The History of Economic Thought and Philosophy

Early discussions about economics tended to center on the topics of commerce, money, property, trade, the finance of public goods, and the economic development of a given area. It also focused on ideas like economic inequality. Philosophers, including Adam Smith and Thomas Hobbes, were very interested in economics and made important contributions to the development of the field. After all, economics involves not just money, but how humans balance reason and desire when they make economic decisions. That interplay of thought and passions is what attracted philosophers, such as Voltaire, to the field. As the theories of economics developed it led to several different schools of economic thought blossoming in the early modern period of Western Civilization. However, by the end of the 1700s, many of the laws, principles, and methods surrounding economic study and thought were already in place. These include things like game theory and time series analysis.

The Emergence of Economic Philosophy

  • Aristotle’s writings form the basis of early economic thought. He theorized concepts like supply and demand, and how prices are set.

  • Economists in the middle ages, particularly ones like Aquinas and Nicole Oresme, viewed commerce through the lens of the teaching of the Catholic church and were negative toward commercial activity.

  • Aquinas determined there were instances when charging interest was morally and economically correct.

Famous Economic Theorists Throughout History

  • The economist John Maynard Keynes was from Britain and is considered by many experts to be the founder of modern theoretical macroeconomics and is the namesake behind Keynesian Economics. He articulated many vital economic concepts, including deficit spending.

  • The Scottish philosopher Adam Smith is considered the very first free-market capitalist. He wrote about the free market economy and how rational self-interest was the driving force behind economic well-being. His best-known work is The Wealth of Nations .

  • Milton Friedman won the Nobel Prize in 1976 for his work regarding stabilization policy. Friedman wrote extensively about topics like price theory and invented the Friedman test.

  • Karl Marx is best remembered for his work with political theory, but he also made significant contributions to economics. These contributions include his thoughts on communism.

  • David Hume was another Scottish economist. He theorized that foreign trade works to grow the economy of a nation and therefore is an important piece of the development of nations.

Nobel Prize-Winning Economic Theories

  • Elinor Ostrom became the first woman to win the Nobel Prize for Economics in 2009 for her work which added to the knowledge around the theory of Managing Common Pool Resources (also known as CPRs).

  • The theory of behavioral finance is an offshoot of the larger field of behavioral economics. Daniel Kahneman, a psychologist, was awarded the prize in 2002 for his work integrating aspects of psychological research into the field of economics, particularly as it pertained to how humans make economic decisions.

  • The trio of George A. Akerlof, A. Michael Spence, and Joseph E. Stiglitz was awarded the prize in 2001 for their work with the theory of asymmetric information. This phenomenon happens when one person involved in a transaction has significantly more information or knowledge than someone else involved in the transaction holds. Most economic transactions have aspects of asymmetric information.

  • The Nobel Prize for Economics was awarded in 1994 to John C. Harsanyi, John F. Nash Jr., and Reinhard Selten for their work on game theory.

  • The public choice theory seeks to understand how public economic decisions are made. In 1986, James M. Buchanan Jr. won the prize for his work on this topic.

A 20th-21st Century Economic Timeline (1900-2000s)

  • 1900: The United States continues to transform into an industrial economic powerhouse.

  • The 1910s: The United States ratifies the amendment allowing for income tax in 1913. World War I disrupts production worldwide.

  • The 1920s: The post-war economy sees a growing gulf between the rich and the poor, coupled with a growing ability to obtain credit. The Roaring Twenties come to a screeching halt in October of 1929 and the Great Depression begins.

  • The 1930s: The United States government takes steps to prevent another Depression from ever happening again by passing laws like the Glass-Steagall Act.

  • The 1940s: WWII disrupts the economy around the globe. The Marshall Plan and the terms of Japan’s surrender helped ensure both areas eventually recover economically. The U.S. sets off on a post-war economic boom.

  • The 1950s: Consumer goods, including new suburban neighborhoods, are coupled with the rise in marriage and childbirth as people resume their post-war lives.

  • The 1960s: Children and teens become increasingly important consumers in the U.S. The minimum wage rises in 1966.

  • The 1970s: Nixon visited China and opens the door for trade relations between the two countries. OPEC reduced oil exports to the West and set off a severe recession.

  • The 1980s: Along with Reagan’s presidency, the 1980s sees a change in investor behavior, including the rise of barbarians at the gate and the junk bond market.

  • The 1990s: Companies continued to merge. The dot.com boom set off as computers and the internet became an increasingly large part of people’s daily lives.

  • The 2000s: Enron collapsed at the beginning of the decade, and by 2008 a severe recession shook most of the world.

  • The 2010s: The globe recovered from the recession.

  • The 2020s: The decade has largely been defined by the COVID-19 virus and its global impact on supply chains.