Neoclassical synthesis
Encyclopedia
Neoclassical synthesis is a postwar academic movement in economics
that attempts to absorb the macroeconomic thought of John Maynard Keynes
into the thought of neoclassical economics
. Mainstream economics
is largely dominated by the resulting synthesis, being largely Keynesian in macroeconomics and neoclassical in microeconomics.
The theory was mainly developed by John Hicks
, and popularized by the mathematical economist Paul Samuelson
, who seems to have coined the term, and helped disseminate the "synthesis," partly through his technical writing and in his influential textbook, Economics
. The process began soon after the publication of Keynes' General Theory with the IS/LM model
first presented by John Hicks
in a 1937 article. It continued with adaptations of the supply and demand
model of markets to Keynesian theory. It represents incentives and costs as playing a pervasive role in shaping decision making
. An immediate example of this is the consumer theory
of individual demand, which isolates how prices (as costs) and income affect quantity demanded.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
that attempts to absorb the macroeconomic thought of John Maynard Keynes
John Maynard Keynes
John Maynard Keynes, Baron Keynes of Tilton, CB FBA , was a British economist whose ideas have profoundly affected the theory and practice of modern macroeconomics, as well as the economic policies of governments...
into the thought of neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
. Mainstream economics
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...
is largely dominated by the resulting synthesis, being largely Keynesian in macroeconomics and neoclassical in microeconomics.
The theory was mainly developed by John Hicks
John Hicks
Sir John Richard Hicks was a British economist and one of the most important and influential economists of the twentieth century. The most familiar of his many contributions in the field of economics were his statement of consumer demand theory in microeconomics, and the IS/LM model , which...
, and popularized by the mathematical economist Paul Samuelson
Paul Samuelson
Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in...
, who seems to have coined the term, and helped disseminate the "synthesis," partly through his technical writing and in his influential textbook, Economics
Economics (textbook)
Economics is an influential introductory textbook by American economists Paul Samuelson and William Nordhaus. It was first published in 1948, and has appeared in nineteen different editions, the most recent in 2010. It was the best selling economics textbook for many decades and still remains...
. The process began soon after the publication of Keynes' General Theory with the IS/LM model
IS/LM model
The IS/LM model is a macroeconomic tool that demonstrates the relationship between interest rates and real output in the goods and services market and the money market...
first presented by John Hicks
John Hicks
Sir John Richard Hicks was a British economist and one of the most important and influential economists of the twentieth century. The most familiar of his many contributions in the field of economics were his statement of consumer demand theory in microeconomics, and the IS/LM model , which...
in a 1937 article. It continued with adaptations of the supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
model of markets to Keynesian theory. It represents incentives and costs as playing a pervasive role in shaping decision making
Decision making
Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternative scenarios. Every decision making process produces a final choice. The output can be an action or an opinion of choice.- Overview :Human performance in decision terms...
. An immediate example of this is the consumer theory
Consumer theory
Consumer choice is a theory of microeconomics that relates preferences for consumption goods and services to consumption expenditures and ultimately to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most closely studied relations in...
of individual demand, which isolates how prices (as costs) and income affect quantity demanded.
See also
- History of macroeconomic thought
- Mainstream economicsMainstream economicsMainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...
- Neo-Keynesian economicsNeo-Keynesian EconomicsNeo-Keynesian economics is a school of macroeconomic thought that was developed in the post-war period from the writings of John Maynard Keynes. A group of economists , attempted to interpret and formalize Keynes' writings, and to synthesize it with the neo-classical models of economics...
- New classical macroeconomicsNew classical macroeconomicsNew classical macroeconomics, sometimes simply called new classical economics, is a school of thought in macroeconomics that builds its analysis entirely on a neoclassical framework. Specifically, it emphasizes the importance of rigorous foundations based on microeconomics...
- New neoclassical synthesisNew neoclassical synthesisNew neoclassical synthesis or new synthesis is the fusion of the major, modern macroeconomic schools of thought, new classical and new Keynesian, into a consensus on the best way to explain short-run fluctuations in the economy.Mankiw , 38. This new synthesis is analogous to the neoclassical...