---
title: "History of economic thought"
chunk: 16/18
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"
---

In 1965 Chicago School economist Eugene Fama (1939–) published The Behavior of Stock Market Prices, which found that stock market prices follow a random walk, proposing the Efficient Market Hypothesis, that randomness is characteristic of a perfectly functioning financial market. The same year Paul Samuelson published a paper concluding the same thing with a mathematical proof, sharing the credit. Earlier in 1948 Holbrook Working (1895–1985) published a paper saying the same thing, but not in a mathematical form. In 1970 Fama published Efficient Capital Markets: A Review of Theory and Empirical Work, proposing that efficient markets can be strong, semi-strong, or weak, and also proposing the Joint Hypothesis Problem, that the idea of market efficiency can not be rejected without also rejecting the market mechanism.

== Games, evolution and growth (20th century) ==

In 1898 Thorstein Veblen published Why is Economics not an Evolutionary Science, which coins the term Evolutionary economics, making use of anthropology to deny that there is a universal human nature, emphasizing the conflict between "industrial" or instrumental and "pecuniary" or ceremonial values, which became known as the Ceremonial/Instrumental Dichotomy.
Joseph Alois Schumpeter (1883–1950) was an Austrian School economist and political scientist best known for his works on business cycles and innovation.  He insisted on the role of the entrepreneurs in an economy.  In Business Cycles: A theoretical, historical and statistical analysis of the Capitalist process (1939), Schumpeter synthesized the theories about business cycles, suggesting that they could explain the economic situations. According to Schumpeter, capitalism necessarily goes through long-term cycles because it is entirely based upon scientific inventions and innovations.  A phase of expansion is made possible by innovations, because they bring productivity gains and encourage entrepreneurs to invest.  However, when investors have no more opportunities to invest, the economy goes into recession, several firms collapse, closures and bankruptcy occur.  This phase lasts until new innovations bring a creative destruction process, i.e. they destroy old products, reduce the employment, but they allow the economy to start a new phase of growth, based upon new products and new factors of production.
In 1944 Hungarian-American mathematician John von Neumann and Oskar Morgenstern published Theory of Games and Economic Behavior, founding Game Theory, which was widely adopted by economists. In 1951 Princeton mathematician John Forbes Nash Jr. published the article Non-Cooperative Games, becoming the first to define a Nash Equilibrium for non-zero-sum games.
In 1956 American economist Robert Solow (1924–2023) and Australian economist Trevor Swan (1918–1989) proposed the Solow–Swan model, based on productivity, capital accumulation, population growth, and technological progress. In 1956 Swan also proposed the Swan diagram of the internal-external balance. In 1987 Solow was awarded the Nobel Economics Prize.

== Post World War II and globalization (mid to late 20th century) ==

The globalization era began with the end of World War II and the rise of the U.S. as the world's leading economic power, along with the United Nations. To prevent another global depression, the victorious allies countries forgave Germany its war debts and used its surpluses to rebuild Europe and encourage reindustrialization of Germany and Japan. In the 1960s it changed its role to recycling global surpluses.

After World War II, Canadian-born John Kenneth Galbraith (1908–2006) became one of the standard bearers for pro-active government and liberal-democrat politics. In The Affluent Society (1958), Galbraith argued that voters reaching a certain material wealth begin to vote against the common good. He also argued that the "conventional wisdom" of the conservative consensus was not enough to solve the problems of social inequality. In an age of big business, he argued, it is unrealistic to think of markets of the classical kind. They set prices and use advertising to create artificial demand for their own products, distorting people's real preferences. Consumer preferences actually come to reflect those of corporations – a "dependence effect" – and the economy as a whole is geared to irrational goals. In The New Industrial State Galbraith argued that economic decisions are planned by a private-bureaucracy, a technostructure of experts who manipulate marketing and public relations channels. This hierarchy is self-serving, profits are no longer the prime motivator, and even managers are not in control. Because they are the new planners, corporations detest risk, require steady economic and stable markets. They recruit governments to serve their interests with fiscal and monetary policy, for instance adhering to monetarist policies which enrich money-lenders in the City through increases in interest rates. While the goals of an affluent society and complicit government serve the irrational technostructure, public space is simultaneously impoverished. Galbraith paints the picture of stepping from penthouse villas onto unpaved streets, from landscaped gardens to unkempt public parks. In Economics and the Public Purpose (1973) Galbraith advocates a "new socialism" as the solution, nationalising military production and public services such as health care, introducing disciplined salary and price controls to reduce inequality.
In contrast to Galbraith's linguistic style, the post-war economics profession began to synthesize much of Keynes' work with mathematical representations. Introductory university economics courses began to present economic theory as a unified whole in what is referred to as the neoclassical synthesis. "Positive economics" became the term created to describe certain trends and "laws" of economics that could be objectively observed and described in a value-free way, separate from "normative economic" evaluations and judgments.