History of Economic Thought: Meaning and Significance

In this article we will discuss about the History of Economic Thought:- 1. Meaning of History of Economic Thought 2. Significance of History of Economic Thought 3. Difficulties in the Study.

Meaning of History of Economic Thought:

History of Economic Thought as the title implies deals with the origin and development of economic ideas and their interrelations. It is a historical account of economic doctrines. Prof. Haney has defined it as “a critical account of the development of economic ideas, searching into their origin, interrelations and manifestations”. According to Prof. Bell, “It is the study of the heritage left by the writers on economic subjects”.

Prof. Schumpeter holds that “economic thought is the sum total of all the opinions and desires concerning economic subjects especially concerning with public policies of different times and places”. Schumpeter further says that the history of economic thought traces the historical change of attitudes. It also speaks about the economic problems and the approaches to those problems.

History of Economic Thought is different from Economic History and History of Economics. While History of Economic Thought deals with the development of economic ideas, Economic History is a study of the economic development of a country. On the other hand, History of Economics deals with the science of economics.

Even though Economic History and History of Economic Thought constitute separate branches of study, they are closely related. Economic ideas are directly and indirectly motivated by the economic conditions and environment of the country. Ideas and environment are equally important and hence close relationship between History of Economic Thought and Economic History.

History of the development of economic ideas can be studied under three periods, namely:

1. Ancient,

2. Medieval and

3. Modern.

Further the history of Economic Thought may be broadly divided into two parts. The first part deals with the origin and the development of economic ideas before the development of economics as a science. The second part deals with the economic ideas after the development of economics as a science.

History of economic thought can be studied and analysed by adopting different approaches:

1. Chronological approach

2. Conceptual approach

3. Philosophical approach

4. Deductive (or) Classical approach

5. Inductive approach

6. Neo-classical approach

7. Welfare approach

8. Institutional approach and

9. Keynesian approach.

1. Chronological approach:

In this approach, economic ideas are discussed in order of time. The economic ideas of different economists can be presented year-wise and can be studied. In this approach we can find a continuity in the economic ideas of different economists.

2. Conceptual approach:

It speaks about the evolution of different economic concepts (ideas) and the interdependence of these concepts. Conceptual approach can also be called as ideological approach.

3. Philosophical approach:

This was first adopted by the Greek philosopher, Plato. In the past, economics was considered as a hand maid of ethics. Naturally philosophical approach was adopted by the early writers to discuss the economic ideas.

4. Deductive approach:

The classical economists adopted deductive method. They believed in the universal application of economic laws.

5. Inductive approach:

The Historical School emphasised the inductive method. These economists believed that the laws of economics are not universal in nature.

6. Neo-classical approach:

This approach aims at improving the classical ideas by modifying them. Neo-classical approach was first adopted by Marshall. The Neo-classical approach believed that “Induction and Deduction are necessary for the science of economics just as the right and left feet are necessary for walking”.

7. Welfare approach:

It aims at providing the basis for adopting policies which are likely to maximise social welfare.

8. Institutional approach:

The institutionalists questioned the validity of classical ideas and gave importance to psychological factors.

9. Keynesian approach:

A major development in modern economics is associated with the name of J.M. Keynes. His approach is new and different from the classical school. It takes into consideration the operation of business cycles that affect the entire economic policies. Keynesian approach deals with the problem of the economy as a whole.

Significance of History of Economic Thought:

There are two views with regard to the importance of study of History of Economic Thought. One group of economists believed that there is no need to study the history of Economic Thought because it is a history of errors. Whereas another group believed that one cannot possess knowledge of any economic doctrine until one knows something of its history.

So a study of History of Economic Thought is important for the following reasons:

1. The study of History of Economic Thought clearly shows that there is a certain unity in economic thought and this unity connects us with ancient times.

2. The study of Economic Thought will help us to understand the origin of economics.

3. Economic ideas have been instrumental in shaping the economic and political policies of different countries.

4. Economic ideas are conditioned by time, place and circumstances.

5. A study of Economic Thought provides a broad basis for comparison of different ideas. It will enable a person to have a well-balanced and reasonable judgement.

6. Through the study of Economic Thought the student will realise that economics is different from economists.

7. The study of the subject helps us to avoid the mistakes committed by earlier economic thinkers.

8. The study of History of Economic Thought will enable us to know the person responsible for the formulation of certain important principles.

In short, the significance of the study of History of Economic Thought can hardly be overemphasized. It is an important tool of knowledge.

Difficulties in the Study of History of Economic Thought:

However, it must be remembered that History of Economic Thought is selective and interpretative in nature. In other words the authors select those topics in which they are interested. They also explain the facts in their own manner.

If authors leave out certain important facts and emphasize others, their judgements are biased. For example, the famous book, “A History of Economic Doctrines”—written by Gide and Rist leaves out discussions on ancient economic ideas, medieval economic thought and the contributions made by Mercantilists.

Further, complete history should deal with modern economic thought also. That means it should include the contributions made by Marshall, A.C. Pigou, J.M. Keynes etc. In this respect it can also be said that Alexander Gray’s “The Development of Economic Doctrines” is incomplete. In-spite of the above defects, the study of History of Economic Thought enables one to understand the subject clearly.