What are the 50 most important economic theories of the last century? That’s the question a publisher recently asked me to ponder for a book they are developing.
I’ve noodled on this over the past week and have some initial ideas. But I would be remiss if I didn’t solicit suggestions from my insightful readers.
So, what do you think have been the most important economic theories over the past century?
To spark your thinking, here are some very preliminary ideas, albeit without much respect for the publisher’s century limitation. (Apologies for the higher-than-usual amount of jargon and economic short-hand.)
I think the items in the first list are more likely to make the cut than those in the second list. There is otherwise no importance to the ranking.
25 Theories To Get You Started
- Supply and Demand (Invisible Hand)
- Classical Economics
- Keynesian Economics
- Neoclassical Synthesis (Keynesian for near-term macro; Classical for micro and long-term macro)
- Neo-Malthusian (Resource Scarcity)
- Marxism
- Laissez Faire Capitalism
- Market Socialism
- Monetarism
- Solow Model (growth comes from capital, labor, and technology)
- New Growth Theory (Romer & endogenous growth)
- Institutions and Growth (rule of law, property rights, etc.)
- Efficient Markets Hypothesis
- Permanent Income / Life Cycle Hypothesis
- Rational Expectations
- Rational Choice Theory
- Something Behavioral (e.g., Prospect Theory)
- Adverse Selection and the Lemons Problem
- Moral Hazard
- Tragedy of the Commons
- Property Rights as a solution to the Tragedy of the Commons
- Game Theory (e.g., Prisoner’s Dilemma)
- Comparative Advantage
- New Trade Theory
- The Trilemma (exchange rates, capital flows, and monetary policy)
37 More Theories
- Washington Consensus
- Financial Accelerator
- Theory of Independent Central Banks
- Bagehot Theory of Central Bank Lending
- Creative Destruction (Schumpeter)
- Ricardian Equivalence
- Dynamic Consistency
- Diversification and Investment Portfolio Design
- Capital Asset Pricing Model
- Option Valuation (Black-Scholes et al.)
- Austrian Economics
- Speculative Bubbles (e.g., Minsky)
- Liquidationist View of Downturns
- Time Value of Money (incredibly important but very old)
- Public Choice / Economic Theory of Regulation (politicians and government workers as self-interested maximizers)
- Arrow’s Impossibility Theorem
- Welfare Theorems
- Veblen and Conspicuous Consumption
- Polluter Pays Principle (e.g., Piouvian Taxes)
- Offsetting Behavior (e.g., people drive safe cars more aggressively)
- Heckscher-Ohlin Trade Theory
- Optimal currency areas
- Exchange Rates and Purchasing Power Parity
- Mercantilism
- Rubinomics
- Supply-side Economics
- Laffer Curve
- Phillips Curve
- Theories of Economic Geography
- Fisher Theory of Interest Rates
- Liquidity Traps
- Resource Curse (Dutch Disease)
- Exchange Rate Overshooting (Dornbusch)
- Auctions
- Mechanism Design
- Principal-Agent Theory (e.g., separation of management and ownership)
- Theory of Optimal Taxation (e.g., broad base, low rate, tax less-elastic activities)
I could go on, but you get the idea. As the list illustrates, there are nuances about what constitutes a theory — some try to describe how the world works, and others try to describe how it should work. And, of course, they vary widely in how well they accomplish those goals. There are certainly economic theories that are wrong, but nonetheless deserve to be on the list.
As the list may suggest, I am a mainstream economist with a U.S. focus, so my first round of brainstorming undoubtedly overlooks some worthy non-U.S. theories or less orthodox theories. (And I probably overlooked some mainstream ones too!)
I would like to see these videos reviewed.
http://www.youtube.com/watch?v=fIqyCpCPrvU&feature=related
http://www.youtube.com/watch?v=YsB_rnzBA08&feature=channel
http://www.youtube.com/watch?v=Mw7LtVwDCbs&feature=channel_page