Economics: Neoclassical, Keynesian, And Marxian Theories From an economic perspective, the human being is at the center of the economic system; he has the ability to work, think logically, and drive growth, wealth, incomes, and prices in the economy (Wolff and Resnick 15). Simply stated, the human being is the master of his own life, and he has the right and power to induce outcomes that maximize his individual gains or improve his life (Wolff and Resnick 15).
Social theories attempt to explain how people interact with each other, and with their surroundings. For this reason, it is believed that social theories shape society, so much so that people will theorize elements in their surroundings based on their life situations and what they experience in their interactions. Towards this end, what one person thinks or believes about a certain aspect may not necessarily be what another person thinks; people hold different theories about how the economy works, and how it influences human interactions - and this is particularly why we have multiple economic theories today. Social theories are broadly categorized into three -- humanism, structuralism, and dialectics. These three have been applied to economic theory to explain how the various elements of the economy interact to realize maximum outcomes. This text demonstrates how the aforementioned social theories have been used to shape the neoclassical, Keynesian, and Marxian theories of economics.
Humanism and Neoclassical Theory
Humanism is a system of thought that summarizes the individual as the ultimate cause or source of thought (Wolff and Resnick 12). Under a humanistic approach, the human being, and not a supernatural Being, is perceived to be at the center of the universe, and he has the ...
Neo-classical economic theory is pegged on the humanistic line of thought. It postulates that the maximum overall gain for the whole society can only be achieved if the market is left to operate on its own without external interference; and the market would only operate on its own if each individual is left to use their personal laboring and reasoning abilities to realize the best outcomes for themselves (Wolff and Resnick 15). Neo-classical economists, therefore, advance the concept of self-interest -- that if everyone is left to act in their own self-interest, pursuing the outcomes that maximize their own personal benefit, without social constraints in the form of laws, regulations or government interference, the overall welfare of society would be maximized in the long-term.
The neo-classical approach has, however, been criticized by contemporary economists, who have cast doubt in its ability to bring about sustainable economic outcomes in the long-term. In his popular piece, 'The Tragedy of the Commons', for instance, professor Garrett Hardin used the metaphor of the commons - an open pasture to which all herdsmen took their cattle to feed, and each one had the power to bring as many as their cattle as is humanly possible to maximize their own gain - to illustrate this fact (Hackett 116). He demonstrated that the welfare of the herdsmen and their cattle would only be maximized in the short-term, when there is sufficient pasture to cater for everyone's needs; however, in the long-term, when the effects of…
From an economic perspective, the human being is at the center of the economic system; he has the ability to work, think logically, and drive growth, wealth, incomes, and prices in the economy (Wolff and Resnick 15). Simply stated, the human being is the master of his own life, and he has the right and power to induce outcomes that maximize his individual gains or improve his life (Wolff and Resnick 15).
) I will return to the strengths and limitations of growth accounting as a tool to use to assess the economic development of these nations below. Growth Accounting Growth accounting is an economic method designed to measure the relative and absolute contributions of different factors to economic growth and development. Developed by Robert Solow in 1957, this methodological approach disaggregates or decomposes the different elements of economic growth. The most important assumption
Keynesian Theory Neoclassical economists are naturally more reluctant than Keynesians to concede that capitalism as a system might be dysfunctional or that markets might be irrational and inefficient, leading to cycles of boom and bust, mass poverty and unemployment, which happened in the 1930s and is happening again today. One of the main assumptions in the classical model is 'full employed equilibrium' or in other words 'absence of involuntary unemployment.' The
The intersection determines the amount of investment in education / productivity factors by all individuals and institutions. The major criticisms to the Neoclassical model come from the assumption competition holds, namely that individuals act to maximize profit in all scenarios; factor mobility is unlimited; marginal returns to labor don't increase with wage rates, and other simplifications which rarely hold true in the workforce. Nor are all workers the same to
Private Sector Investment and Economic Development Investment and economic development The Role of Private Sector investment in Economic Development In the past few decades there has been overwhelming support for growth and development rooted in private investments and market-oriented strategies. A move from public sector driven growth has come as result of the need to reduce the widening gap in the balance of payment account, increasing public debt, rising inflation rate, growing foreign
These methods are then examined with respect to future events using empirical observations and statistical tools. (History of Economics Society, 25) It has to be accepted that such a method has been used to arrive at various conclusions. A lot of dedication is required by thinkers to derive the facts out of the information available. This concept of economics is not drawn out of nothing, but it has been derived
Recession is a period characterized by increased unemployment rate, lower inflation, lower spending, reduced production and stocking. Different economic theories such as the Classical, Neo-classical, Keynesian and the Growth curve and life cycle theories argue differently about the economic cycles. The neo-classical theorists for example argue that interest rates are crucial in the shift towards the different cycles and therefore by regulating the flow of funds (increasing or decreasing)