Management

Schools of Economic Thought

By: Lenore E. Hawkins To be able to invest successfully, one must understand the major schools of economic thought and how they impact national and global economies. I like to break economic theory down into seven schools of thought: fascism, neoclassical economics, socialism, Keynesianism, monetarism, Austrianism, and supply-side economics. Economic theory is really just a set of beliefs concerning individual and group behavior. There is no consensus about which model is correct, but the one most used by governments is Keynesianism. Schools primarily teach neoclassical with a Keynesian slant, which is sometimes referred to as the neoclassical synthesis. The following is a very high level overview of these different schools of thought. Keep in mind as you read these that since the study of economics is a soft science these theories don t have perfectly clear definitions with uniform consensus and tend to evolve over time. They are a bit like religion, where for example Lutheran, Episcopalian, Protestant, and Catholic all are variations of Christianity. Since we aren t talking about something objective like E=MC2, these definition are of course subject to my interpretation. The oldest model is fascism which contends that all truth is just a matter of opinion thus we cannot really know anything useful. With this base premise, governments are free to do whatever they deem necessary. There are no limits. The most extreme example of fascism is Nazi Germany. The core of fascism is so simple and can be so deceptively seductive, thus it is usually found weaving its way through other schools of thought, particularly in challenging times. At the end of WWII, the ultimate May 21st, 2010 consequence of this model was made heartbreakingly clear, but remnants of it can still be seen today as political leaders proudly claim they will do whatever it takes, to which I often sarcastically add and be damned the consequences as I ll most likely be out of...