austrianliberalism.asp. Retrieved 27 July 2011. "despite the particular policy views of its founders ..., Austrianism was perceived as the economics of the free market"
  14. ^ Cleveland, C. and Ruth, M. 1997. When, where, and by how much do biophysical limits constrain the economic process? A survey of Georgescu-Roegen's contribution to ecological economics. Ecological Economics 22: 203-223.
  15. ^ Daly, H. 1995. On Nicholas Georgescu-Roegen’s contributions to economics: An obituary essay. Ecological Economics 13: 149-54.
  16. ^ Mayumi, K. 1995. Nicholas Georgescu-Roegen (1906-1994): an admirable epistemologist. Structural Change and Economic Dynamics 6: 115-120.
  17. ^ Mayumi,K. and Gowdy, J. M. (eds.) 1999. Bioeconomics and Sustainability: Essays in Honor of Nicholas Georgescu-Roegen. Cheltenham: Edward Elgar.
  18. ^ Mayumi, K. 2001. The Origins of Ecological Economics: The Bioeconomics of Georgescu-Roegen. London: Routledge.

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