We often wonder whether theories in the field of social sciences created decades or hundreds of years ago can be useful in the analysis of contemporary phenomena. This problem also applies to economic theories, which create the science of economics not by means of the direct accumulation of knowledge and replacement of old concepts with new ones, but by the coexistence of different schools side by side. Depending on the period, one trend in economics becomes a paradigm, i.e. the dominant approach among scholars. Current economic conditions favour the “popularity” of one school or another, which can be clearly seen on the example of the dominance of neoclassical economics of a free-market character until the crisis of 1929, which gave way to Keynesian economics postulating government interventionism, which, due to the inflation of the 1970s, was supplanted by monetarism restoring the importance of the market.
Neoclassical economics was developed in the period of 1871-1891, as a result of combined achievements of the marginalist revolution of 1871, which treated the needs of consumers as a source of value (price) of products with earlier views of classical economists pointing to labour (costs of production) as a factor determining prices. From that moment on, the law of supply and demand became obvious, at the same time the argument in favour of the effectiveness of market mechanism was accepted. This school described market economy, the origins of which date back to the last decades of the eighteenth century, when the industrialisation of Great Britain began, and the classic postulates of trade liberalisation were implemented by the mid-nineteenth century, bringing an increase in the standard of material living of Western European societies (the GDP per capita of Great Britain tripled between 1700 and 1870, while this indicator for Eastern Europe increased by only half). The neoclassical belief in the effectiveness of the market in the allocation of resources was reasonable.
The loss of this conviction came with the crisis of 1929, when for the first time in history, the world faced the problem of mass unemployment (e.g. the unemployment rate in Belgium in 1934 was 18%) caused by the stock market crash associated with the panic of amateur investors, whom J. M. Keynes criticised in 1936. Let me omit here alternative explanations of the sources of this crisis, as they are the subject of the next article, but what seems worth mentioning here is that market unreliability became a common belief, which translated into the general climate of economic policy after World War II. Even in capitalist countries, the prevailing view was that the government should interfere with the market mechanism by regulating and pursuing appropriate fiscal policies to prevent disastrous effects of economic fluctuations in the form of production and employment declines.
The expansionary fiscal policy of the United States, besides other factors, largely contributed to the global inflation of the 1970s, which appeared even before the oil crisis (in 1970, it was already 5.8%). It became natural to look for a new paradigm in economics, because the Keynesian school, like neoclassical economics before, was discredited. Monetarism developed by M. Friedman, appeared in 1956, as a new and at the same time old approach, because it was a modification of the neoclassical trend with some emphasis on the assumption of stability of the private sector due to a destabilising role of the state, implementing erroneous monetary and inflation-friendly fiscal policies. It was when deregulation and privatisation became new tools of economic policy consisting in the withdrawal of the government from the economy.
In these turbulent times, we are left to observe and reflect on the achievements of previous generations of economists. It can be assumed that past theories have the potential to be used as a tool to help explain current events. In fact, “what was changeable could be grasped and defined only against the background of what is repeated, returns, i.e. successive stages of an irreversible course.” The cyclicality of phenomena, not only economic, but first of all natural, is a fact, so it is natural to see similarities between certain aspects of the past and present, although we will never consider them identical. In addition, “for the researcher of human-specific phenomena, the phenomena of collective or individual consciousness, the facts themselves are as important as the ways of understanding them, commenting on them.” The economic thought thus appears as a way of understanding the economy of an epoch, which bears the signs of the past and elements foreshadowing the future, so “old” concepts as a commentary on the past phenomena conditioning the present time contribute to a better perception of the present reality.
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