Comparison Between Classical, Neo classical and Keynesian Economists

Economics is a social science that has gone through numerous transformations over the years. Economic theories and practices have evolved and changed according to the different economic and social contexts of different times. Three of the most influential schools of economic thought are Classical economics, Neoclassical economics, and Keynesian economics. In this blog, we will compare and contrast the theories and assumptions of these three schools of economic thought.

Classical Economics:

Classical economics emerged in the 18th century and is considered the first systematic economic theory. Adam Smith, the father of economics, is considered the founder of classical economics. Classical economists believed that the market was self-regulating, and the invisible hand of the market would naturally create a balance between supply and demand. They also believed in the concept of laissez-faire, which means that the government should not intervene in the market. In the classical view, the market was efficient and would automatically correct itself.

Neoclassical Economics:

Neoclassical economics emerged in the late 19th century and is an extension of classical economics. Neoclassical economists still believe in the self-regulating market but assume that individuals are rational decision-makers and have perfect information about the market. They believe that supply and demand determine the prices of goods and services in the market. In the neoclassical view, individuals are the decision-makers, and the market is efficient and flexible.

Keynesian Economics:

Keynesian economics emerged in the early 20th century and is a reaction to the Great Depression. Keynesian economists believed that the market was not self-regulating and that the government should intervene in the market during times of economic instability. They believed that aggregate demand determines the level of economic activity and employment. In the Keynesian view, the government can influence economic activity through fiscal and monetary policy. They also believe that the government should increase its spending during times of economic instability to stimulate the economy.

Comparison and Contrast:

Classical, neoclassical, and Keynesian economics differ in their assumptions, beliefs, and theories. Classical economics assumes that the market is self-regulating and that the government should not intervene in the market. Neoclassical economics is an extension of classical economics and assumes that individuals are rational decision-makers and have perfect information about the market. Keynesian economics, on the other hand, believes that the market is not self-regulating and that the government should intervene in the market during times of economic instability.

In terms of beliefs, classical and neoclassical economists believe in laissez-faire and that the market should be left alone to create a balance between supply and demand. Keynesian economists believe that the government should play an active role in the economy during times of economic instability.

In terms of theories, classical and neoclassical economics are based on the assumptions of self-regulation and the invisible hand of the market. Keynesian economics is based on the concept of aggregate demand and the role of the government in stimulating the economy.

In conclusion, the three schools of economic thought, classical, neoclassical, and Keynesian, differ in their assumptions, beliefs, and theories. They have influenced economic policy and practice over time and have shaped the way economists understand and analyze the economy.