---
title: "History of economic thought"
chunk: 8/18
source: "https://en.wikipedia.org/wiki/History_of_economic_thought"
category: "reference"
tags: "science, encyclopedia"
date_saved: "2026-05-05T03:59:30.681827+00:00"
instance: "kb-cron"
---

The classical economists were referred to as a group for the first time by Karl Marx. One unifying part of their theories was the labour theory of value, contrasting to value deriving from a general equilibrium theory of supply and demand. These economists had seen the first economic and social transformation brought by the Industrial Revolution: rural depopulation, precariousness, poverty, apparition of a working class.
They wondered about population growth, because demographic transition had begun in Great Britain at that time. They also asked many fundamental questions, about the source of value, the causes of economic growth and the role of money in the economy. They supported a free-market economy, arguing it was a natural system based upon freedom and property. However, these economists were divided and did not make up a unified current of thought.
A notable current within classical economics was underconsumption theory, as advanced by the Birmingham School and Thomas Robert Malthus in the early 19th century. These argued for government action to mitigate unemployment and economic downturns, and were an intellectual predecessor of what later became Keynesian economics in the 1930s. Another notable school was Manchester capitalism, which advocated free trade, against the previous policy of mercantilism.

=== Marxian critique of political economy ===

Marx wrote his magnum opus Das Kapital (Capital: A Critique of Political Economy) (1867) at the British Museum's library in London. Karl Marx begins with the concept of commodities, which he views as a historically specific phenomenon. He hence looks to history to state that before capital, production was based on slavery – in ancient Rome for example – then serfdom in the feudal societies of medieval Europe. Marx viewed the current mode of production as one which would ultimately produce an erratic and unstable situation allowing the conditions for revolution in the long term.
Marx uses the word commodity in an extensive metaphysical discussion of the nature of material wealth, how the objects of wealth are perceived and how they can be used. A commodity contrasts to objects of the natural world. When people mix their labor with an object it becomes a commodity. In the natural world there are trees, diamonds, iron ore and people. In the world of the economists they become chairs, rings, factories and workers. However, says Marx, commodities have a dual nature. He distinguishes the use value of a thing from its exchange value. If commodities are considered absolutely isolated from their useful qualities the common property is human labor in the abstract. A phenomenon unique to a specific historical configuration, which is dependent on certain social practices, most dominantly waged work, executed en masse. Marx argued for critique by linking his ideas of surplus value and socially necessary labor time with the classical labor theory of value and theories of rent.
Marx believed that a reserve army of the unemployed would grow and grow, fueling a downward pressure on wages as desperate people accepted work for less. But this would produce a deficit of demand as the people's power to purchase products lagged. A glut of unsold products would result, production would be cut back, and profits decline until capital accumulation halted in an economic depression. When the glut cleared, the economy would again start to boom before the next cyclical bust begins. With every boom and bust, with every capitalist crisis, thought Marx, tension and conflict between the increasingly polarized classes of capitalists and workers would heighten due to the tendency of the rate of profit to fall.

=== Henry George and Georgism ===

Henry George (1839–1897) is popularly recognized as the intellectual inspiration for the economic philosophy now known as Georgism.  George is said to be the last classical economist. During his life, George was one of the three most famous Americans, along with Henry Ford and Thomas Edison. George's first book, Progress and Poverty, was one of the most widely printed books in English, selling between 3 and 6 million copies by the early 1900s.  Progress and Poverty sparked a worldwide reform movement and is sometimes marked as the beginning of the Progressive Era.  Georgism declined in the second half of the 20th century as the Marxist and Austrian and Keynesian neoclassical schools gained popularity. However, there are still active Georgist organizations and land reform movements around the world.  George's ideas have been incorporated into the philosophies of socialism, libertarianism, and ecological economics. Paul Samuelson listed Henry George as one of only six "American saints" in classical economics.

=== The London School of Economics ===

In 1895 the London School of Economics (LSE) was founded by Fabian Society members Sidney Webb (1859–1947), Beatrice Webb (1858–1943), and George Bernard Shaw (1856–1950), joining the University of London in 1900.
In the 1930s LSE member Sir Roy G.D. Allen (1906–1983) popularized the use of mathematics in economics.

== Neoclassical (19th and early 20th century) ==

Neoclassical economics developed in the 1870s. There were three main independent schools. The Cambridge School was founded with the 1871 publication of Jevons' Theory of Political Economy, developing theories of partial equilibrium and focusing on market failures. Its main representatives were Stanley Jevons, Alfred Marshall, and Arthur Pigou. The Austrian School of Economics was made up of Austrian economists Carl Menger, Eugen von Böhm-Bawerk, and Friedrich von Wieser, who developed the theory of capital and tried to explain economic crises. It was founded with the 1871 publication of Menger's Principles of Economics. The Lausanne School, led by Léon Walras and Vilfredo Pareto, developed the theories of general equilibrium and Pareto efficiency. It was founded with the 1874 publication of Walras' Elements of Pure Economics.

=== Anglo-American neoclassical ===