Mainstream economics is the body of knowledge, theories, and models ofeconomics, as taught by universities worldwide, that are generally accepted byeconomists as a basis for discussion. Also known asorthodox economics, it can be contrasted toheterodox economics, which encompasses variousschools or approaches that are only accepted by a minority of economists.[1]
The economics profession has traditionally been associated withneoclassical economics.[2] However, this association has been challenged by prominent historians of economic thought includingDavid Colander.[3] They argue the current economic mainstream theories, such asgame theory,behavioral economics,industrial organization,information economics, and the like, share very little common ground with the initial axioms of neoclassical economics.
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Economics has historically featured multipleschools of economic thought, with different schools having different prominence across countries and over time.[4]
Prior to the development and prevalence of classical economics, the dominant school in Europe wasmercantilism, which was rather a loose set of related ideas than an institutionalized school. With the development of modern economics, conventionally given as the late 18th-centuryThe Wealth of Nations byAdam Smith, British economics developed and became dominated by what is now called theclassical school. FromThe Wealth of Nations until theGreat Depression, the dominant school within the English-speaking world was classical economics, and its successor,neoclassical economics.[a][citation needed] In continental Europe, the earlier work of thephysiocrats in France formed a distinct tradition, as did the later work of thehistorical school of economics in Germany, and throughout the 19th century there were debates in British economics, notably the oppositionunderconsumptionist school.
The economics profession committed to technocratic professional language, purgingRichard T. Ely andEdward Webster Bemis for "unprofessional" heresies.[5]
During the Great Depression, the school ofKeynesian economics gained attention as older models were neither able to explain the causes of the Depression nor provide solutions.[6] It built on the work of the underconsumptionist school, and gained prominence as part of theneoclassical synthesis, which was the post–World War II merger of Keynesian macroeconomics and neoclassical microeconomics that prevailed from the 1950s until the 1970s.[7]
In the 1970s, the consensus in macroeconomics collapsed as a result of the failure of the neoclassical synthesis to explain the phenomenon ofstagflation:[8] subsequent to this, two schools of thought in the field emerged:New Keynesianism andNew classical macroeconomics. Both sought to rebuild macroeconomics usingmicrofoundations to explain macroeconomic phenomena using microeconomics.[9]
Over the course of the 1980s and the 1990s, macroeconomists coalesced around a paradigm known as thenew neoclassical synthesis,[10] which combines elements of both New Keynesian and New classical macroeconomics, and forms the basis for the current consensus, which covers previously disputed areas of macroeconomics.[which?][11][12] The consensus built around this synthesis is characterised by an unprecedented agreement on methodological questions (such as the need to validate models econometrically); such agreement had, until the new synthesis, historically eluded macroeconomics, even during theneoclassical synthesis.[13]
The2008 financial crisis and the ensuingGreat Recession exposed modelling failures in the field of short-term macroeconomics.[14] While most macroeconomists had predicted the burst of thehousing bubble, according toThe Economist "they did not expect the financial system to break."[15]
The term "mainstream economics" came into use in the late 20th century. It appeared in 2001 edition of the textbookEconomics bySamuelson and Nordhaus on the inside back cover in the "Family Tree of Economics", which depicts arrows into "Modern Mainstream Economics" fromKeynes (1936) andneoclassical economics (1860–1910).[16] The term "neoclassical synthesis" itself also first appears in the 1955 edition of Samuelson's textbook.[17]
Mainstream economics can be defined, as distinct from other schools of economics, by various criteria, notably by itsassumptions, itsmethods and itstopics.
While being long rejected by many heterodox schools, several assumptions used to underpin many mainstream economic models. These include the neoclassical assumptions ofrational choice theory, arepresentative agent, and, often,rational expectations. However, much of modern economic mainstream modeling consists of exploring the effects that complicating factors have on models, such asimperfect and asymmetric information,bounded rationality,incomplete markets,imperfect competition, heterogeneous agents[18] andtransaction costs.[19]
Originally, the starting point of orthodox economic analysis was the individual. Individuals and firms were generally defined as units with a common goal: maximisation through rational behaviour. The only differences consisted of:
From this (descriptive) theoretical framework, neoclassical economists likeAlfred Marshall often derived – although not systematically – the political prescription that political action should not be used to solve the problems of the economic system. Instead, the solution ought to derive from an intervention on the above-mentioned maximisation objectives and constraints. It is in this context that economiccapitalism finds its justification.[21] Yet, mainstream economics now includes descriptive theories ofmarket andgovernment failure and private andpublic goods. These developments suggest a range of views on the desirability or otherwise of government intervention, from a more normative perspective.[citation needed]
Some economic fields include elements of both mainstream economics andheterodox economics: for example,institutional economics,neuroeconomics, and non-linearcomplexity theory.[22] They may use neoclassical economics as a point of departure. At least one institutionalist, John Davis, has argued that "neoclassical economics no longer dominates mainstream economics."[23]
Economics has been initially shaped as a discipline concerned with a range of issues revolving around money and wealth. However, in the 1930s, mainstream economics began to mutate into a science of human decision. In 1931, Lionel Robbins famously wrote "Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses". This drew a line of demarcation betweenmainstream economics and other disciplines and schools studying the economy.[24]
The mainstream approach of economics as a science of decision-making contributed to enlarge the scope of the discipline. Economists likeGary Becker began to study seemingly distant fields including crime,[25] thefamily,[26]law,[27]politics,[27] andreligion.[28] This expansion is sometimes referred to aseconomic imperialism.[29]
