---
title: "History of economic thought"
chunk: 17/18
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 Paul Samuelson's (1915–2009) Foundations of Economic Analysis published in 1947 was an attempt to show that mathematical methods could represent a core of testable economic theory. Samuelson started with two assumptions. First, people and firms will act to maximize their self-interested goals. Second, markets tend towards an equilibrium of prices, where demand matches supply. He extended the mathematics to describe equilibrating behavior of economic systems, including that of the then new macroeconomic theory of John Maynard Keynes. Whilst Richard Cantillon had imitated Isaac Newton's mechanical physics of inertia and gravity in competition and the market, the physiocrats had copied the body's blood system into circular flow of income models, William Jevons had found growth cycles to match the periodicity of sunspots, Samuelson adapted thermodynamics formulae to economic theory. Reasserting economics as a hard science was being done in the United Kingdom also, and one celebrated "discovery", of A. W. Phillips, was of a correlative relationship between inflation and unemployment. The workable policy conclusion was that securing full employment could be traded-off against higher inflation. Samuelson incorporated the idea of the Phillips curve into his work. His introductory textbook Economics was influential and widely adopted. It became the most successful economics text ever. Paul Samuelson was awarded the new Nobel Prize in Economics in 1970 for his merging of mathematics and political economy.

American economist Kenneth Arrow's (1921–2017) published Social Choice and Individual Values in 1951. It consider connections between economics and political theory. It gave rise to social choice theory with the introduction of his "Possibility Theorem". This sparked widespread discussion over how to interpret the different conditions of the theorem and what implications it had for democracy and voting. Most controversial of his four (1963) or five (1950/1951) conditions is the independence of irrelevant alternatives.
In the 1950s Kenneth Arrow and Gérard Debreu (1921–2004) developed the Arrow–Debreu model of general equilibria. In 1963 Arrow published a paper which founded Health Economics.
In 1971 Arrow and Frank Hahn published General Competitive Analysis (1971), which reasserted a theory of general equilibrium of prices through the economy.  In 1971, US President Richard Nixon's had declared that "We are all Keynesians now", announcing wage and price controls. He lifted this from a comment by Milton Friedman in 1965 which formed a Time.

=== International economics ===

In 1951 English economist James Meade (1907–1995) published The Balance of Payments, volume 1 of "The Theory of International Economic Policy", which proposed the theory of domestic divergence (internal and external balance), and promoted policy tools for governments.  In 1955 he published volume 2 Trade and Welfare, which proposed the theory of the "second-best", and promoted protectionism.  He shared the 1977 Nobel Economic Prize with Bertil Ohlin.
In 1979 American economist Paul Krugman (1953–) published a paper founding New trade theory, which attempts to explain the role of increasing returns to scale and network effects in international trade. In 1991 he published a paper founding New economic geography. His textbook International Economics (2007) appears on many undergraduate reading lists.  He was awarded the Nobel Prize in Economics in 2008.

=== Development economics ===

In 1954 Saint Lucian economist Sir Arthur Lewis (1915–1991) proposed the Dual Sector Model of Development Economics, which claims that capitalism expands by making use of an unlimited supply of labor from the backward non-capitalist "subsistence sector" until it reaches the Lewisian breaking point where wages begin to rise, receiving the 1979 Nobel Economics Prize.
In 1955 Russian-born American economist Simon Kuznets (1901–1985), who introduced the concept of Gross domestic product (GDP) in 1934 published an article revealing an inverted U-shaped relation between income inequality and economic growth, meaning that economic growth increases income disparity between rich and poor in poor countries, but decreases it in wealthy countries.  In 1971 he received the Nobel Economics Prize.
Indian economist Amartya Sen (1933–) expressed considerable skepticism about the validity of neoclassical assumptions, and was highly critical of rational expectations theory, devoting his work to Development Economics and human rights.
In 1981, Sen published Poverty and Famines: An Essay on Entitlement and Deprivation (1981), a book in which he argued that famine occurs not only from a lack of food, but from inequalities built into mechanisms for distributing food. Sen also argued that the Bengal famine was caused by an urban economic boom that raised food prices, thereby causing millions of rural workers to starve to death when their wages did not keep up.
In addition to his important work on the causes of famines, Sen's work in the field of development economics has had considerable influence in the formulation of the "Human Development Report", published by the United Nations Development Programme. This annual publication that ranks countries on a variety of economic and social indicators owes much to the contributions by Sen among other social choice theorists in the area of economic measurement of poverty and inequality.  Sen was awarded the Nobel Prize in Economics in 1998.

=== New Economic History (Cliometrics) ===

In 1958 American economists Alfred H. Conrad (1924–1970) and John R. Meyer (1927–2009) founded New Economic History, which in 1960 was called Cliometrics by American economist Stanley Reiter (1925–2014) after Clio, the muse of history.  It uses neoclassical economic theory to reinterpret historical data, spreading throughout academia, causing economic historians untrained in economics to disappear from history departments.  American cliometric economists Douglass Cecil North (1920–2015) and Robert William Fogel (1926–2013) were awarded the 1993 Nobel Economics Prize.

=== Public choice theory and constitutional economics ===

In 1962 American economists James M. Buchanan (1919–2013) and Gordon Tullock (1922–2014) published The Calculus of Consent, which revived Public Choice Theory by differentiating politics (the rules of the game) from public policy (the strategies to adopt within the rules), founding Constitutional Economics, the economic analysis of constitutional law. Buchanan was awarded the 1986 Nobel Economics Prize.

=== Impossible trinity ===