Question

Write a 1000 word essay on the topic below. The wordcount is similar to 3-4 pages double spaced in Microsoft Word.

Identify which school of thought makes the most sense to define today's economy: Classical, Neoclassical (first generation), or Neoclassical (second generation). In order to make your case you will need to clearly describe the characteristics of each of these three schools of thought and compare and contrast each of them with the characteristics of today's economy. The strength of the arguments for each case should guide you in making your decision and drawing a conclusion about the appropriate characteristics of this economy.

Analysis will be given preference over pontification.

Answer 1

As the world evolves, so does economic thought. One can’t say that economic theories are constant and will never change, mostly because that with the expansion of the population the economic challenges also change. Today’s economy is not the same as the economic state of the 18th, 19th or even 20thcentury. We live in an interconnected world, a place where technology is key and necessary for survival, but we can see a lot of the economic lines of thought from those times in our economy today.

One can relate today’s economy with the line of thought of second generation neo-classical economists, due to the addition of more complex mathematics to explain theories and predictions and also for using factors of both supply and demand as determinants of value, as we do today. To better show the similarity between them it is better to first explain the characteristics of Classical and first and Second Neoclassical economic thought in more detail.

Considered the beginning of modern economic thought, classical economics originated in the late 1700s with Adam Smith and his book the Wealth of Nations, and it was later on developed by economists such as David Ricardo and John Stuart Mill. In classical economics the focus is on what makes the economy grow or contract emphasizing the production of goods and services as basis to economic analysis. Classic economists tend to look at the economy as a whole focusing their analysis and predictions on a wide perspective of the economy.

Classic economic thought rely heavily on the idea of laissez-faire, which means let people do what they want. It was widely believed by classical economists that in order for the economy to grow there should be very little to no government intervention on the economy