Guide To The Economic Schools Of Thought

Economics is not a homogenous or unified subject, rather there are a series of competing ideas over the key areas. These ideas can be roughly divided into several schools of thought and I’ll give a guide to them here. It is the great myth that economists pretend to be non-partisan when in reality we all have our own biases and opinions. It is impossible to study a topic without forming an opinion of it and economists are no exception. So by understanding the different schools of thought you can not only understand why economists give different and contradicting policy advice but also how they see through different lenses.

Before I begin, let me emphasise that this is a short guide and as such contains summaries of beliefs rather than full explanations. Hence I will undoubtedly end up leaving some important points out due to space. It should also be said that few people will belong solely to one school; most people are a mix of a couple of ideologies. Ideologies are hard to pin down, so my definitions will probably be different to other people’s, an unfortunately unavoidable problem. Like all economics pieces, this one will maintain an official position of neutrality while in reality be subject to the unconscious biases of the author.

Name: Neo-Classical

Main Theories: Rational Expectations, Efficient Market Hypothesis, Real Business Cycle, Utility Maximization, Marginalism, Perfect Information, Perfect Competition, Equilibrium, Ergodicity, Mathematical Modelling, Microfoundations

People: Alfred Marshall, Leon Walras, Robert Lucas, Milton Friedman, Eugene Fama

Response To The Financial Crisis: Crisis? What Crisis?

Without a shadow of a doubt, the Neo-Classical (also known as New Classical) school dominates economics to the extent that when lay people speak of economics, they are usually referring to neo-classical economics. It is the mainstream, the traditional view of economics and all other schools define themselves in contrast to neo-classicalism. It is the mainstream and the view presented in textbooks in universities. In a way, Neo-Classical is a bit like Capitalism. Both words are used more as insults than self-descriptions, both dominate the world and both form background to most discussions.

Neo-Classical economics is noted for its emphasis on the micro level and viewing economics from the view of the individual. It assumes that markets always clear and that supply always equals demand, that is to say markets are always in equilibrium. Individuals are viewed as rational utility maximers who act based on the marginal benefit of their action. It is also heavily mathematical and devoted to developing mathematical models to explain the economy and how individuals interact.

Neo-Classicalism is unusual in that there are few people who truly believe in it. There are some notable exceptions who tend to win Nobel Prizes and remain blissfully unaware of the recession, but these are like fundamentalists, strange, dangerous and rare. It is rare to find anyone who honestly believes that people are rational, have full information etc. Instead even those who teach neo-classical economics will admit that it does not accurately describe the world, but rather that it simplifies it. So rationality is acknowledged as unrealistic but used as it makes it easier to construct models and perform mathematical equations. As some say, “All models are wrong, but some are useful”. What they mean is that although they know neo-classical assumptions are unrealistic, they help economists find answers.

Critics argue that unrealistic assumptions lead people to the wrong answers and that modelling is too heavily relied upon. Neo-Classicalism is criticised for being obsessed with mathematics and failing to realise that not all human actions can be reduced to numbers. The Financial Crisis has done enormous damage to the school to which it has failed to explain. In fact, in a Neo-Classical world, recessions, mass unemployment and financial crises, don’t happen. While it remains dominant, alternative views are starting to make their way through the cracks.


Name: New Keynesian

Main Theories: Sticky Wages & Prices, DSGE, Imperfect Competition, Liquidity Trap

People: Greg Mankiw, Paul Krugman, Joseph Stiglitz, Michael Woodford, Robert Shiller, Olivier Blanchard, John Taylor

Response To The Financial Crisis: Fundamental Rethinking/Return To Roots

New Keynesian economics is unusual in that it is less of a school in its own right and more of a dilution of Neo-Classical economics. However due to the large number of economists who subscribe to it and the fact it is the only opposition to Neo-Classical economics presented in textbooks, is why it deserves mention here. New Keynesian is a misleading name as it draws more from Milton Friedman than from Keynes, hence New Freidmanite Economics would be more accurate. It is regularly criticised as ignoring Keynes’ important theories and as such unworthy of his name. It has its roots in the Neo-Keynesian Synthesis of post war America and uses the assumptions of Neo-Classical economics as a starting point.

It accepts that people have rational expectations and that like Neo-Classicals emphasise microfoundations and representative agents. In fact such is the similarity with Neo-Classicals that it is easier to list their differences rather than similarities. They take Neo-Classical assumptions and relax the most extreme of them, while keeping a pretty similar overall framework. The primary difference is the emphasis on stickiness which can prevent the market from clearing.

During times of prosperity and in the long run, New Keynesians agree with Neo-Classicals. There are two main exceptions to this agreement. Firstly, they believe that the normal rules don’t apply when the economy is in a recession. In this case, rigidities in prices and wages mean the market doesn’t clear and hence it is necessary for the government to intervene. If the economy is in a liquidity trap then fiscal action is necessary for recovery. Secondly, while they agree that markets will naturally recover from recessions, they argue that this recovery can be slow due to price and wage rigidities preventing the economy from fully adjusting. Therefore they support government intervention to speed the process up. So while they agree with Neo-Classicals in the long run, they believe there are exceptions in the short run

New Keynesians are a diverse group containing Greg Mankiw who worked as an advisor to George Bush and Mitt Romney and wrote a paper in defence of the 1%. It also contains liberal icons like Paul Krugman and Joseph Stiglitz who have been loud in their class for government intervention in the economy. The Financial Crisis has had the greatest effect on this group, causing many to re-examine their main assumptions. An economy with rigidities is more accurate than Neo-Classical models, but it still fails to describe the recession. As a result, some (such as Krugman) have begun to drift to the left and towards Post-Keynesian economics.


Name: Post Keynesian

Main Theories: Financial Instability Hypothesis, Endogenous Money, Cost-Plus Pricing, Animal Spirits

People: John Maynard Keynes, Michal Kalecki, Joan Robinson, Nicolas Kaldor, Hyman Minsky, Paul Davidson, Richard Koo, Steve Keen

Response To The Financial Crisis: I told you so/ Now’s our time to shine

The main challenger to the Neo-Classical orthodoxy is Post-Keynesian economics. In fact it would be only a small exaggeration to say that it is the opposite of Neo-Classical economics and they disagree on almost every point. A huge amount of Post Keynesian writing is dedicated to debunking Neo-Classical theories. Neo-Classical assumptions come in for particular criticism and Post Keynesian argue their theories are based on the real world unlike the fiction dream world they believe Neo-Classical economics lives in. Such is their claim to reality that a leading Post Keynesian journal is named The Real World Economics Review. It can be argued that like all heterodox economics it spends more time arguing what it does not believe than stating what it does, but it is necessary to show why a theory must be replaced before a replacement can be accepted.

Post Keynesian see themselves as the true followers of Keynes, the people who have stayed loyal to the true faith. They regularly cite him and appeal to his authority on policy issues. They particularly resent the New Keynesians title as blasphemy to the name of Keynes. Although heavy use is made of Keynes’ theories, Post Keynesianism is by no means a stagnant school. New theories have been developed, particularly in the area of financial economics and debt which is of huge importance and relevance to the current problems with the economy.

They have the strongest claim to have predicted the crisis and the financial crash has given it a huge boost. Unlike other schools which skirt around the issues of recessions, Post Keynesians dive right in and are best at home with depression economics. Recessions are not rare and unusual exceptions to the rule that cannot be understood; rather they are systemic crises which cannot be ignored. Post Keynesian is also an explicitly political school and actively engages in policy debates over inequality, unions, regulation etc. The core of their policy recommendations is the need for a fiscal stimulus to boost the economy out of recession and towards full employment. After the Financial Crash, Post Keynesianism should no longer be seen as a fringe school; rather its views must be taken seriously by economists and policy makers.


Name: Austrian

Main Theories: Austrian Business Cycle Theory, Say’s Law, Gold Standard

People: Ludwig von Mises, Fredrich Hayek, Murray Rothbard, Carl Menger, Robert Murphy

Response To The Financial Crisis: Government isn’t the solution, it’s the problem

Austrian economics is unusual for a heterodox school as it tries to be more Catholic than the Pope. It has few differences with Neo- classical economics and their policy conclusions are similar. Austrians have a diehard commitment (bordering on fanatical) to the free market and oppose almost all forms of government intervention. In this sense it is probably the most political of the schools. They have almost a religious devotion to markets (leading them to be ridiculed as market fundamentalists) and sound money, and nothing infuriates them more than price controls or printing money. They are particularly strong in their denunciation of socialism, a sport which is somewhat ruined by the general lack of socialists to argue with. Its name is misleading as it is really an American rather than Austrian school and is linked to the American libertarian movement and its distrust of the government. Such is its dislike of the government that some strands of Austrian (such as the Rothbard group) are essentially anarchists.

Austrians are the main outlier as unlike other schools it has seen the Financial Crash as a reason to doubt the efficiency of the free market. Rather it lays the blame for the crash firmly with the government, arguing contrary to other economists, that the crash is proof we need less government involvement in the economy rather than more. Key to this argument is the Austrian Business Cycle Theory, which postulates that central banks distort the economy by artificially lowering the interest rates. This leads to an unsustainable boom followed by an inevitable bust. In contrast to other schools who propose various solutions to the crash, Austrians believe that no action should be taken as any intervention would only make the problem worse. Rather the market should be left to recovery naturally.

Austrian economists have few positions of influence either in academia or government. Instead they have disproportionate influence on the internet and the American libertarian movement. Most non-Austrian economists do not take them seriously believing their ideas to belong to the past. Austrian arguments for a gold standard and the abolition of central banks are seen as an attempt to turn back the clock by a hundred years. Say’s Law and the refusal to support government intervention even in a severe recession, remain key Austrian ideas decades after they have been abandoned by mainstream economists. Austrian economics has been criticised as for being stuck in the past and it is charged that it has not advanced since the 30s (a point they obviously disagree with). Unlike the rest of economics it defines inflation, not as a rise in prices but rather as an increase in the money supply. It comes in for particular criticism for its belief that economic theories cannot be proven either mathematically or empirically, a position that is better suited for theology than economics.


Name: Behavioural

Main Theories: Prospect Theory, Heuristics, Predictable Irrationality, Nudges, Framing, Bounded Rationality

People: Daniel Kahnemann, Amos Tversky, Dan Ariley, Richard Thaler

Response To The Financial Crisis: Didn’t we tell you people aren’t rational?

Behavioural economics is a relatively new school and is essentially the application of psychology to economics. It is based on running experiments to find out how people really act and make decisions rather than the Neo-Classical practice of making assumptions of how people should act. In this way, it can be seen as a school dedicated to debunking Neo-Classical economics on the micro level. It takes particular aim at the view that people are rational utility maximers. Thaler has parodied Neo-Classical assumptions as assuming individuals “think like Albert Einstein, store as much memory as IBM’s big blue, and exercise the willpower of Mahatma Gandhi.” Work by Ariely has lead him to conclude that even the basic laws of supply and demand are debunked by behavioural economics.

Behavioural economics has been criticised as not having an overarching general theory and not offering replacement theories for the ones they criticise. However, part of the point of Behavioural economics is that it rejects one-size-fits-all approaches to economics, instead highlighting the diversity of human action. It is also a predominately micro theory which is less open to general theories than macro. As such it is less affected by the financial crisis, though it sees it as validation of its arguments that people are not rational in the way Neo-Classical economics supposes. The evidence that we are subject to subconscious influences as lead to some argue that we should be nudged towards making best decisions in a form of libertarian paternalism.

It should be stated that when Behaviouralists argue that people are not rational, they are not arguing that people are stupid or unpredictable. Rather they argue that people have limited information and limited time to make decisions. So rather than processing information like a computer as Neo-Classicals assume, people rely on heuristics or rules of thumb that allow them to make rough judgements. Kahnemann has argued that we have two types of decision making, the first kind which is rational and thinks decisions fully true and the second which is impulsive and relies more on gut feeling. Crucially these actions are not random; hence we can be irrational in predictable ways.


Name: Modern Monetary Theory

Main Theories: Monetarise the Debt, Job Guarantee, Endogenous Money

People: Warren Mosler, Billy Mitchell, Randall Wray, Stephanie Kelton

Response To The Financial Crisis: Deficits are not problem, they’re the solution

Modern Monetary Theory (MMT) (also known as Chartalism or Soft Currency Economics) is the newest school of thought and owes its growth and development to the internet. It only began during the 90s and the term Modern Monetary Theory was only coined in 2007, though it draws on ideas going back to the early 20th century. It is the first theory to pay explicitly close attention to the fact that developed economies are based on fiat currencies and build their theory around money (as their name suggests). There are disputes as to whether or not it can be considered a school in its own right or whether it is a branch of Post Keynesianism. Either way there is a strong overlap between the two, with MMT being different as it goes a step further.

What makes MMT unique is its view of debt and deficits. Unlike Keynesians who argue that deficits should be temporary until the economy recovers from the recession, MMT argues that the government can run deficits indefinitely. Nor is the national debt a cause for concern as a government with its own currency cannot be forced to default. Instead it can print money to cover the deficit. MMT is often crudely expressed as “deficits don’t matter” whereas it would be more accurate to say that “other things matter more than deficits”. MMT acknowledges that there are costs to deficits but that these are less than the costs of high unemployment and an economy in recession.

MMT is completely devoted to the aim of full employment, more so than even Keynesians. They propose that there should be a Job Guarantee where everyone who wants a job is able to get one. They believe the government should be an “Employer Of Last Resort”. They are loudest in their support for money printing believing that if the economy is below full capacity, this will not lead to hyperinflation. MMT has the novel argument that governments are not dependent on taxes to fund themselves. They can print whatever money they need and taxes are merely money taken out of the economy in order to prevent inflation. Hence unlike the rest of economics, they do not necessarily see budget surpluses as a positive. If the surplus is too high then too much money is being taken out of the economy, which could cause a recession. They highlight the important point that as currency is not backed by gold or any other asset, it is in essence whatever the government says it is.

MMT is a very new school and as such it is not well known. The usual response upon first hearing of MMT is shock followed by dismissal as it suggests that government can get something for free, an idea all economists have been trained to reject. Printing money to success sounds like a recipe for hyperinflation and thus MMTers have a tough challenge to convince economists to take them seriously.


Name: Marxism

Main Theories: Labour Theory of Value, Declining rate of profit, Class conflict, Reserve Army of Unemployment, Surplus Value

People: Karl Marx, Fredrich Engels, Leo Trotsky, Antonio Gramsci

Response To The Financial Crisis: We warned you capitalism would collapse

There are few ideas in history which have had an impact comparable to that of Marxism. Since its development in the mid 19th century, the rallying cries of revolutions have been inspired consciously or unconsciously by Marxism. It has been the inspiration for the labour movement and the cause of numerous social upheavals, particularly in Continental Europe and colonial independence movements. It was one half of the greatest ideological power struggle in history during the Cold War, dominating the might of the Soviet Union and China. Some of the world’s greatest atrocities were done in its name and the legacy of Stalin has tainted its appeal. With the collapse of the Berlin Wall, Marxism was declared dead and written out of economics books, except as a dead horse to flog on occasion to prove a point.

Marxist economics is generally seen as belonging to a time long since passed, where fat cat businessmen smoked cigars and wore top hats while cloth cap workers slaved away in dangerous factories for miserable wages that left them living in slums. It is argued that world no longer exists and with it any rational for Marxism. As a result it is rare to find any economists who will call themselves Marxists, none of which are in any position of influence.

However, the financial crash suggests that Marxism is not yet destined for the dust heap of history yet. The idea that crisis’s may be inherent in capitalism seemed a lot more plausible. Class is an issue that has not gone away and with historic levels of wealth been concentrated in the hands of a small elite, it is possible that some elements may be salvaged from Marxism. Marxism itself is moving away from traditional emphasis on Soviet steel mills and the dictatorship of the proletariat and towards worker co-operatives and democracy in the workplace, which has a greater appeal. The crisis has lead to only small increases in support for Communist parties and it is unlikely that Marxism will be revived as a school of thought.


There are other theories that I don’t have the space to mention such as the Institutional school (both New and Old). There is Monetarism which was a major theory in the 70s and 80s but even Friedman himself admitted its policy of targeting the money supply was a failure. The school has now been absorbed into the Neo-Classical school. There is a growing Econophysics school which attempts to apply theories of physics to the economy. While there may be some merit in complexity, the school needs a lot of development before it can draw any links between physics and economics. There is also a general “Economics As If People Mattered” school which is a mixture of Buddhist, ecological and ethical economics that is popular among lay people but ignored by economists. Supply side economics is more a political theory based on tax cuts. An almost endless could be created encompassing Sraffian, NGDP, Market Monetarist etc. It also should be said that there are many economists and theories which do not easily fit into any one school (Schumpeter for example).

Anyway, that about does it. Leave a comment leaving your thoughts on the schools and my description of them.


Filed under Economics

55 responses to “Guide To The Economic Schools Of Thought

  1. Saved to my “Things I Should Know” file🙂

  2. Nice writeup! I think it is worth mentioning that as far as “Econophysics” go, the gravity model of trade ( is worth mentioning since it happens to fit the data very well!

    • I’ve never heard of it but it does sound interesting. One thing I’ve noticed is that it is very hard to explain international trade as it primarily involves countries who are very similar trading similar goods, whereas you would expect trading countries to be very different

      • My first thought on that topic is that countries with similar incomes will have somewhat similar preferences, at least when it comes to traded goods, and in that sense the variety that other countries offer will give you this correlation across countries between import types?

        It’s kind of similar to the home bias idea, if we are biased towards goods produced at home, then we may also be biased towards goods produced abroad that are similar to those we prefer at home, if we like variety?

  3. As you well know from Keens ‘Debunking Economics’, Marx was quite insightful in a number of areas, such as equilibrium, once you get past all the initial workers value stuff. Good to see you saying he’s not ready for the scrap heap.

    • I think there are parts of Marx that can be salvaged and it can be seen that some of his ideas have been adapted by Post-Keynesianism. As long as there is widespread inequality, then Marx will have some relevance.

  4. jamesbradfordpate

    Reblogged this on James’ Ramblings and commented:
    I haven’t yet read this in its entirety, but it’s good for me to have it on-hand.

  5. Without exaggeration, this is one of the most clarifying posts on the schools I’ve read. I’ve looked up descriptions of the schools many times, but never were they so clearly laid out. Thanks for that!

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  7. dude

    “Unlike the rest of economics it defines inflation, not as a rise in prices but rather as an increase in the money supply.”

    Originally inflation was defined as an increase in money supply:

    A neutral overview of all schools would be interesting, this was clearly biased towards post-keynesianism so I’ll rather stay uninformed than misinformed.

    • Whatever about the original meaning, for decades, economists of all schools bar Austrian have accepted inflation as meaning a rise in prices. This is also the lay definition. Printing money may or may not be a cause of the rise, but it is not the same thing.

      A neutral discussion is impossible as everyone has their own bias and personal view. There is little difference between no information and information you disagree with. In fact no information is worse as it involves you shutting out all information you do not already agree with, preventing you from hearing of new ideas or perspectives and leading to stagnation of the mind.

  8. Pingback: Guide To The Economic Schools Of Thought « Economics Info

  9. bro

    this post pretty much encapsulates every single awful stereotype in amateur econ blogging. “schools,” post-keynesian trolling, not seeming to understand what exactly behavioral economics is, conflating ‘neoclassical’ micro and macro, and, of course, tons of sycophantic commenters who know even less heaping undue praise. congrats on your achievement!

  10. I think an important aspect of people’s irrationality (as observed by Behaviouralists) is not merely the observation that people “have limited information and limited time to make decisions”, but also that people aren’t even purely self-interested utility maximers (as assumed by neo-Classicalists). It turns out that peoples’ behaviour is typically governed by concerns for fairness, cooperation, sharing and even altruism. So even if people did have unlimited information and decision making power, they still wouldn’t behave as rational utility maximizers.

  11. Pingback: 4 Sources for Conservative Economics | Caeconomics

  12. Reblogged this on Guy Debord's Cat and commented:
    Have you even wondered what those economists were talking about? Here Robert Nielsen explains the various economic schools in a concise and accessible way. If you watch the news on telly, you would be forgiven for thinking there is only one valid economic theory and that theory is the one much loved by the Right and Nu Labour. Well, guess what? It isn’t. Read on.

  13. perfectlyGoodInk

    Excellent break-down. Jives with most everything I learned in graduate macro (except that MMT didn’t exist at the time). Found it very odd that you put Friedman in the New Classical school instead of the New Keynesian/Monetarist school, though.

    Also, my understanding of the mainstream is that it’s a synthesis of New Classical and New Keynesian, with the former emphasizing the long-run and the latter emphasizing the short-run. I’m also surprised you didn’t mention RBC at all, but I don’t exactly mind.

    Would be very interested to see a followup where you cover the other schools, particularly the Institutionalists and NGDP (I assume Sumner falls here). I’m also a fan of the Agent-Based Modeling approach and would be interested in hearing your thoughts on it.

    • I think a lot of what Friedman wrote was adopted by the New Classical school even if New Keynesians also draw on him. The Monetarist school is no longer active which is why I didn’t include it here. Plus it was very similar to Neo-Classical. I briefly mentioned RBC but I was limited for space and couldn’t go into depth about all theories.

      I do plan to discuss Institutionalism at a later date and I need to read up more on NGDP.

  14. Nice post Robert. The thing that MMT-ers would disagree is the debt monetization. There is no such thing in their opinion. But as an introduction to an outsider I think this will do very well🙂

  15. Good summing up and very beginner-friendly.
    However I must take issue with something you mentioned in the section on Austrian economics. The Rothbardian wing of the school are NOT anarchists. Actual anarchists resolutely despise so-called “anarcho”-capitalism and the entirety of Austrian economics; you can frequently find anarchists debating with right-wing libertarians on many youtube videos about either subject.
    Real anarchism since the crash has actually had something of a resurgence as the Occupy movement and the increased popularity of David Graeber and Noam Chomsky has shown. In general they tend to gravitate towards Post-Keynesian and (old) Institutional economics as a source of economic analysis and understanding.
    There’s also a lot of overlap between anarchist thinking on economics and the work of the New Economics Foundation with their shared focus on decentralization, ecological stewardship, and cooperatives as the ideal form of enterprise.

    • Are you sure about this? I have come across Rothbardian anarchists and while they are not the only kind, they are a major part of anarcho-capitalists.

      “In general they tend to gravitate towards Post-Keynesian”
      What? Post Keynesians support taxes on the wealthy and the welfare state. They don’t support small government, they’re the opposites of anarchists. I think there’s been some sort of confusion here.

      • perfectlyGoodInk

        I think it just depends on how you define “anarchists.” If you define it as anybody who seeks no government at all, this clearly includes both anarcho-capitalists as well as the punk-rock types that most people traditionally associate with anarchy and who tend to come from the left. If you are using the term to specifically referring to the latter as a movement, then you are excluding the Rothbardians by definition.

      • Sorry I didn’t respond earlier but I didn’t realise you had replied to my comment as I thought I’d be notified via email.
        It’s anarcho-capitalists as a whole which aren’t regarded as legitimate anarchists actually. That includes all Rothbardians, Friedmanites, and whatever other schools may exist.
        The thing is, anarchism as a philosophy isn’t just opposed to the existence of the state, but rather all forms of coercive institutional hierarchy. This includes the state, but it also includes capitalism as an economic system as it is fundamentally based on the hierarchical concentration of economic power in the hands of a minority elite (the business class).
        The etymology of the term means “no rulers/rulership”, not merely no state. Anarchists thus advocate institutional structures build on voluntarism, non-hierarchy, cooperation, and running those institutions through participatory democracy – primarily consensus decision-making.
        In practice that means support for cooperatives, community land trusts, participatory budgeting, and democratic neighbourhood assemblies as alternatives to both statist and capitalist modes of organising political and economic relations.
        This is why anarchism and capitalism are fundamentally incompatible with each other.
        As for anarchist support of Post-Keynesianism, I meant simply in terms of economic analysis, not so much prescriptive economics. Post-Keynesianism in General seems to understand better than most schools how capitalism actually functions; Michael Hudson and Steve Keen’s predictions and understanding of the crash are of particular significance.
        That’s not to say anarchists wouldn’t support welfare state policies as a lesser evil to neoliberalism and privatisation. We just think a superior alternative to both would be solutions that give more power to democratic institutions that empower people without tethering them to the state like social welfare does.
        I think something that both libertarian socialists and social democrats like yourself could support for instance would be Basic Income.

        • perfectlyGoodInk

          This strikes me as a narrow definition of anarchy. I think most people would define it strictly as absence of the state. Furthermore, participatory budgeting and community land trusts both involve hierarchy in the form of delegates and a board of directors. I think coops and neighborhood assemblies would also arguably be features of a hierarchical whole. These are democratic hierarchies to be sure, but so is our state (a sociologist once told me hierarchies are inevitable because it’s human nature to form them).

          I would not characterize Friedmanites as anarchists, but minarchists. Friedman supported numerous proposals that involve a rather central role for the state, like a negative income tax and a pollution tax.

          I think Minsky was onto something, but as far as Keen, I thought this post makes a good point:

          • Hierarchies are made of sterner stuff than the kind of temporary and fluid delegation of authority that exists in co-ops, CLTs, and participatory budgeting. Though perhaps a better word to identify what anarchists fundamentally oppose would be domination- a hierarchical relationship in which party A is subordinated to party B in a way which primarily benefits party B.
            And the state is not a democratic hierarchy. You cannot choose not to accept its authority if you reside within its dominion. You make an appeal-to-nature fallacy in trying to make the case for hierarchy on the basis that it occurs naturally. Rape and killing occurs naturally also. Should we therefore emulate nature there and rape and kill each other?
            As for what “most people” take the word anarchy to mean, so what? Most people for some reason seem to think feminism means women should be superior to men, yet those who bother to do their reading realise that feminism is about equalising relations between the sexes.
            And by Friedmanite, I was referring to David Friedman, not his father Milton Friedman. David Friedman wrote a book called The Machinery of Freedom (reviewed by Robert Nielsen on this website) which presents the case for a form of anarcho-capitalism founded on monetarist economics and consequentialist ethics- as opposed to the Austrian economics and deontological ethics which pervades the majority of anarcho-capitalist theorising.

            • perfectlyGoodInk


              Friedmanite: a monetarist who adheres to the theory of economist Milton Friedman that economic regulation should be through direct governmental manipulation of the money supply

              anarchist: a person who believes that government and laws are not necessary

              hierarchy: a group that controls an organization and is divided into different levels

              Most cooperations within capitalism have a hierarchical structure with employees and mid-level managers and executives. This is a voluntary structure where anybody is free to quit their job and either join another or start their own business.

              As someone who stepped down from management to allow someone else to deal with all the assorted project headaches and give me more time with my family, I would characterize the employee-manager job to typically be mutually beneficial and not one of domination. Firms where the relationship mirrors that of domination tend to be inefficient.

              The state is a democratic hierarchy in the sense that representatives are democratically selected via election (much like one would vote for a delegate), and it is obviously hierarchical. You are free to emigrate, but of course, the world is dominated by other nation-states. I suppose this is where Friedmanites of the Patri variety weigh in.

              • Since when are sentence-long descriptions in some dictionary an appropriate and thorough encapsulation of social reality? Each description you offer provides only a baseline interpretation of the concept in question.
                The term Friedmanite in particular is equally applies in ancap circles to refer to followers of David Friedman; who do in fact accept the elder Friedman’s economic beliefs.

                As for the hierarchy in capitalist corporations being “voluntary” this entire notion is just silly, as is the idea that one is “free” to leave and start their own business without hierarchical organisation. They are free only in the formal sense (in that no one is coercing them from doing so). They are not however free in the effective sense (in that they lack the capabilities that would enable them to realise such an enterprise).

                You are not free just because there’s nobody stopping you from doing something. If you fall in a hole in the ground and can’t physically climb out, you are not free to get out – though there is no one coercing you from getting out – and your presence in the hole is not “voluntary”.

                And if you are in a position of unelected authority over someone else (eg: a manager in a capitalist business) this is not mutually beneficial as you are depriving all workers below you from exercising control over their workplaces themselves. Your economic autonomy and choice is strengthened at the expense of someone else’s being weakened.

                Your use of the term “democratic hierarchy” to refer to a system of representation is a gross misuse of the term democracy. Representation is in fact antithetical to what the term democracy actually has meant throughout most of history – which from Athens onwards has by definition been direct and participatory. There can be no representation of democratic will.

                The fact still stands that the state is by definition (a monopoly on the use of physical force) involuntary.

                • perfectlyGoodInk

                  I’m not going for thorough. I was talking about how most people would define anarchism. People who know nothing about it and aren’t that interested would probably look it up in the dictionary. People who don’t know but are a little bit interested would probably look it up on Wikipedia, which is the first hit that shows up when one Googles the term.

                  Wikipedia gives a rather similar definition of “a political philosophy that advocates stateless societies based on non-hierarchical free associations. Anarchism holds the state to be undesirable, unnecessary, or harmful. While anti-statism is central, some argue that anarchism entails opposing authority or hierarchical organization in the conduct of human relations, including, but not limited to, the state system.”

                  While Wikipedia isn’t a good source for academic papers, it has the virtue of being created by crowd-sourcing. If most people opposed this description, it would have changed. It goes onto give a much more thorough description, but it does notably also include anarcho-capitalists.

                  Presumably you are part of the group referred to by the “some argue” phrase. This strikes me as similar to the argument between cosmopolitan libertarians associated with the Cato Institute and paleoconservative libertarians associated with the Mises Institute. They clearly don’t like each other, but I think most people would still consider both groups to be libertarian.

                  Similarly, I identify myself as libertarian within the Milton Friedman vein, but most people would probably label me as conservative even though I strongly disagree with social conservatives and dislike many of them. But in a two-party system that only allows for a single dimension of disagreement, I have to admit that most people would describe me as conservative.

                  You may not like this definition of anarchy, but it seems to be much more widely used that way than your usage.

                  “And if you are in a position of unelected authority over someone else (eg: a manager in a capitalist business) this is not mutually beneficial as you are depriving all workers below you from exercising control over their workplaces themselves.”

                  I suppose I am a counterexample, as I enjoy a much less stressful life with a great deal more freedom than I did when I was a manager. I am indeed grateful that someone came along qualified enough to hand the position off to. Certainly, there are bad managers out there, but as this is bad for employee morale and increases turnover, it does not seem to be the norm as far as I have seen.

                  In my seventeen years working in the private sector for eight different managers, not one of those managers was domineering. Managers are not elected, but their performance is assessed by gauging the productivity of their team. Capitalism is ruthless when it comes to poor performers, and I suppose you could characterize this as fluid delegation of authority. One very visible example is head coaches of NFL football and MLB baseball teams. When the team underperforms, note that the head coach is the most likely employee of the team to be fired (the next on the chopping block is usually the General Manager).

                  Direct democracy is about as disastrous in practice as socialism (the one economic system that is actually incompatible with anarchism because it gives the state a central role). As a result, you don’t see direct democracy practiced, and so the common modern use of the term democracy does not match the way you seem to be using it. Indeed, much of the political science literature I have seen refers to the governments in U.S. and Europe as democracies (for example, Arend Lijphart does a lot of work regarding “consociational democracy”, and this term does not exclude representative democracies).

                  I won’t get into the positive/negative liberty debate, as I don’t have a dog in that fight. You can argue that with the anarchists you disagree with. But interestingly enough, the economics professor of mine who defined government as a “legitimized monopoly on coercion” considers himself an anarcho-capitalist (albeit not a Rothbardian as far as I could tell).

                  • The institution of hierarchical management in and of itself is a form of domination. You can argue till the cows come home about how good or bad certain individual managers/bosses/capitalists may be, but that doesn’t change the nature of the institution itself.

                    The very same fallacious argument could be made of absolute monarchy and feudalism, claiming that it can’t be bad because you are a good baron who is good to your serfs and know many other good barons. The problem is the system itself which restricts the power of many for the benefit of a small few.

                    “Direct democracy is about as disastrous in practice as socialism (the one economic system that is actually incompatible with anarchism because it gives the state a central role)”

                    Despite your references to political science, this sentence alone make it evident that you haven’t read any. Anarchism in fact is by definition socialist in its economics. Then again, you’re an American so it’s understandable that you wouldn’t have the slightest clue what the word “socialism” actually means due to the term’s relentless demonisation in the US media.

                    The word socialism has nothing inherently to do with government control of anything. It doesn’t name a single economic position; it is an umbrella term for several different economic philosophies which all aspire to (in some form or another) “social ownership and cooperative control of the means of production”.

                    This can take many forms. State-socialism (which Americans equate with the word socialism as a whole) does indeed place the government at the centre of economic activity; and this is precisely why anarchists oppose it.

                    What anarchists support is the means of production being owned by the municipalities in which they reside and controlled by cooperatively self-managed production units rather than private or state-owned companies.

                    As for direct democracy somehow being a failure, you cannot name a single example of this because no such examples exist. The ancient Hellenic world was the most advanced society on Earth at the time it practiced participatory democracy as a mode of governance.

                    The advances in communications and information-processing technology today makes participatory decision-making by decentralized networks of autonomous units by far the most rational form of administration for any system: political, economic, or civil societarian.

                    • perfectlyGoodInk

                      Of the nation-states in existence today, what percentage of them are direct democracies? What percentage are representative democracies? So when people today use the term “democracy,” how likely is it that they are referring only to the former and not at all to the latter?

                      “What anarchists support is the means of production being owned by the municipalities”

                      Since you seem to be using a wide variety of terms in ways I have not been expecting, how do you define municipalities? To me, it means government at a city-wide level.

                      “Then again, you’re an American so it’s understandable that you wouldn’t have the slightest clue what the word ‘socialism’ actually means due to the term’s relentless demonisation in the US media.”

                      As an American economist by training, yes, I use the term as I was taught it. I am, however, fully aware that my own field’s usage of some terms (e.g. rent and capital) is far different than common usage by laypeople and thus will indicate which definition I am referring to when I use such terms. We generally refer to centrally-planned economies such as the USSR as socialist, decentralized market economies such as Singapore as capitalist. Almost all economies today, including that of the U.S., tend to be a mixed-economy somewhere on the spectrum in between those two extremes.

                      Using socialism to refer to an economic system that isn’t currently in use by a current nation state is as confusing as using democracy to refer to a political system that isn’t currently in use, especially since there are numerous nation states and economies who lay claim to those terms. Presumably, you use alternate terms to describe the representative democracies and centrally-planned economies we see today. What are those terms? Is socialism an umbrella term including centrally-planned economies? If so, why is anarchism also not an umbrella term including anarcho-capitalists, as Wikipedia seems to indicate? That would seem to me to be the most intuitive way to use that term.

  16. perfectlyGoodInk

    Also, I (clearly) don’t read about anarchy. Most of the political science I’ve read (which is not a lot) is on presidential systems versus parliamentary systems (e.g., Linz, Cheibub, and Mainwaring), and proportional representation (e.g., Shugart, Lijphart, and Riker).

    The way they use the term “democracy” clearly includes representative democracies. For example, Cheibub and Limongi (2002) in “Democratic Institutions and Regime Survival: Parliamentary and Presidential Democracies Reconsidered” and Mainwaring and Shugart (1997) in “Juan Linz, Presidentialism, and Democracy.”

    • Socialism is an umbrella term and yes, state-socialism (USSR, ect) is considered to be one form of it. Though I personally would not consider its claims to be socialist any more legitimate than DPRK’s claims to be democratic (representative or direct).

      Anarchism *is* also an umbrella term and there are several different forms of it:

      Mutualist anarchism: which advocates a stateless free market economy but with cooperatives and self-employment as the primary enterprises rather than private corporations.

      Communist anarchism: which uses the 19th century definition of the term in advocating a stateless, maketless, moneyless society with economic activity coordinated through decentralized democratic planning rather than markets or state planning

      Collectivist anarchism: which is neither communist nor fully market oriented but blends elements of both. Modern day incarnations of this include Participatory Economics (also called Parecon) and Inclusive Democracy.

      The anarchist cannon does not however include anarcho-capitalism; which is an entirely separate ideology with no connection to any other systems calling themselves anarchist.

      You are correct that we are using different definitions of various terms (democracy, socialism, anarchism), I am using the etymological and historical senses of the words and you are using the more colloquial meanings. But surely what actually matters is the concepts behind what we each mean by the terms?

      The state owning the means of production and centrally planning the economy is a very different thing from a network of neighborhood assemblies owning their own resources and organising enterprises through worker self-management; yet these are both considered forms of socialism.

      Just as people electing a political class to work the operations of a monopoly on force is a very different thing from a decentralized confederal network of self-governing communities running their affairs through face-to-face assembly meetings; yet these are both considered forms of democracy.

      • perfectlyGoodInk

        “The anarchist cannon does not however include anarcho-capitalism; which is an entirely separate ideology with no connection to any other systems calling themselves anarchist.”

        But there is a connection: both oppose the existence of the state. What would be your term for anarcho-capitalism? To me, the “anarcho” portion of the label conveys rather useful information, and it makes sense to categorize the groups of anarchists that oppose hierarchies under the umbrella term of anarchists along with anarcho-capitalists.

        Also, you have not answered my question as to the term you use for representative democracies.

        • perfectlyGoodInk

          When searching the Political Science Complete database, the 2nd peer-reviewed article that comes up is Stephen Cox (2013), “Rand, Paterson, and the Problem of Anarchism,” and it includes the following passage:

          “[Ayn Rand’s] severely limited-government theory naturally attracted to Rand’s circle many radical opponents of the state, including the economist Murray Rothbard… [H]e became the twentieth century’s most formidable proponent of libertarian anarchism (“anarcho-capitalism”). Largely because of his influence, the libertarian movement of the 1970s and 1980s included a very significant minority of anarchists.”

          So my usage of the “anarchist” term also seems to be how at least some academics use it.

          • Marxists also oppose the existence of the state in the long term and propose its “withering away” after a period called the dictatorship of the proletariat. This does not however make them anarchists.

            Opposing institutional hierarchies is part of anarchism by definition. An-archy means “no rulers” not “no state”. Ancaps also use the term “voluntaryism” to describe their ideology. This is actually a much better term as it better encapsulates what they are for: a society without coercion in which all relation are voluntary (in the sense of negative freedom at least). For anarchists, this is necessary but not sufficient. In addition to relations being voluntary, we also see the necessity of them being non-hierarchical and cooperative.

            What non-anarchist academics may think about the subject is largely irrelevant. Anarchists themselves do not consider anarcho-capitalists to be legitimate bearers of the term due to their support for institutional hierarchy and centralizations of economic power.

            As for an alternative term for representative democracy: representative government.

            • perfectlyGoodInk

              “Marxists also oppose the existence of the state in the long term and propose its ‘withering away’ after a period called the dictatorship of the proletariat. This does not however make them anarchists.”

              So neither anarcho-capitalists nor anarcho-communists are considered anarchists according to you?

              “What non-anarchist academics may think about the subject is largely irrelevant. Anarchists themselves do not consider anarcho-capitalists to be legitimate bearers of the term due to their support for institutional hierarchy and centralizations of economic power.”

              I think somebody inside the movement would actually have far less use and need for terms to classify movements and ideologies, and also more likely to let ideological disagreements get in the way of being objective about the usefulness and descriptiveness of a term in identifying a movement both in contrast with others and as part of larger patterns. And if you are ignoring what academics have to say about any subject, you are cutting yourself off from some very interesting thoughts and ideas and analyses (the Cheibub & Limongi paper is one of my favorites).

              Given the myriad paths one can take towards opposing the state and the various additional beliefs one could have beyond that, it makes more sense to me to include all of those opposing the state under one term and those who have additional beliefs then are subgroups under that, just like we do with libertarians, conservatives, liberals, etc. Whether one come to libertarianism via Friedman, Hayek, Rand, Rothbard, or Heinlein, I consider them all libertarians. To do otherwise would be both confusing while also weakening the chance of achieving the policy goals that subgroups broadly agree upon.

              Since anarchists are, much like libertarians, a small minority of the population, I’ll stand by what I said about your usage of this term (and many others) as differing from how most people use it. Which is your prerogative, but to most people, language is intended as a means of connecting with others and communicating ideas. Using words and terms differently from how most others do is a less-than-ideal way to achieve this.

              Note, “representative government” is a decent term, but guess what comes up as the first two search results when you Google it? Note, a monarch or autocrat is very arguably a representative, just an unelected one.

  17. Mr. Nielsen, perhaps you might include a word on methodology for each school. For instance, Austrianism uses a purely a priori methodology stemming from the axiom that action is purposive behavior and deduces its laws from there, and it considers its conclusions as being in the same realm as the theorems of mathematics. (Also it is purely descriptive and objective; it has nothing to do with ideology. Just fyi because you mentioned it so much.) Comparatively, I don’t know much about other schools of thought and this article came in handy for me.

    • P.S. While the rest, to my knowledge, use some form of empiricism, which is flawed at its core if the aim is to produce universal, time-invariant laws (supply and demand, for instance).

      • There is certainly more I could say about all the schools, but for space reasons I had to limit it. As far as I know most schools use similar methodologies. Behavioural economics would use a lot of experiments, neo-classical would be very mathematical and as you mentioned Austrians use praxeology.

        I’ve only recently come across praxeology and it seems incredibly strange and anti-scientific. It rejects evidence and only views economics in abstract terms that cannot be falsified.

      • Andrew

        Any theory that predicts what will happen in the future given certain conditions (as does any practically useful theory of economics) must, at its most basic level, be based on empirical observations. This is because the only thing that allows us to causally connect an earlier event to a later event is inductive reasoning. Theories based solely on a priori truths can tell us nothing about the world. They are true only true by virtue of the meanings of the terms involved, and therefore can only illuminate the conceptual connections between mutually accepted or stipulated definitions (as they do with mathematical axioms). A priori reasoning tells us nothing about the way the real world works or what the future might hold.

        So, an economic theory is either a scientific theory that is based on empirical observations and can therefore tell us something useful about the world, or it is merely a discussion on the way certain terms relate to each other, based solely on a priori reasoning and tells us nothing about what will happen if we adopt a particular policy.

        Furthermore, regardless of whether Austrianism is a useful empirical theory or a practically useless a priori theory, the axiom you stated (that action is purposive behavior) is patently false. I fell down the stairs once, and I definitely did not do it on purpose. Some actions are purposive, but which ones? The ones people take on purpose. So, it is a priori true that purposive actions are purposive. But that is merely a truism and therefore tells us nothing practically useful about the world.

        • You seem to fail to understand the difference between the distinctions of empirical-vs-deductive (a-posteriori vs a-priori) and analytic-vs-synthetic. Analytic truths are those true merely by the nature of the terms. Synthetic ones are not. Would you consider mathematics empirical? Of course not. But empirical sciences still use a-priori, as synthetic a-priori (best described in formal logic and set theory IMO) is used to churn out the empirical conclusions from the empirical premises used as inputs into the logical formulae, as opposed to things proven by building up sets of various deductively correct premises, which themselves can either be synthetic or a-priori. For instance, I would classify mathematics as purely a system of synthetic a-priori means. Sure, people have to sit down and do the work to figure out an equation, thus relying on their empirically-derived tools (eyes, memory, etc) but if the solution to the equation is correct mathematically, there is no way of disproving it deductively or empirically, whereas ALL other answers are.

          You seem like someone stuck on the scientific method instead of trying to fully understand epistemology and the nature of knowledge… I mean, would you tell me I’m wrong that a triangle contains three angles totaling 180 degrees because I haven’t gone out and measured enough triangles? Or because nobody ever has? Come on.

  18. M

    There is supply side and there is supply side. Neither is a school of thought per se. As is commonly used it is a political ideology. We do tend to say things like “in the long run output is determined by the supply side” but that supply side has little to do with the political notion, and more to do with stock of capital/infrastructure. In addition, many “New Keynesians” are actually somewhere between New and Post. Methodologically they are more similar to New Keynesians, but in their understanding of business cycles they often think more along the lines of Minsky. Krugman for example… (Though most of his work has little to do with explaining business cycles per se.)

  19. James

    Thanks for the explanation. I appreciate the effort you took to write this post. I guess I am half Austrian School and half Behavioral School…

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