History of Economic Ideas

Purpose of Course  showclose

As a student of economics, you must study the history of economic thought to understand why individuals, firms, and governments make certain choices. Economists try to answer three basic questions: what to produce, how to produce it, and for whom. The history of economic thought represents a wide diversity of theories within the discipline, but all economists address these three basic questions. As you learn more about the history of economic thought, you may realize that policies presented as great innovations today are founded upon centuries-old writings. You will learn that without a clear sense of the discussions and debates that took place among economists of the past, the modern economist lacks a complete perspective. By examining the history of economic thought, you will be able to categorize and classify thoughts and ideas and will begin to understand how to think like an economist. Economics is both a social science and a business subject; accordingly, economic thinking affects everything from art to philosophy to the wider global culture. In turn, society and trends influence the development of economic thought. Note that many of the assigned readings in this course are primary source materials written by the economic theorists themselves. As you study the readings, reflect on the authors’ motivations and consider the events of the era. The readings in this class represent many different perspectives, and no single approach is favored.

Course Information  showclose

Welcome to ECON301: The History of Economic Thought! General information about this course and its requirements can be found below.

Course Designer: Tony Pizur

Peer Reviewers: This course was revised by Dr. Spyridon G. Patton with the helpful commentary and peer reviews of Dr. Rikard Bandebo and Dr. Richard McKizzie. 

Primary Resources: This course comprises a range of different free, online materials. In general, this course is built around the original works of the great economists who have preceded us. While we cannot reproduce all great economists’ full works, this course presents a diverse group of excerpts of those original works. The following resources are most prominently used:
Requirements for Completion: You are expected to study each unit, including the assigned readings and lectures. At the end of each unit, there is a set of reading questions that will enable you to properly frame the readings and lectures within the overall outcomes for the unit and for the course. At the end of the course, you will complete a final exam.

Note that you will only receive an official grade on your final exam. In order to pass this course, you will need to earn a 70% or higher on the final exam. Your score on the exam will be tabulated as soon as you complete it. If you do not pass the exam, you may take it again.

Time Commitment:This course should take you a total of 129 hours to complete. Each unit includes a time advisory that lists the amount of time you are expected to spend on each subunit. These should help you plan your time accordingly. It may be useful to take a look at these time advisories, to determine how much time you have over the next few weeks to complete each unit, and then to set goals for yourself. For example, unit 1 should take you 11.75 hours. Perhaps you can sit down with your calendar and decide to complete subunits 1.1 and 1.2.1 (a total of 2.75 hours) on Monday; subunit 1.2.2 (a total of 5 hours) on Tuesday and Wednesday; subunits 1.2.3 and 1.2.4 (a total of 2 hours) on Thursday; the unit 1 assessment (a total of 2 hours) on Friday; etc.
 
Tips/Suggestions: Make sure you are alert when you sit down with the material. Reading original works and watching lectures on topics in this course will become tedious if you are not fully alert and focused. Take comprehensive notes as you review each required resource. It is recommended that you have the unit reading questions in front of you as you watch or read the material; the reading questions may be downloaded as the assessment at the end of units 1–4. Keeping these questions in mind will help you organize your notes and will enable you to draw from key elements presented in the course material.

Learning Outcomes  showclose

Upon successful completion of this course, you will be able to:
  • explain and analyze the development of economics as a discipline in various ancient cultures;
  • trace the development of European economic thought, and analyze concepts in historical context;
  • compare and contrast as well as discuss classical economic theories; and
  • synthesize the elements of neoclassical and Keynesian approaches in the modern era.

Course Requirements  showclose

In order to take this course, you must:

√    have access to a computer;

√    have continuous broadband Internet access;

√    have the ability/permission to install plug-ins or software (e.g., Adobe Reader or Flash);

√    have the ability to download and save files and documents to a computer;

√    have the ability to open Microsoft files and documents (.doc, .ppt, .xls, etc.);

√    be competent in the English language;

√    have read the Saylor Student Handbook; and

√    have completed the following courses from the Core Program of the economics discipline: ECON101: Principles of Microeconomics and ECON102: Principles of Macroeconomics.

Unit Outline show close


Expand All Resources Collapse All Resources
  • Unit 1: Ancient Economic Thought  

    Historians are limited by the documents civilizations leave behind. The earliest examples of recorded history came from the Ancient Near East, between the Nile and the Euphrates, beginning around the 29th century, BCE. Texts from nearly five thousand years ago detail many of the same economic choices we make today, addressing issues like how to measure productivity and output, how to determine the standard unit of economic value, and how best to divide private property. In fact, one of the first known examples of writing was a tax receipt inscribed on a clay tablet in what is present-day Uzbekistan.

    Economic ideas have been combined with political, philosophical, and social thought to create general observations about human society. The first economist may have been Fan Li, a pharmacist and royal adviser in the Chinese state of Yue in the 9th century BCE. In the 4th century BCE, the Greeks gave birth to the term oeconomicus, which described household economics, agriculture, and slavery. Around the same time, Indian thought on economics was chronicled by Kautilya, also known as Chanakya, in his lengthy work Arthashastra. Later, in the 11th century, Islamic thought on economics emerged; the most notable scholar was a Persian, Al-Ghazali. From a historical perspective, you should work to recognize and trace this cross-cultural evolution of economic thought.

    As you review the materials in this unit, think about the similarities and differences in the various approaches to economic thought. Remember that ideas may develop independently or may be influenced by earlier authors. Consider how our modern-day assumptions influence our perceptions of these ancient economists and philosophers.

    Unit 1 Time Advisory   show close
    Unit 1 Learning Outcomes   show close
  • 1.1 Political, Economic, and Social Thought in Ancient Egypt and Mesopotamia  
  • 1.2 Greece and China  
  • 1.2.1 Overview  
    • Reading: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 1: The First Philosopher-Economists: The Greeks”

      Link: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 1: The First Philosopher-Economists: The Greeks”(PDF)
       
      Instructions: Read the first chapter of the libertarian political philosopher Murray N. Rothbard’s Economic Thought before Adam Smith on pages 1–27. Although Rothbard is intent on presenting an interpretation of past scholarship that supports aspects of contemporary libertarian economic political thought, in this first chapter he gives a general overview of Hesiod on scarcity; Democritus on subjective value and utility, the influence of supply and demand on value and on time-preference; Plato and Xenophon on the division of labor; Plato on the functions of money; and Aristotle on supply and demand, money, exchange, and the imputation of valuefrom ends to means. Rothbard writes that all of these scholars were focusing on the logicalimplications of a few broadly empirical axioms of human life: the existenceof human action, the eternal pursuit of goals by employing scarce means, and thediversity and inequality among men. He concludes the chapter with a subsection on political and economic thought in ancient China.
       
      Reading this chapter should take approximately 2 hours.

      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Wikipedia: “Fan Li”

      Link: Wikipedia: “Fan Li” (PDF)
       
      Instructions: Read the biography of Fan Li as well as the 24 rules for business. These rules were written in the 5th century BCE, about the same time as the classical Greek works to follow. The author was both an adviser to the imperial court and a practitioner of medicine. 
       
      Reading this article should take approximately 15 minutes.
       
      Terms of Use: This resource is licensed under a Creative Commons Attribution-ShareAlike License 3.0. It is attributed to Wikipedia and the original version can be found here.

  • 1.2.2 Xenophon  
    • Reading: Project Gutenberg: Xenophon’s The Economist

      Link: Project Gutenberg: Xenophon’s The Economist (HTML)
       
      Also available in:
      Google Books
       
      Instructions: Read The Economist, written as a dialogue between Socrates and Critobulus, the son of one of Socrates’s disciples. Socrates asks questions, and Critobulus answers them. This format is typical of many Greek writings designed to present and explain ideas. Notice that when Critobulus asks questions, Socrates replies with a story from Ischomachus, a gentleman farmer. Many historians believe that Ischomachus represents the author’s own thoughts. In other words, it does not matter much who the speakers are; the entire work is a way for Xenophon to express his ideas. Why wouldn’t Xenophon directly write his thoughts in his own voice? Remember what happened to Socrates, who was condemned to death; it was less risky to hide behind the mask of characters.
       
      In the author’s translation, we learn about Xenophon: “Xenophon the Athenian was born 431 B.C. He was a pupil of Socrates. He marched with the Spartans and was exiled from Athens. Sparta gave him land and property in Scillus, where he lived for many years before having to move once more to settle in Corinth. He died in 354 B.C.”
       
      In terms of economics, think about how Xenophon discusses managing a household and agriculture. Pay particular attention to how goods are valued and what constitutes a fair exchange.  
       
      Reading this dialogue should take approximately 5 hours.
       
      Terms of Use: The Economist is in the public domain.

  • 1.2.3 Aristotle  
    • Reading: Project Gutenberg: Aristotle’s Politics, Book VII

      Link: Project Gutenberg: Aristotle’s Politics, Book VII (HTML)
       
      Also available in:
      Google Books
      PDF
       
      Instructions: Read book 7 of Aristotle’s Politics. Aristotle was born three to four generations after Xenophon. His work is best known for introducing the scientific method and for breaking down the complex into its basic parts. Aristotle’s writing style is direct. Note that he does not use the dialogue technique that we saw in Xenophon’s work.
       
      Reflect on how Aristotle describes the nature of happiness and the role of material goods. As you read, consider the following study question: How does Aristotle’s view of social mobility reflect the concept of comparative advantage?
       
      Reading this book and answering the study question should take approximately 1 hour and 15 minutes.
       
      Terms of Use: Politics is in the public domain.

  • 1.2.4 India  
    • Reading: Fordham University’s Internet Indian History Sourcebook: Excerpts from Kautilya’s The Arthashastra

      Link: Fordham University’s Internet Indian History Sourcebook: Excerpts from Kautilya’s The Arthashastra (PDF)
       
      Also available in:
      EPUB

      Instructions: Read the selected excerpts from books 1–4 of Arthashastra. The authorship of the work is the source of some debate amongst historians. Kautilya, also known as Chanakya, may have been the prime minister of an Indian empire in the 3rd century BCE, although some scholars trace the work to some 500 years later. 
       
      As you read, consider the following study questions: How does the author view the role of women and marriage? How may slaves have been treated in their role as economic participants, as the work focuses on economic punishments for disobeying ethical imperatives?
       
      Reading these excerpts and answering the study questions should take approximately 45 minutes.
       
      Terms of Use: The Arthashastra is in the public domain. 

  • Unit 1 Reading Questions  
  • Unit 2: European Thought: Scholastics and Mercantilists  

    The late Scholastics, adherents to the school of thought known as Scholasticism that was active in Spain from the 14th to the 17th centuries, sought to reconcile economic logic with the Christian morality of their day and argued that markets were both practically and morally superior to state-run economies. The school was ahead of its time in formulating concepts, such as marginal utility, and in investigating the ideas of subjective value, prices, and the quantity theory of money. Nearly 400 years before Adam Smith, San Bernardino of Siena (1380–1444) asserted that prices were a function of relative scarcity. Similarly, the Jesuit scholar Luis de Molina (1535–1600) argued that a just pricewas a price set on a voluntary market. At the same time, Islamic economic scholars in the Muslim empire, having continued the work of Greco-Roman economic thought from the lands under its domain, sought to integrate the principles developed from that tradition with the teachings of their Holy Book, the Qu’ran, thus paralleling the effort of the Scholastics.

    The 16th and 17th centuries saw a transition from local to national economies, the collapse of feudalism, the subsequent rise of merchant capitalism, and the emergence of extensive foreign commerce. The opening of silver mines in the Americas increased the flow of metal, meaning that there was more metal that could be used as currency. These new sources of wealth effectively expanded the scope of economic activities across time and distance, replacing barter trade and extending the division of labor beyond local boundaries.

    Within this context, economists began to subscribe to a theory known as mercantilism. Mercantilism favored the establishment of a strong, central state that would help to expand markets and protect trade and commercial interests. According to the theory, individuals are considered subservient to the state, an entity that should control wages, interest, and prices; grant monopoly privileges; and impose various restrictions on the actions of individuals. Mercantilists asserted that the primary focus of economic activity should be the accumulation of wealth in the form of precious metals.

    Mercantilist doctrine sought to ensure a surplus of precious metals by favoring the export of goods and services over their import. As Adam Smith and others subsequently pointed out, the aim of mercantilism was a well-stocked royal treasury; rising consumption levels could be more easily achieved through free exchange. In time, observers pointed out various negative effects of mercantilism, and a host of critics began to consider mercantilist policies a hindrance to economic progress. The single greatest assault on mercantilist thinking is Adam Smith’s The Wealth of Nations (1776).

    Unit 2 Time Advisory   show close
    Unit 2 Learning Outcomes   show close
  • 2.1 The Scholastics  
  • 2.1.1 Overview  
  • 2.1.2 St. Thomas Aquinas  
    • Reading: St. Thomas Aquinas’s Summa Theologica: “Of Cheating, Which Is Committed in Buying and Selling” and “Of the Sin of Usury”

      Link: St. Thomas Aquinas’s Summa Theologica“Of Cheating, Which Is Committed in Buying and Selling” (PDF) and “Of the Sin of Usury” (PDF)
       
      Also available in:
      Google Books (“Of Cheating”)
        
      Also available in:
      Google Books (“Of the Sin of Usury”)
        
      Instructions: Read these two excerpts from this seminal Scholastic work: “Of Cheating, Which Is Committed in Buying and Selling” and “Of the Sin of Usury.” 
       
      Born in Italy in the 13th century, Thomas Aquinas was perhaps the most influential Catholic scholar of his age and beyond. His writings are wide-ranging, and here, you should focus on what constitutes a fair exchange. At the time of these writings, many scholars were giving extensive consideration to the determination of a fair interest rate as seen in readings from subunit 2.1.1. It should be noted that the fixation on usury was also due in part to leading Islamic thought of the era, which argued for a complete prohibition on the charging of interest. Note how the format is similar to Xenophon’s dialogue – possibly a sign, however modest, of the revival of ancient Greek thought in the Christian Middle Ages.
       
      Reading these excerpts should take approximately 1 hour.
       
      Terms of Use: Summa Theologica is in the public domain. 

  • 2.2 Mercantilism  
  • 2.2.1 Overview  
  • 2.2.2 Sir William Petty  
    • Reading: Project Gutenberg: Sir William Petty’s “Essays on Mankind and Political Arithmetic”

      Link: Project Gutenberg: Sir William Petty’s “Essays on Mankind and Political Arithmetic” (PDF)
       
      Also available in:
      EPUB

      Instructions: This is a lengthy series of essays. Read through them, paying particular attention to Petty’s methods for calculating economic phenomena.
       
      Petty may be considered one of the first econometricians, someone who uses mathematical techniques to develop economic statistics. He was an articulate proponent of mercantilism and lived during a vibrant period of English colonial expansion. The 1600s were a time of great wealth building but also of significant disparity. This text is concerned with collecting taxes and maximizing the nation’s colonization interests.
       
      Reading these essays should take approximately 5 hours.
       
      Terms of Use: “Essays on Mankind and Political Arithmetic” is in the public domain. 

  • 2.3 Rebuke of the Mercantilists: Adam Smith, John Locke, Richard Cantillon, and Jacques Turgot  
  • 2.3.1 Adam Smith  
    • Reading: Project Gutenberg: Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV

      Link: Project Gutenberg: Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV (HTML)
       
      Also available in:
      Google Books
      PDF
       
      Instructions: This massive work was both an attack on the principles of mercantilism and a discourse on moral and political philosophy. Read book 4, which specifically addresses mercantilism. You will read the first three books in subunit 3.1 as these cover the topic of classical economists.
       
      Adam Smith lived in the 1700s, a time when England lost control over its American colonies. In part, his work is a reaction to his perception of the difficulties of managing colonies under a mercantilist system. Smith is cited by many historians as the most influential economist in history, because his writings are applicable to the problems faced by people in modern society. 
      Reading this book should take approximately 10 hours.

      Terms of Use: An Inquiry into the Nature and Causes of the Wealth of Nations is in the public domain.

  • 2.3.2 John Locke  
  • 2.3.3 Richard Cantillon  
  • 2.3.4 Anne-Robert-Jacques Turgot  
    • Reading: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 14: The Brilliance of Turgot”

      Link: The Ludwig von Mises Institute: Murray N. Rothbard’s Economic Thought before Adam Smith: “Chapter 14: The Brilliance of Turgot” (PDF)
       
      Instructions: Read chapter 14 on pages 383–413. Turgot had the opportunity to practice his economics as a finance minister to King Louis XVI in the years before the French Revolution. His ideas were not shared entirely by his Physiocrat contemporaries, and he was one who supported the ancien regime. Like Cantillon, his ideas became part of the British classical tradition. Some even call him the first capitalist thinker because of his focus on financial and physical capital.

      Reading this chapter should take approximately 2 hours.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Unit 2 Reading Questions  
  • Unit 3: Classical Economics  

    The classical economics period spanned from 1776 to the mid-19th century. Economists of the time tried to explain the changes in their environment as workers moved from farms to factories. Markets became more developed, and new pricing models explained the value of goods and services. Adam Smith plays a special role in the transition from mercantilism to classical economics: his work is much like a pair of bookends. In the last unit, we examined the role that Adam Smith played in ending mercantilist thought. As you will learn in this unit, he also paved the way for intellectual inquiry into the classical era. His masterwork, titled An Inquiry into the Nature and Causes of the Wealth of Nations, was a clarion call for liberating human initiative and channeling it through the mechanism of the market, or what Smith metaphorically called theinvisible hand

    Adam Smith influenced David Ricardo as he developed many of the principle ideas of classical economics, including the labor theory of value, the law of diminishing returns in agricultural production, and the law of comparative advantage. Jeremy Bentham later emerged as a prominent economic and social thinker; his theory of utilitarianism famously framed the role and nature of government. Meanwhile, another classical economist, Karl Marx, analyzed communal economics and the relationship between capital (factories and machines) and human labor. The works of these classical economists echo modern times: Ricardo’s theories form the basis for theories of globalization; Bentham’s philosophy is the bedrock of liberal democracy; and Marx’s ideas would famously constitute the foundation of communism. In addition, you will read the works of Jean-Baptiste Say, the French Ricardo, and will become acquainted with the thought of the United States’ Alexander Hamilton, all of whom wrote during this period.

    Unit 3 Time Advisory   show close
    Unit 3 Learning Outcomes   show close
  • 3.1 Adam Smith Revisited  
  • 3.2 David Ricardo  
    • Reading: Project Gutenberg: David Ricardo’s Principles of Political Economy and Taxation

      Link: Project Gutenberg: David Ricardo’s Principles of Political Economy and Taxation (PDF)
       
      Also available in:
      Google Books
      EPUB

      Instructions: Read Principles of Political Economy and Taxation. This reading is lengthy, so it is recommended that you break up the assigned reading over the course of one or two weeks. This text provides a fundamental framework for describing a wide range of economic activities. Ricardo’s labor theory of value, for example, explains the concept of comparative advantage and specialization of labor. These concepts can be applied to free trade among nations or to the division of household labor. Staunch capitalists often cite Ricardo and his work as evidence of the power of free markets. Curiously, Marxists and communists have also pointed to Ricardo’s work to justify their own theories. The flexibility of his theory is a testament to his timeless contribution to economics.  
       
      As you read, consider the following study questions: How does Ricardo assign value to labor and his description of how taxation affects well-being? In what ways does Ricardo cite Smith in his text?
       
      Reading this text and answering the study questions should take approximately 18 hours.
       
      Terms of Use: Principles of Political Economy and Taxation is in the public domain. 

  • 3.3 Jeremy Bentham  
  • 3.4 Karl Marx  
  • 3.4.1 Overview  
  • 3.4.2 The Marxian Challenge  
    • Reading: Karl Marx’s A Contribution to the Critique of Political Economy: “Preface”

      Link: Karl Marx’s A Contribution to the Critique of Political Economy: “Preface” (HTML)
       
      Instructions: Read the preface from Karl Marx’s A Contribution to the Critique of Political Economy, written in 1859. This reading constitutes a sketch of Marx’s framework for historical materialism. He argues that the nature of a society’s economic structure depends upon the degree of development of the productive forces or means of production, meaning human labor conjoined with technology. The nature of the economic structure explains the relations of production or superstructure, meaning the political and legal institutions of society. Revolution occurs, however, when the forces of production are stifled by the superstructure, which is replaced by a structure better suited to preside over the continued development of the forces of production.
       
      Reading the preface should take approximately 15 minutes.
       
      Terms of Use: A Contribution to the Critique of Political Economy is in the public domain.

    • Lecture: Yale University: Professor Ian Shapiro’s “Lecture 10: Marx’s Theory of Capitalism”

      Link: Yale University: Professor Ian Shapiro’s “Lecture 10: Marx’s Theory of Capitalism” (Flash, Mp3, HTML)
       
      Instructions: Watch this lecture, which presents Marx’s works on economics and society as definitively a part of the Enlightenment tradition in political and economic thought as that of Adam Smith or John Stuart Mill.
       
      Watching this lecture and pausing to take notes should take approximately 1 hour and 15 minutes.
       
      Terms of Use: This resource is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. This lecture is attributed to Ian Shapiro, and the original version can be found here.

  • 3.4.3 Marx’s Theory of Capitalism  
    • Reading: Karl Marx’s A Contribution to the Critique of Political Economy: “Part 1: The Commodity”

      Link: Karl Marx’s A Contribution to the Critique of Political Economy“Part 1: The Commodity” (HTML)

      Instructions: Read part 1 of Marx’s A Contribution to the Critique of Political Economy. Marx begins by establishing two necessary conditions for commodity production: a market and a social division of labor where people make different things. For Marx, commodities both have a use-value and an exchange-value or price, but it is the latter which is problematic. In coming to understand why one commodity is priced differently than another, Marx derives his labor theory of value.

      Reading this section should take approximately 1 hour.

      Terms of Use: A Contribution to the Critique of Political Economy is in the public domain.

  • 3.4.4 From Capitalism to Socialism to Communism  
  • 3.5 Jean-Baptiste Say  
  • 3.6 Early American Economic Thought  
    • Reading: The Federal Reserve Bank of Minneapolis: Madeline Christensen’s “Cement to Our Union: Hamilton’s Economic Vision”

      Link: The Federal Reserve Bank of Minneapolis: Madeline Christensen’s “Cement to Our Union: Hamilton’s Economic Vision” (HTML)
       
      Instructions: Read this brief essay on the economic views of Alexander Hamilton and Thomas Jefferson and the effect of those ideas on the drafting of the US Constitution and the antagonists’ subsequent public service. Generally speaking, Hamilton followed contemporary British thought, whereas Jefferson considered himself to be a French Physiocrat.
       
      Reading this article should take approximately 15 minutes.
       
      Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

    • Reading: Alexander Hamilton’s The Federalist

      Link: Alexander Hamilton’s The Federalist (HTML)
       
      Instructions: Read the following sections from The Federalist: “1. General Introduction,” “12. The Utility of the Union with Respect to Revenue,” “13. Advantage of the Union in Respect to Economy in Government,” and “30–36 General Power of Taxation.” The entries from The Federalist provide an insight into Hamilton’s economic and political views with regard to taxation, national debt, trade, and a strong federal government.
       
      Reading these articles should take approximately 2 hours.
       
      Terms of Use: The Federalist is in the public domain.

  • Unit 3 Reading Questions  
  • Unit 4: Neoclassicism, Keynesianism, and Post-War Economic Thought  

    Modern thinking presents many challenges to historians. Because we lack the perspective of time, it is unclear which ideas will emerge as dominant strains of thought. Classifying new ideas into meaningful agglomerations is an uncertain and tentative process. In the midst of a contemporary debate, it is impossible to know which theories and debates will survive and which will be overturned. With these limitations, unit 4 will broadly discuss the two main strains of mainstream economic thought: neoclassicism and Keynesianism.

    There is little agreement as to how to define a neoclassical thinker. Neoclassicism is mostly a microeconomic discourse, meaning that it only lightly considers the role of government. In general, neoclassical thinkers assume that people will act rationally, that the information needed to make decisions is available, and that people try to maximize their utility while firms seek to maximize profit. Each of these assumptions is simultaneously reasonable and flawed. Much debate centers on how to modify or interpret these three concepts.

    Keynesianism is better defined, because it is derived from a single source: the writings of John Maynard Keynes. In general, Keynesians recognize that the free market may generate inefficient outcomes on the macroeconomic level. The economic role of government is fairly well defined as interventionist seeking to stabilize the macroeconomy.

    The relationship between neoclassicism and Keynesianism has been dubbed the neoclassical synthesis.In other words, much of the 20th century has been devoted to understanding how these two schools of thought relate. There is an emerging third school known as monetarism, which was championed by the economist Milton Friedman.

    Unit 4 Time Advisory   show close
    Unit 4 Learning Outcomes   show close
  • 4.1 Neoclassicism  
  • 4.1.1 Jevons, Marshall, and Pigou  
  • 4.1.2 Walras, Pareto, and Cassel  
  • 4.2 Keynes and Hayek  
    • Reading: John Maynard Keynes’s The General Theory of Employment, Interest, and Money

      Link: John Maynard Keynes’s The General Theory of Employment, Interest, and Money (HTML)
       
      Instructions: Read Keynes’s The General Theory of Employment, Interest, and Money. Keynes was an influential British economist in the early 20th century. His work focuses on how to use government resources to manage the business cycle and smooth out the booms and busts of industrial economies. The General Theory of Employment, Interest, and Money describes methods to manage and guide national production. Trade is an important part of economic growth and fluctuates similarly to national economic cycles. Think about how the economy cycles and its impact on unemployment and well-being.
       
      Reading this text should take approximately 7 hours.
       
      Terms of Use: The General Theory of Employment, Interest, and Money is in the public domain. 

    • Web Media: Khan Academy’s “Keynesian Economics”

      Link: Khan Academy’s “Keynesian Economics” (YouTube)
       
      Instructions: Watch this video for a brief explanation of the Keynesian approach to problems with supply, demand, and prices.
       
      Watching this video and pausing to take notes should take approximately 30 minutes.
       
      Terms of Use: This resource is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 United States License. It is attributed to the Khan Academy, and can be viewed in its original form here.

    • Reading: Friedrich von Hayek’s The Road to Serfdom

      Link: Friedrich von Hayek’s The Road to Serfdom (PDF)
       
      Instructions: Read Hayek’s The Road to Serfdom. Friedrich von Hayek was an Austrian economist spending most of his career at the London School of Economics and the University of Chicago. Published in 1944, The Road to Serfdom is primarily an attack against centrally-planned economies. Hayek thought that government has a role to play with regard to the monetary system, labor regulation, and institutions to foster and protect freedom of information among other issues and principles.
       
      Reading this text should take approximately 4 hours.
       
      Terms of Use: The Road to Serfdom is in the public domain. 

  • 4.3 Post-War Economic Thought  
  • 4.3.1 Three Schools: Institutional Economics, Keynesian Economics, and the Chicago School  
  • 4.3.2 Monetarism  
  • 4.3.3 Post-War Neoclassical Microeconomic Thought  
  • 4.4 Unit 4 Reading Questions  
  • Final Exam