Revolutions in Economic Theory

Abstract

By revolutions in economic theory I mean breakthroughs that result in farreaching changes in the main body of economic theory, commonly referred to as the principles of economics. Specific reference will be to the British experience from 1776 to the present during which the revolutionaries have been Adam Smith, David Ricardo, John Stuart Mill, Alfred Marshall, and John Maynard Keynes. My purpose is to examine these five revolutions in order to discern the anatomy of revolutions in economic theory. The background material is familiar to all professional economists, but the interpretation differs from the usual one. Disagreement is one of the characteristics for which economics as a discipline is noted, although the optimal amount of disagreement has probably been exceeded. My paper may contribute to agreement on things about which economists disagree. Smith, Ricardo, Mill, Marshall, and Keynes have been chosen because they rank among the greatest economists in nearly any hall of fame. In the mainstream of classical-neoclassical economics they are the giants whose works have been the centerpieces of the principles of economics from generation to generation for the past two centuries. They are not necessarily the only revolutionary economic theorists, but confining the choice to one country simplifies the analysis without unduly limiting the significance of the conclusions. Historically the British economy has been in the vanguard of modern capitalist development, and consequently turning points in capitalism have come earlier there than elsewhere. The United Kingdom is the classical home of economic theory because it is the classical home of modern capitalism. Major innovations in economic theory have been intimately connected with historical crises and the related innovations in policy growing out of those crises.

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