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Mar 22
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Cambridge school

 

Name given to British economist Alfred Marshall and his followers, who were also part of the neoclassical school of economics, such as Arthur C. Pigou and Francis Y. Edgeworth, which fully assimilated the concepts and methods of marginalism.

They are also considered to be part of the Cambridge school, although in other terms not relating to neoclassical economics, the group of economists which in one way or another collaborated with J. M. Keynes in the thirties and forties, partly in connection with the problems of war. These include Post-Keynesian economists Joan Robinson and Nicholas Kaldor, extending the group to the Neo-Keynesians John R. Hicks, Paul A. Samuelson and James Tobin.

Mar 22
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Arthur Cecil Pigou

 

Arthur Cecil PigouPigou was a British economist (1877-1959), disciple of Alfred Marshall, whom he succeeded as a professor at Cambridge. Pigou is remembered above all as a precursor of welfare economics, for his books “Wealth and Welfare”, 1912, and “The Economics of Welfare”, 1920, in which he used measures of national income and its distribution in order to understand how wealth and welfare are related. He is also remembered for making a distinction between different degrees of price discrimination.

Being part of the Cambridge school, Pigou used common tools derived from neoclassical economics, such as marginalism, amongst others.

Mar 22
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Bullionism

 

Bullionism is the name given to the essential features of economic thought in the first mercantilist era, during the XVI century. According to this economic doctrine, the State acted directly, through laws and regulations on precious metals in order to make them enter the country and prevent them from leaving. The volume of gold and silver stock was considered at the time as an expression of the wealth of a country.

Mar 22
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Tableau Économique

 

Tableau economiqueFirst circulatory diagram explaining how a national economy works. It was a contribution to economics by French physician and economist François Quesnay. Contrary to the prevailing mercantilist thought at the time, which saw in the possession of gold, silver and other precious metals the wealth of a country, Quesnay argued that real wealth came from production.

However, his Tableau was drawn considering agriculture as the only source of wealth, which gave his findings limited use, since industrial activity was gaining importance.

Mar 22
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François Quesnay

 

François QuesnayQuesnay was a French physician (1694-1774), who also studied economic issues, and was the true founder of the economic doctrine known as Physiocracy. His early works were written in the Encyclopédie of Diderot and d’Alembert (1756,1757). However, his most important contribution to economics was his famous Tableau Économique, 1758, the first circulatory diagram, allowing a further understanding of how an economy works. He did it by comparing the income flow of a given country to the blood in the human body.

The tableau allowed further developments in the matter, such as Léon Walras’ general equilibrium and Wassily W. Leontief’s input-output model.

Mar 22
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Alfred Marshall

 

Alfred MarshallAlfred Marshall was an English economist (1842-1924), and the true founder of the neoclassical school of economics, which combined the study of wealth distribution of the classical school with the marginalism of the Austrian School and the Lausanne School. Professor at Cambridge, he was the author of “Principles of Economics”, 1890, which became the most widely read manual in microeconomics in his time. This book, which is his major work, established a radical change on how economics were taught. Instead of just writing long pages, Marshall draw diagrams throughout the chapters, allowing a better understanding of economic theories and models, such as J. S. Mill’s reciprocal demand, or an analysis on the differences between fixed and variable cost, and the importance of time periods when analyzing these matters. In fact, Marshall is the precursor of today’s cost analysis.

Of unquestionable educational clarity and filled with profound social principles, Marshall contributed to economic science with concepts such as elasticity and the further development of other subjects, surpluses for instance. Although he did not invent the term nor did he initiate this theory, he did made a clearer separation and definition of different kind of surpluses, such as consumer’s and producer’s surplus.

Also in his “Principles of Economics”, he stated the differences between internal and external economies of scale, as well as a diagram which depicted the fluctuations in supply and demand that took place before arriving to a steady state, a general equilibrium. This equilibrium was reached by means of changing amounts, not prices, as Léon Walras stated.

He is also considered as founder of the Cambridge School, where he taught economics until his retirement. Other renowned economists belonging to this school are Arthur C. Pigou and J. M. Keynes.

Mar 20
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Francis Ysidro Edgeworth

 

Francis Ysidro Edgeworth

Edgeworth was an Irish economist (1845-1926), professor of Political Economy at the University of Oxford, whose most important contributions to economic science were statistical in nature, primarily in the area of index numbers, highlighting also the mathematical apparatus needed for the drawing of indifference curves and the contract curve, from the first analysis of W.S. Jevons. Although it would be Vilfredo Pareto, in 1906, who would draw an indifference map, as we know the representation of various indifference curves nowadays.

In his “Mathematical Psychics: an Essay on the Application of Mathematics to the Moral Sciences”, published in 1881, Edgeworth designed what is now known as an Edgeworth box, which basically allows us to compare two mathematical functions represented as curves using the same axis. However, it was also Pareto in 1906 who would depict this Edgeworth box as we know it, as a “box”. It was also in “Mathematical Psychics” where utility functions started to be written as F(xn, yn, zn), closer to what we see in today’s textbooks. It must be said, as an anecdotical fact, that Edgeworth mentioned in a footnote this book, when interpreting an earlier book form J. J. Thomson, that “energy is the product of mass and the square of velocity”, which is generally attributed to Einstein or other physicists.

In 1894, Edgeworth published a diagram in “Theory of International Values” explaining the terms of trade from a geometrical perspective, basing this article on J. S. Mill‘s work on trade and his theory on reciprocal demand.

Mar 19
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Lausanne school

 

Name that comes from the university in this Swiss city, in which marginalist economist Léon Walras taught and developed its main contributions to economics. Vilfredo Pareto, also a supporter of marginal analysis methods, whose Pareto-optimal notion deeply contributed in the development of game theory and welfare economics later on, was also part of this school.

The Lausanne School contributions to economics, as well as the marginal revolution itself, influenced Alfred Marshall and the Neoclassical School in general.

 

Mar 19
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Austrian school

 

Named essentially after the work of three economists that taught the same course at the University of Vienna:

–Carl Menger, whose main contribution to economic science is the theory of marginal utility;

–Friedrich von Wieser, who formulated the idea of opportunity cost;

–Eugen von Böhm-Bawerk, who contributed to economics with his studies on the nature of capital and interest rates.

Ludwig H. Edler von Mises and Friedrich A. von Hayek are considered followers of this school, and also as links to the Chicago School.

Mar 19
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Vilfredo Pareto

 

Vilfredo Pareto

Pareto was an economist and sociologist of Italian origin, born in Paris (1848-1923), who taught at the University of Lausanne, as well as previously did his mentor, Léon Walras. They both were part of the Lausanne School, which is considered, along with the Austrian School, as the birthplace of marginalism and neoclassical economics.

His chief works were “Course of Political Economy”, 1896-97, and “Manual of Political Economy”, 1906. Among Pareto’s contributions, we can highlight the graphical development of Edgeworth box, as well as an improvement on the way indifference curves are drawn, and studies on the personal distribution of income.

In his studies of the late nineteenth century, Pareto found some regularity in the personal distribution of income in different countries. From that regularity, he determined a series of economic and sociological conclusions, which became known afterwards as Pareto’s Laws. He also studied some regularities in businesses, where concentration was the explanation for the fact that many companies get 80% of their revenue from only 20% of its products.

Nowadays, however, he is mostly known for the Pareto optimal, a notion widely used in game theory and welfare economics.