Economics: Orthodox and Heterodox Approaches

Orthodox Economics

• Also known as mainstream economics, which is widely accepted and taught in academic institutions
• Follows rational choice theory, which assumes individuals make decisions that maximize their utility, based on complete and relevant information, and act in their own self-interest
• Uses statistics and mathematical models, such as econometrics and game theory, to demonstrate theories and evaluate economic developments, providing a quantitative approach to understanding economic phenomena
• Typically taught at universities, where students are introduced to the principles of microeconomics, macroeconomics, and international trade
• Emphasizes the importance of individual economic agents, such as households and firms, and their interactions in the market
• Applies microeconomic principles to understand the behavior of these agents, including the law of supply and demand, and the concept of market equilibrium

Heterodox Economics

• Refers to the analysis and study of economic principles outside of mainstream or orthodox schools of economic thought, offering alternative perspectives on economic issues
• Involves employing research methods and tools from other disciplines, such as psychology, sociology, and anthropology, to gain a more comprehensive understanding of economic phenomena
• Encompasses various branches or approaches to studying economics that diverge from conventional thought, including institutional economics, Marxist economics, and feminist economics
• Challenges the assumptions of orthodox economics, such as the idea of rational choice, and instead emphasizes the role of institutions, power relationships, and social norms in shaping economic outcomes
• Seeks to provide a more nuanced understanding of economic systems, recognizing the complexity and diversity of human experiences and outcomes

German Historical School

• Emerged in Germany during the 1840s and extended into the 20th century, as a response to the dominant classical economic theory of the time
• Critiqued classical economic theory, arguing it didn't apply universally across all cultures and economies, and instead emphasized the importance of historical and cultural context in shaping economic development
• Refused to accept the conclusions of classical economists, as they were based on industrializing economies like England's, and instead advocated for a more nuanced approach that recognized the unique challenges and opportunities of different countries
• Advocated for state guidance and protectionist policies to support economic development in countries like Germany and the United States, which were seen as lagging behind more industrialized nations
• This approach was influential in shaping the economic policies of Germany and the United States, particularly during the late 19th and early 20th centuries

Friedrich List

• Argued that state guidance was necessary, particularly for Germany and the United States, to support the development of infant industries and protect them from foreign competition
• Believed free trade would be beneficial for England, but protectionism was necessary for less developed countries, which needed to protect their industries and economies from foreign competition
• Advocated for temporary protection to enable infant industries to grow and eventually compete with established industries, promoting the idea of "educating" industries through protectionism
• Published The National System of Political Economy in 1841, which influenced American protectionism and shaped the economic policies of the United States during the late 19th and early 20th centuries
• His work also influenced other economists and policymakers, who drew on his ideas to develop their own approaches to economic development and trade policy