Economics: Orthodox and Heterodox Approaches

Study Notes

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

Description

This quiz covers the principles of Orthodox economics, also known as mainstream economics, and its counterpart, Heterodox economics. Learn about the key differences between these two approaches and their applications.