Ibo 1

The difference between classical and orthodox theory

Classical and neoclassical theories are distinguished in terms of their themes in

analyzing economy, methodology, and value theory. In this section, I will discuss these

points.

The question of Economics

Classical economists investigated two central economic questions: what causes an

economy to grow? what determines the distribution of income into its three forms of

wages, rent and profit? The classical theme is the accumulation and allocation of surplus

output, and therefore their emphasis was on production and on the factors that influence

the supply of goods.

Neoclassical economics, unlike its classical predecessor, focuses on individual choices,which unavoidably reflect subjective preferences and beliefs, and the allocation of given

resources among alternative uses. Indeed, the marginalist revolution is a shift in focus

from capital accumulation and growth to utility maximization and production efficiency

as the aims of economic policy. This shifted the foundation of economics from

production to exchange.

On the other hand, the Classical theory paid comparatively little attention to choices of

individuals. The classical economists did not believe that there was much of general

interest to be said about the preferences of or choices of individuals. Instead, they

divided agents into three major classes: capitalists with their capital or stocks of

accumulated goods, landlords with their land, and workers with their ability to work.

The aspect of methodology

Holism vs. Individualism

Methodological holism is a view, according to which properties of individual elements in

a complex are taken to be determined by relations they bear to other elements. That is,

the whole is more than its parts in the sense that the properties of the whole come from

the systematic relational patterns of interaction among its parts and not simply from the

aggregation of their...