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Notable Economists:
Adam Smith-Adam Smith (1723-1790) was the first classical economist and the founder of modern-day economics. He wrote the Wealth of Nations which discussed the benefits of specialization and gains from trade. Smith advocated for free markets and thought that the Invisible Hand AKA personal self-interest would guide the economy to efficiency.
David Ricardo-David Ricardo (1772-1823) was a classical economist. He contributed the following major concepts to economics: A) Ricardian equivalence stipulates that deficit spending does not increase overall spending because consumers save money to help pay down their portion of the government debt. B) Ricardo invented the idea of labor theory of value which means that the value of a good depends on the amount of labor invested in it. C) Ricardian socialism is basically the direct predecessor to Marxism. The labor theory of value indicates that all wealth is created through labor, so all income should be allocated via wages, not via interest, rate, or profit. D) Ricardo invented the idea of comparative advantage and absolute advantage, providing the mathematical logic behind why trade is good. E) Ricardo invented the law of diminishing marginal returns which says that as a factor of production is increased, its marginal output decreases, explaining the upward sloping nature of the supply curve. F) Ricardian rent forms the basis of Georgism, through stipulating the Law of Rent, that as the value of rent is equal to the advantage of choosing a certain tract of land over a rent-free tract of land. Rent is defined as the income coming from natural resources—this is an important definition that later gets distorted in neoclassical economics.
Karl Marx-Karl Marx (1818-1883) co-founded Marxism with Friedrich Engels. He held that the late 19th century was a period of exploitation of workers AKA the proletariat by business owners AKA the bourgeois. Marx supported Ricardo’s labor theory of value—that the value of a good depends on the amount of labor used in its production. However, the bourgeois would only compensate workers enough to keep them alive, and the bourgeois would pocket any surplus value—the difference between how much workers could produce and their wage. Marx thought this system was unsustainable and would result in a revolution in which the bourgeois would no longer be able to profit off of the proletariat.
John Maynard Keynes: John Maynard Keynes (1883-1946) popularized the study of macroeconomics and founded his own school, Keynesian economics, primarily in his General Theory of Employment, Interest, and Money (1936). Keynes’s most important invention was the AD-AS model, which we learn about in macroeconomics. Keynes thought that an economy in recession can be at short-run equilibrium, but a move towards longer-run equilibrium was too slow. “We are all dead in the long-run.” Keynes advocated for deficit spending to increase AD, and proposed that government spending had a Keynesian multiplier of 1/MPS. Keynes also looked at the origin of depressions. He thought that they result from a decrease in investment spending compared to saving, meaning that money was sitting in the bank instead of being put to use consuming. Therefore, consumption decreases and there is unemployment. Depressions result in unemployment is because wages are sticky—workers oppose wage cuts. Since employers can no longer afford to pay so many workers, they fire some workers.
John Forbes Nash Jr.-John Forbes Nash Jr. (1928-2015) was a mathematician who modeled the behavior of duopolies and oligopolies. His work led to significant advances in game theory, and many of his theories are still used in economics to this day. In his PhD dissertation, Nash defined and characaterized the Nash equilibrium, which was named in his honor. He is the only person to have been awarded both the Abel Prize and teh Nobel Memorial Prize in Economic Sciences.
Milton Friedman-Milton Friedman (1912-2006) was part of the Chicago school of economics—“freshwater” economics—led the Monetarist movement, and greatly influenced Reaganomics (tax cuts for the rich and deregulation). He used the equation of exchange—MV=PQ—to suggest monetary policy such that the Fed should steadily increase the money supply each year. Friedman rejected the usefulness of fiscal policy and Keynesian economics. He theorized that there is a natural rate of unemployment and that the Phillips Curve in the long-run was vertical at this point. He supported a negative income tax (a progressive income tax where people living below a certain income receive money from the government). Friedman suggested dropping money out of a helicopter (as an analogy) to increase liquidity in markets without complex injection mechanisms. Friedman called for free-floating exchange rates.
Other Notable Economists (although not quite as notable as those listed above):
George Akerlof: George Akerlof (1940-p) is best known for his study of the lemon problem (when some products being sold are defective) and asymmetric information. With his wife and former Fed chair Janet Yellen, he substantiated the efficient wage hypothesis that employers pay more than the market wage to reduce turn-over costs (training new workers) and to improve worker satisfaction which could result in more production. Akerlof further thought that at times entrepreneurs would prefer to “loot” their company of its value instead of trying to grow it. Akerlof, with Becker, founded social economics because he studied why out-of-wedlock births have been increasing since the introduction of contraception and abortion.
Eugen Bohm von Bawerk: Bohm von Bawerk (1851-1914) was an Austrian economist and Minister of Finance who contributed to the Austrian school. He supported the gold standard and the balanced budget and criticized Marx’s exploitation theory. He introduced the idea of time preference—that as time increases, the value of a future good decreases because the future supply of goods will be greater, people are bad at planning ahead, and entrepreneurs would rather use the goods now than later.
Gary Becker: Gary Becker (1930-2014) was an economist at the University of Chicago who sought to explain sociological phenomenon—including racial discrimination, crime, family relations, and drug addiction AKA rational addiction—in terms of economic rationality. Becker argued for the expansion of human capital. Becker founded social economics with Akerlof. Becker proposed the Rotten Kid Theorem which suggests that a wealthy altruistic parent can stop a child from abusing his/her siblings by transferring incentives from the rotten kid to the sibling equal to the utility that the rotten kid gains from the abuse.
Josiah Child: Josiah Child (1630-1699) was a governor of the British East India company and a proponent of mercantilism.
John Bates Clark: John Bates Clark (1847-1938) was a neoclassical economist who supported the Marginalist Revolution. Early in his career, he believed that reform was necessary to achieve fair wages and prevent a Communist revolution, but after the Haymarket Riot, he affirmed his belief in unrestricted competition.
Ronald Coase: Ronald Coase (1910-2013) developed two important concepts. First, he explored transaction costs (the cost of using the market beyond the price of a good) and thought that firms arose because they could reduce these transaction costs. Second, Coase introduced the Coase Theorem that defined property rights could eliminate externalities if transaction costs were low. For example, you could pay your roommate to stop playing loud music at 1 am, which would eliminate the negative externality and would compensate your roommate for the loss in utility. However, since transaction costs are almost always high, government interference (or prefect interference) is often necessary.
Friedrich Engels: Friedrich Engels (1820-1895) co-founded Marxism with Karl Marx. See Marx for more details about his economic ideas.
Irving Fisher: Irving Fisher (1867-1947) was an influential American neoclassical economist. He proposed the quantity theory of money (price level depends on the money supply) in terms of the equation of exchange. Fisher looked at intertemporal values of goods, seeing price differences of goods at future dates in terms of forecasted interest rates. Fisher’s separation theorem asserts that the primary objective of a corporation is the maximization of its present value. Fisher also asserted that people tend to think of money in nominal rather than real terms which he called money illusion. He used the theory of debt deflation to explain the Great Depression—that as a result of deflation, the real value of debt increased, decreasing liquidity. He published on the relationship between unemployment and inflation.
Henry George: Henry George (1839-1897) is the classical economist, as well as the founder of the Georgist school of economics. He wrote the best-seller Progress and Poverty which advocated for a Single Tax on rent. He thought that since rent is unearned income, taxing it would not reduce output. Furthermore, the tax would make holding land for speculation impractical, reducing large swings in land prices that he claimed contributed to the business cycle. Since land is a store of wealth, George’s tax was progressive and would reduce inequality.
John Hicks: John Hicks (1904-1989) is a neo-Keynesian economist. He developed the field of labor economics, presenting the demand for labor as derived demand, the elasticity of substitution, and employee-employer relations in regard to imperfect information and labor disputes. Furthermore, he developed IS/LM model which explains how fiscal and monetary policy effects interest rates and national income. Hicks also developed the substitution and income effects which explain how a decrease in the price of a good effects the quantity of the good demanded.
William Stanley Jevons: Jevons (1835-1882) was a Neoclassical economist who participated in the Marginal Revolution. He thought that marginal utility decreases as the amount that a consumer already owns increases. Jevons also created the Jevons paradox which states that as energy efficiency increases, the use of energy also increases because the associated costs of the energy decrease.
Daniel Kahneman: Kahnemand (1934-p) is a behavioral economist who collaborated with Tversky. They established prospect theory, discovered loss aversion, and investigated heuristics.
John Maynard Keynes: John Maynard Keynes (1883-1946) popularized the study of macroeconomics and founded his own school, Keynesian economics, primarily in his General Theory of Employment, Interest, and Money (1936). Keynes’s most important invention was the AD-AS model, which we learn about in macroeconomics. Keynes thought that an economy in recession can be at short-run equilibrium, but a move towards longer-run equilibrium was too slow. “We are all dead in the long-run.” Keynes advocated for deficit spending to increase AD, and proposed that government spending had a Keynesian multiplier of 1/MPS. Keynes also looked at the origin of depressions. He thought that they result from a decrease in investment spending compared to saving, meaning that money was sitting in the bank instead of being put to use consuming. Therefore, consumption decreases and there is unemployment. Depressions result in unemployment is because wages are sticky—workers oppose wage cuts. Since employers can no longer afford to pay so many workers, they fire some workers.
Paul Krugman: Krugman (1953-p) is an American Nobel Prize laureate and New York Times columnist. He supports free trade and has developed the ideas of economic geography.
Arthur Laffer: Laffer (1940-p) was a conservative economist who advised Reagan. He sketched the Laffer curve which indicates the government revenue at each tax rate (the rates of 0% and 100% result in no revenue). Laffer used his curve to speculate that lowering taxes would increase revenue.
Robert Lucas Jr: Lucas (1937-p) expanded on the idea of rational expectations (that most people will make decisions based on what they know economic models predict for the future) and established the Lucas critique that it is naïve to predict the future using past data (notably pointing to the Phillips curve). Lucas also identified the Lucas Paradox that pointed out that capital does not flow from rich countries to poor countries, contrary to classical notions.
Thomas Malthus: Thomas Malthus (1766-1834) was a classical economist. His most famous contribution was the idea of the Malthusian Trap which basically said that an increase in agricultural production is necessary for an increase in standard of living but since increased standard of living increases birth rates, the population expands to reduce the per capita agricultural production to what it was previously, meaning that long-run standard of living remains low. In other words, population grows geometrically while food production grows arithmetically. The dramatic increase in production resulting from the Industrial Revolution broke the Malthusian Trap. He criticized laws aimed at helping poor people, claiming that they only increase inflation and do not actually increase standard of life. Malthus also supported the so-called Corn Laws levied a tariff on imported food, which he said would lead to British self-sufficiency in food production.
Alfred Marshall: Marshall (1842-1924) was one of the founders of neoclassical economics, synthesizing supply and demand, marginal utility, production costs, elasticity, consumer surplus, and increasing and diminishing returns into a coherent philosophy in his book Principles of Economics.
Carl Menger: Carl Menger (1840-1921) was a founder of the Austrian school of economics and a proponent of marginalism. He created the subjective theory of value which held that a good does not have an inherent value, but rather has a value based on individual wants. He held that both sides gain in exchange.
John Stuart Mill: John Stuart Mill (1806-1873) was a utilitarian who believed in a flat tax rate for everyone, including on inheritance. He supported the idea of the Malthusian trap and believed in worker cooperatives.
Hyman Minsky: Hyman Minsky (1919-1996) associated banks with financial crises in his Financial Instability Hypothesis. He said that banks are profit-seeking institutions, so that through seeking profit, they are prone to taking risks. Their risk taking comes in stages, depending on how banks view the future. In hedge borrowing, borrowers can pay back both principle and interest. In speculative borrowing, borrowers can pay back just interest, rolling over the principle into yet another loan. In Ponzi borrowing, borrowers can pay back neither interest nor principle, relying on the increase in the asset’s underlying value to refinance a larger loan. Ponzi borrowing results in a Minsky moment in which people realize that the asset is overvalued, so prices crash. Minsky’s theory has been used to model the Great Recession.
Ludwig von Mises: Mises (1881-1973) was a member of the Austrian School who developed praxeology, the study of purposeful (in contrast to reflexive) human actions.
Franco Modigliani: Modigliani (1918-2003) established the life-cycle hypothesis that people tend to keep consumption stable throughout their lives (saving during work and spending during retirement). He created the Modigliani-Miller Theorem with Miller stipulating that in terms of the value of a firm, it does not matter if it is financed with debt or equity. He came up with the term NAIRU (non-accelerating inflation rate of unemployment) to replace the “natural rate” concept, incorporating the idea of this value being the long-run Phillips Curve.
Thomas Mun: Mun (1571-1641) was a governor of the British East India company and a proponent of mercantilism.
Robert Mundell: Robert Mundell (1932-p) is known as the father of the Euro for his work in helping introduce it into circulation. He developed the Mundell-Tobin effect with Tobin which stipulated that nominal interest rates rise slower than inflation because inflation discourages depositing money in favor of other assets, thereby lowering interest rates. He helped start the idea of supply-side economics. Furthermore, he described the impossible trinity (or Mundell-Fleming model), saying that a country can only have two of the following three policies: fixed exchange rates, free capital movement, and independent monetary policy.
Douglass North: Douglass North (1920-2015) was a Choate alumnus and Nobel prize laureate. He studied economic history and property rights. He speculated that transaction costs are the result of information asymmetries.
Elinor Ostrom: Ostrom (1933-2012) developed public choice theory, the use of economic tools to study political science. She rejected the notion that common resources were over exploited based on observation of how small communities establish rules to sustain common resources.
Vilfredo Pareto: Vilfredo Pareto (1848-1923) was an Italian economist who invented two important concepts. First is the Pareto principle which looks at distribution of wealth. Pareto thought that 20% of the Italian population held 80% of the land and therefore wealth. This leads to the 80/20 rule. Pareto also introduced Pareto efficiency which is the ideal state of production such that changing the allocation of resources to make someone better off will make someone worse off. A Pareto improvement is a reallocation that does not make someone worse off. Pareto efficiency is therefore the optimal level of efficiency such that no more Pareto improvements can be made—the allocation is at its best possible state.
William Phillips: Phillips (1914-1975) described the Phillips Curve as the inverse relationship between inflation and unemployment. This is now commonly held to occur just in the short-term.
Thomas Piketty: Piketty (1971-p) is a French economist who recently published Capital in the 21st Century, which claimed that because the rate of capital return is higher than economic growth in the developed world, inequality will increase in the future. He supports a global income tax to address this concern.
Arthur Cecil Pigou: Pigou (1877-1959) was an English economist who introduced the idea of externalities and the use of Pigovian taxes to correct these externalities. He also introduced the Pigou effect which held that consumption increased when real wealth increased during deflation.
Christopher Pissarides: Pissarides (1948-p) developed Search Theory also known as Matching Theory which analyses the costs of buyers and sellers having to find each other.
Paul Samuelson: Samuelson (1915-2009) was the first American to receive the Nobel Prize in economics and has influenced economics in numerous ways. First, he pioneered the revealed preference approach to consumer theory; he held that a consumer’s utility function was shown through behavior. Second, he proposed the Samuelson Conditions which analyzed the efficiency of providing public goods instead of private goods in overall welfare. Third, Samuelson popularized the efficient market hypothesis (first developed by Eugene Fama) that the value of stocks inherently reflects all known information about the asset. Fourth, he contributed to the Balassa-Samuelson effect that held that prices are higher in developed countries for non-tradable goods and services while tradable goods have similar prices worldwide, effecting PPP. Fifth, he devised the Stolper-Samuelson Theorem that says that if the price of a good rises, the price of the factor of production used most intensively in the production of the good will rise, while the prices of the other factors will fall. Sixth, he led the way in neoclassical synthesis, absorbing Keynesian economics into neoclassical economics.
Jean-Baptiste Say: Jean-Baptiste Say (1767-1832) was a classical economist. His most important contribution was Say’s Law that says that supply creates its own demand. More simply, more production leads to more consumption.
Gustav von Schmoller: Schmoller (1838-1917) was a leader in the younger German historical school who argued that history should be the basis for economic theory. He was also a social reformer who influenced the American Progressive Era.
Joseph Schumpeter: Joseph Schumpeter (1883-1950) looked at creative destruction which basically stipulated that when the economy changes due to innovation, the previous economic system—including business owners—gets destroyed. As a result, business owners have a reason to fear and politically oppose economic innovation that could result in a change of the entire system. Schumpeter explained creative destruction as one of four cycles (one of which is what we call the business cycle), although some of these cycles (economic waves) lasted up to sixty years. In the end, Schumpeter thought that creative destruction would eventually result in a collapse of capitalism as the people, fueled by intellectuals, would elect representatives who would restrict entrepreneurship.
Robert Shiller: Robert Shiller (1946-p) is an American economist who investigates behavioral finance. He rejected the efficient-market hypothesis because he held that trades are more often than not based on emotion rather than reason. He created the Case-Shiller Home Price Indices and successfully predicted the housing bubble several times between 2003 and 2007.
George Stigler: Stigler (1911-1991) was an economist at the University of Chicago. He proposed the Capture Theory which said that interest groups use regulatory powers of government to shape laws that favor the interest groups. Stigler further developed the idea of frictional unemployment.
Joseph Stiglitz: Stiglitz (1943-p) is a Nobel laureate known for his support of Georgist public finance and for his critique of globalization, free trade, laissez-faire economics, and international institutions such as the World Bank (for which he was the Chief Economist) and the IMF. Stiglitz explored risk aversion. He developed the Henry George Theorem which stipulates that an optimal supply of public goods can be funded through the capture of rent because the supply of public goods increases land value. Stiglitz looked at screening which is when one party seeks to eliminate information asymmetry through discovering private information about the other party. He also explained why there is unemployment in the Shapiro-Stiglitz efficiency wage model that stipulates that workers determine their level of effort and employers have a hard time monitoring effort levels.
Richard Thaler: Thaler (1945) won the 2017 Nobel Prize for his work in behavioral economics. He coined the term “choice architect” to describe who different ways of presenting the same thing can have different results in terms of consumer responses.
James Tobin: Tobin (1918-2002) established Tobin’s q, which is the market value of capital divided by the replacement cost of capital. High Tobin’s qs mean that a firm should buy more capital, while low values suggest the firm is undervalued. He was also proposed a tax on exchange rates known as the Tobin Tax. The Mundell-Tobin effect says that nominal interest rates rise slower than inflation because inflation discourages depositing money in favor of other assets, thereby lowering interest rates.
Amos Tversky: Tversky (1937-1996) was a behavioral economist who worked closely with Kahneman. They established prospect theory, discovered loss aversion, and investigated heuristics.
Léon Walras: Walras (1834-1910) was a Marginalist and a Georgist who formulated the Marginalist theory and general equilibrium theory (supply and demand across the whole economy).
Max Weber: Weber (1864-1920) was a member of the youngest German historical school. He investigated methodological individualism which outlined the idea of humans as rational.
Knut Wicksell: Wicksell (1851-1926) was a member of the Stockholm school. He invented the quantity theory of money depicted by the equation of exchange MV=PQ. Furthermore, he developed the idea of a natural rate of interest with tendencies of inflation given a lower rate and deflation given a higher rate.