History & Schools of Economic Thought

Schools of economic thought constitute a set of ideas and explanations about the behavior individuals in the face of economic problems and the rules that should guide him for their rational solution.

Schools of thought about what the economy is and should be emerged along with each stage of economic history; the reality is combined with the prevailing thought of the time

The main schools of economic though

The main schools of economic thought are:

• Mercantilism.
• Physiocracy.
• Classical school.
• Socialism or Marxism.
• Neoclassical school.

Each one has a historical period, geographical location, representatives and foundations which are explained below.

Mercantilism

Historical period

16th and 18th century, with the renaissance, the discovery of America and commercial capitalism as an environment.

Geographic location

It appears in Spain, England, France and Germany,

Main representatives of mercantilism

Men and states of the time, some Thomas Mun and Jean-Baptiste Colbert.

Foundations of mercantilism

Mercantilism encourages state wealth, which is more important than individual wealth. Wealth and power of State is achieved with the intensification of foreign trade, there are regulations and restrictions with which the government constantly intervenes in the economy to maintain control. It focuses on profit in relation to cost and contributes to greater organization and systematization.

Physiocracy

Historical period

XVIII (1751 to 1778), in times of transition between interventionist mercantilism and classical liberalism.

Geographic location

France, but it also spread to Germany and England, countries with a strong agricultural economy.

Main representatives of physiocracy

Its founder F. Quesnay and main followers Paul Lemicier, Le Trosne, and others.

Foundations of Physiocracy

Physiocracy maintains that true wealth comes from the land, that industrial and commercial activity are unproductive and agriculture, land productivity and farmers’ wages should be encouraged. There are three social classes (proprietors and farmers).

Classical school 

Historical period

From the second half of the 18th century to the first half of the 13th century during the development of capitalism, industrialization and the rise of the bourgeoisie.

Geographic location

Mainly in England and France is also influenced.

Main representatives of the classical school

Adam Smith, Robert Malthus, David Ricardo, John Stuart Mill, Fréderic Bastiat and Jean-Baptiste Say

Foundations of classical school

The classical school of economics establishes that the individual interest for which individuals act, generates and a rational and natural economic order.

There is an “invisible hand” that is linked to individual interest with the collective one so that, by seeking personal benefit, a common benefit is unintentionally achieved.

The classical school criticizes interventionism and focuses on understanding how the economy works.

Socialism

Historical period

The first four decades of the 19th century are times of the development of capitalism and the industrial revolution.

Geographic location

England, France, and Germany.

Main representatives of socialism

The associationists, among whom Robert Owen stands out, also anarchists guided by J Proudhon, and the scientific socialists guided by Karl Marx.

Foundations of socialism

Due to the errors and injustices that took place during times of industrial capitalism, Marxism seeks to solve problems such as overproduction, crisis, deplorable working conditions.

It defends state intervention and eliminates private ownership of means of production, social classes, and imposes centralized economic planning to achieve a desired equality.

Neoclassical school

Historical period

It appears in the last decades of the nineteenth century, it is based on the classical school.

Geographic location

England, Austria, Switzerland and then in the United States.

Main representatives of neoclassical economics

Carl Menger, Alfred Marshall, Léon Walras, among others.

Foundations of neoclassical school

It starts from and complements the classical school, for example, with the marginalist theory according to which the value of things depends on the demand and appreciations of individuals and the utility that it provides and not only on the cost.

Or the general equilibrium theory that recognizes the relationship between phenomena, such as prices and quantities in the formation of equilibrium.

Historical relationship between schools of economic thought  with the different stages of economic history.

The economic school of thought coincide with historical stages, for example, you can see in the following table the prevailing economic thought during the Enlightenment, Capitalism, and Socialism.