The Neoclassical Revolution in Economics

The classical economists fluidized the economy as a whole, recognizing that it responded to opportunities as signaled by price disequilibria. The macroeconomic realm thus ceased to be a fixed, arbitrary architecture and became a system that found its own balance of growth and stability. However, while the classical economists recognized that the macroeconomy was composed of and regulated by a host of microeconomic actions -- the pricing and production decisions of individual firms and consumers -- the classical model did little to explain those firms' behavior. Adam Smith's pin maker could exploit the division of labor to produce far more pins at a far lower price (1976, I. pp. 8-9).

But how many pins would it be worthwhile for him to make? Put another way, at what point would his factory expansion plans bump up against market limits, and why? The classical theorists had no cle

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the universe around us. However, the life and death of stars has little immediate impact on the conditions of human life, whereas microbes and economics have a great bearing on how we live. Thus, microbiologists and economists are under a burden that astrophysicists are not, to employ their insights not only to increase human knowledge but to alleviate disease or poverty. Keynes' work, more than that of most economists, is profoundly associated with a specific real-world event, or set of events: the Great Depression. He is therefore judged not only or even primarily by his theoretical contribution, but by the policy consequences of his ideas during a critical period. Even his defenders acknowledge how hard Keynes worked to "sell" his ideas. Joan Robinson (quoted in Canterbery, 2001, p. 230) argues that "if he had used proper scholarly caution and academic reserve, his book would have slipped down unnoticed and millions of families rotting in unemployment would be so much the further from relief." Neoclassical economics starts with the presumption that people who get their hands on money either spend it or save it. If they save it, however, the neoclassical presumption is that they do not simply stuff it under a mattress
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Approximate Word count = 2200
Approximate Pages = 9 (250 words per page)

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