A Timeline of the Schools of Economic Thought

1770s–1840s: The Classical School

The classical school begins with Adam Smith's Wealth of Nations (1776) and runs through Malthus, Ricardo's Principles (1817), Say and John Stuart Mill's Principles (1848). Its shared commitments were a labour or cost-of-production theory of value, an interest in long-run growth and distribution among landlords, capitalists and workers, a presumption that competitive markets tend toward full employment, and support for free trade against mercantilism. There was an important French current too: the Physiocrats of the 1750s and 1760s, led by François Quesnay, who located all surplus in agriculture and gave the world the phrase laissez-faire. The classical framework organised political economy for roughly seventy years and set the questions — value, rent, wages, growth — that every later school had to answer or reject.

1860s–1870s: Marxist Economics and the Marginal Revolution

Two movements broke from the classical mainstream almost simultaneously and in opposite directions. Marxist economics, launched by the first volume of Marx's Das Kapital (1867), pushed the classical labour theory of value to a conclusion the classicals had avoided: that profit represents surplus value extracted from labour, and that capitalism is therefore inherently unstable and exploitative. The marginalist or neoclassical school moved the other way. Jevons, Menger and Walras (1871–1874) rebuilt value on marginal utility, dissolving the labour theory that Marx had just made central. Within a decade the marginalist approach had captured the academic mainstream, leaving Marxian economics as a heterodox tradition — influential in politics and sociology, but outside the discipline's core.

1870s–1930s: The Austrian and Neoclassical Schools

Carl Menger's 1871 book also founded the Austrian school, carried forward by Eugen von Böhm-Bawerk, Ludwig von Mises and Friedrich Hayek. The Austrians shared marginalism but developed a distinctive emphasis on subjective value, the role of time and capital structure, entrepreneurship, and the price system as a device for coordinating dispersed knowledge; they were deeply sceptical of mathematical modelling and of central planning. Meanwhile the mainstream marginalist tradition became the neoclassical school, consolidated by Alfred Marshall's Principles (1890), which married marginal utility to cost of production and gave economics the supply-and-demand apparatus, elasticity and partial-equilibrium method that still anchor the microeconomics curriculum.

1936–1970s: Keynesianism and the Monetarist Reply

Keynes's General Theory (1936) founded modern macroeconomics and the Keynesian school, which held that aggregate demand can fall short of full employment for long periods and that fiscal and monetary policy should correct it. After the war Paul Samuelson's neoclassical synthesis stitched Keynesian macro onto neoclassical micro, and this settlement dominated textbooks into the 1970s. The main challenge came from monetarism, led by Milton Friedman at Chicago, which argued that inflation is always and everywhere a monetary phenomenon, that active fiscal fine-tuning is ineffective or destabilising, and that steady money growth is the sound rule. Friedman and Edmund Phelps also introduced the natural rate of unemployment and the expectations-augmented Phillips curve in the late 1960s.

1970s–present: New Classical, New Keynesian and Behavioural

The stagflation of the 1970s discredited the simple Keynesian consensus and opened the field. The new classical school, associated with Robert Lucas, built macroeconomics on rational expectations and market clearing, arguing that systematic policy is neutral. The new Keynesian response accepted rational expectations but reintroduced market frictions — sticky prices and wages, imperfect competition — to preserve a role for demand management; much of contemporary central-bank modelling descends from this synthesis. Running alongside, behavioural economics grew from the work of Kahneman and Tversky in the 1970s, challenging the rational-agent assumption common to nearly all the earlier schools. The result today is less a single orthodoxy than a set of overlapping traditions, distinguished by their assumptions about expectations, frictions and rationality.