The Schools of Economics and Their Founders

Classical School: Smith, Ricardo, Mill

The classical school was founded by Adam Smith (1723–1790) and given its analytical rigour by David Ricardo (1772–1823), with John Stuart Mill (1806–1873) codifying it in his Principles of 1848. Their defining commitments were a cost-of-production or labour theory of value, attention to long-run growth and the distribution of income among social classes, and the presumption that competitive markets are broadly self-regulating. Smith supplied the division of labour and the case against mercantilism; Ricardo added comparative advantage, differential rent and the deductive method; Mill broadened the framework toward questions of distribution and social reform, arguing that while the laws of production are fixed, the distribution of what is produced is a matter of human institutions and choice — a move that opened classical economics toward later reformist currents.

Marxist Economics: Karl Marx

Karl Marx (1818–1883) built his economics on the classical labour theory of value he inherited from Ricardo, but turned it into a critique of the whole system. The central concept is surplus value: workers produce more value than the wage they are paid, and that difference is the source of profit. From this Marx derived an account of capital accumulation, recurring crises, the concentration of capital, and a tendency for the rate of profit to fall. Volume one of Das Kapital appeared in 1867; Engels edited the later volumes from Marx's manuscripts. When mainstream economics abandoned the labour theory of value during the marginal revolution, Marxian economics became a heterodox tradition, but its questions about distribution, instability and technological displacement remained live well outside it.

Austrian School: Menger, Mises, Hayek

The Austrian school began with Carl Menger (1840–1921), one of the three marginal revolutionaries of 1871, and ran through Ludwig von Mises (1881–1973) and Friedrich Hayek (1899–1992). The school is marginalist but distinctive: value is strictly subjective, capital has a time structure, entrepreneurship and discovery drive markets, and — most influentially — the price system is understood as a mechanism for coordinating knowledge that is dispersed among millions of individuals and available to no central planner. Mises argued in the 1920s that rational economic calculation is impossible under comprehensive socialism because it lacks market prices for capital goods; Hayek developed the knowledge argument in The Use of Knowledge in Society (1945). The Austrians were also methodological dissenters, sceptical of the mathematical and statistical turn that the rest of economics embraced.

Neoclassical and Keynesian: Marshall and Keynes

Alfred Marshall (1842–1924) is the central figure of the neoclassical school proper. His Principles (1890) fused marginal utility with cost-of-production reasoning and produced the supply-and-demand apparatus, elasticity, consumer surplus and the short-run/long-run method that still define microeconomics. John Maynard Keynes (1883–1946), a product of Marshall's Cambridge, broke from the neoclassical treatment of the economy as a whole. His General Theory (1936) argued that aggregate demand, not price flexibility, determines output in the short run, and that an economy can remain stuck below full employment. The relationship is telling: Keynes was a neoclassical microeconomist who concluded that neoclassical assumptions failed at the level of the whole economy, which is why the two schools were later stitched together in the neoclassical synthesis.

Monetarist, New Classical and Behavioural: Friedman, Lucas, Kahneman

Milton Friedman (1912–2006) led the monetarist school, reviving the quantity theory of money, arguing that inflation is fundamentally monetary and that stable money growth outperforms discretionary policy; he shared the natural-rate hypothesis with Edmund Phelps. Robert Lucas (1937–2023) founded the new classical school on rational expectations, arguing that anticipated policy cannot systematically move real output and that macro models need explicit microfoundations. Daniel Kahneman (1934–2024), a psychologist, and his collaborator Amos Tversky launched the behavioural challenge to the rational-agent assumption shared by nearly all the earlier schools. Each of these figures was recognised by the Nobel Memorial Prize — Friedman in 1976, Lucas in 1995, Kahneman in 2002 — and each redefined what economists took the central macro or micro question to be.