A Timeline of Economic Thought: From Adam Smith to Prospect Theory
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1759–1776: Adam Smith Writes the Founding Texts
Adam Smith was a professor of moral philosophy at the University of Glasgow before he was anything that would now be called an economist — the word did not yet describe a profession. His first book, The Theory of Moral Sentiments, appeared in 1759 and argued that human judgement rests on sympathy, our capacity to imagine ourselves into another person's position. An Inquiry into the Nature and Causes of the Wealth of Nations followed in 1776. It opens not with markets but with a pin factory, because Smith's central claim is that productivity comes from the division of labour, and that the division of labour is limited by the extent of the market. The two books are a single project: the earlier one describes what restrains self-interest, the later one what channels it. Reading either alone produces a distorted Smith, which is exactly what happened for much of the nineteenth and twentieth centuries.
1798–1817: Malthus and Ricardo Build the Classical System
Thomas Robert Malthus published An Essay on the Principle of Population anonymously in 1798, arguing that population tends to grow faster than the food supply and that living standards are therefore pushed back toward subsistence. David Ricardo's On the Principles of Political Economy and Taxation followed in 1817 and gave the classical school its analytical spine: the theory of differential rent, a labour-based theory of value, and the doctrine of comparative advantage, illustrated by the famous cloth-and-wine example involving England and Portugal. Ricardo's method — strip a problem to a small number of assumptions and reason deductively to a conclusion — became as influential as any of his results. The two men corresponded intensively and disagreed on nearly everything of substance, from the Corn Laws to whether a general glut of goods was possible, while remaining close friends.
1867–1874: Marx and the Marginal Revolution
Karl Marx published volume one of Das Kapital in 1867; volumes two and three were assembled from his notes by Friedrich Engels and appeared after Marx's death in 1883. Marx took the classical labour theory of value and turned it into an account of surplus value and exploitation, arguing that capitalism's own dynamics generate crises. Almost immediately afterwards the analytical foundation he had built on was abandoned by mainstream economics. In 1871 William Stanley Jevons in England and Carl Menger in Austria independently published works grounding value in marginal utility rather than labour, and Léon Walras in Lausanne followed in 1874 with a mathematical system of general equilibrium. This near-simultaneous shift is conventionally called the marginal revolution. Value was now explained by the usefulness of the last unit consumed, which is why the paradox of water and diamonds stopped being a paradox.
1890–1936: Marshall, Veblen, Robbins and the Keynesian Break
Alfred Marshall's Principles of Economics (1890) synthesised classical cost-of-production reasoning with marginal utility, introduced the supply-and-demand diagram in the form students still learn, and gave the discipline elasticity, consumer surplus, and the short-run/long-run distinction. Thorstein Veblen's The Theory of the Leisure Class (1899) attacked the whole picture from outside, coining conspicuous consumption. Lionel Robbins's Essay on the Nature and Significance of Economic Science (1932) supplied the definition that still opens most textbooks: economics as the study of human behaviour as a relationship between ends and scarce means with alternative uses. Then the Depression broke the consensus. John Maynard Keynes's The General Theory of Employment, Interest and Money (1936) argued that an economy could settle at an equilibrium with persistent involuntary unemployment, and that aggregate demand, not wage flexibility, was the binding constraint.
1942–1979: Schumpeter, Monetarism and the Behavioural Turn
Joseph Schumpeter's Capitalism, Socialism and Democracy (1942) popularised creative destruction, the idea that growth comes from innovation destroying incumbent industries — a process he explicitly traced back to Marx. Friedrich Hayek's The Road to Serfdom (1944) pressed the Austrian case against central planning, arguing that the knowledge needed to plan is dispersed and cannot be centralised. Milton Friedman and Anna Schwartz's A Monetary History of the United States, 1867–1960 (1963) mounted the empirical counterattack on Keynesian macroeconomics, arguing that Federal Reserve failure turned a recession into the Great Depression. Finally, in 1979, Daniel Kahneman and Amos Tversky published prospect theory in Econometrica, documenting systematic departures from the expected-utility model that had been assumed throughout. Each of these works redefined what counted as the central question.