Skip to main content

Neoclassical Economics: Origins, Evolution, and Critique

  • Living reference work entry
  • First Online:
The Palgrave Handbook of the History of Human Sciences
  • 576 Accesses

Abstract

This chapter provides an overview of neoclassical economics. The term is explained and contrasted with heterodox alternatives. The historical origins of neoclassical economics are presented, emphasizing some forerunners (Antoine Augustin Cournot, Heinrich Hermann Gossen) and discussing the three “founding fathers” of the English, Lausanne, and Austrian Schools (William Stanley Jevons, Léon Walras, and Carl Menger). A brief account of a few later contributions to neoclassical economic theory is given, and its ascent to become the dominant approach to economic theory is sketched. Economic crises and the lack of an adequate explanation for involuntary unemployment are identified as the main weaknesses of neoclassical economics. The alternative of Keynesian macroeconomics is presented, showing how macroeconomics dealt with these shortcomings. We conclude that neoclassical economics is still the dominant approach in economic theory, due to its superior mathematical methodology and its ability to embed alternative approaches into its system of theories as well as its ability to adapt its doctrines to accommodate elements of alternative theories.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Institutional subscriptions

References

  • Albert H (1998) Modell-Platonismus. Der neoklassische Stil des ökonomischen Denkens in kritischer Betrachtung. In: Albert H Marktsoziologie und Entscheidungslogik Zur Kritik der reinen Ökonomik. Mohr Siebeck, Tübingen, pp 108–142

    Google Scholar 

  • Arnsperger C, Varoufakis Y (2006) What is neoclassical economics? The three axioms responsible for its theoretical oeuvre, practical irrelevance and, thus, discursive power. Panoeconomicus 53:5–18

    Article  Google Scholar 

  • Aspromourgos T (1986) On the origins of the term “neoclassical”. Camb J Econ 10:265–270

    Article  Google Scholar 

  • Aspromourgos T (2018) Neoclassical. In: The new Palgrave dictionary of economics, 3rd edn. Palgrave Macmillan, London, pp 9382–9383

    Google Scholar 

  • Baranzini R (2016) Marie-Esprit-Léon Walras. In: Faccarello G, Kurz HD (eds) Handbook of economic analysis, Edward Elgar, Cheltenham, vol I, p 245–261

    Google Scholar 

  • Barro and Grossman (1976) Money, employment and inflation. Cambridge University Press, Cambridge, UK

    Book  Google Scholar 

  • Becker GJ, Stigler GS (1977) De gustibus non est disputandum. Am Econ Rev 67:76–90

    Google Scholar 

  • Bernoulli D (1954) Exposition of a new theory on the measurement of risk. Econometrica 22:23–36. Original 1738: Specimen theoriae novae de mensura sortis. Commentarii Academiae Scientiarum Imperialis Petropolitanae 5:175–192

    Google Scholar 

  • Bertrand J (1883) Review of: Théorie mathématiques de la richesse sociale par L Walras et Recherches sur les principes mathématiques de la théorie des richesses par AA Cournot. Journal des Savants 67:499–508

    Google Scholar 

  • Blaug M (1997) Economic theory in retrospect, 4th edn. Cambridge University Press, Cambridge, UK

    Book  Google Scholar 

  • Braun MS (1929) Theorie der staatlichen Wirtschaftspolitik. Deuticke, Leipzig

    Google Scholar 

  • Bresciani Turroni C (1942) Introduzione alla politica economica. Einaudi, Torino

    Google Scholar 

  • Calvo GA (1983) Staggered prices in a utility-maximizing framework. J Monet Econ 12:383–398

    Article  Google Scholar 

  • Canova F (2007) Methods for applied macroeconomic research. Princeton University Press, Princeton

    Book  Google Scholar 

  • Clower RW (1965) The Keynesian counter-revolution: a theoretical appraisal. In: Hahn FH, Brechling FPR (eds) The theory of interest rates. Macmillan, London, p 103–125. First published as: Die Keynesianische Gegenrevolution: Eine theoretische Kritik. Schweizerische Zeitschrift für Volkswirtschaftslehre und Statistik 99: p 8–31

    Google Scholar 

  • Clower RW (1967) A reconsideration of the microfoundations of monetary theory. Western Economic Journal 6:1–8

    Google Scholar 

  • Colander (2000) The death of neoclassical economics. Journal of the History of Economic Thought 22:127–143

    Article  Google Scholar 

  • Cournot AA (1838) Recherches sur les principes mathématiques de la théorie des richesses. Hachette, Paris. Also in Cournot (1973–2010), vol. VIII

    Google Scholar 

  • Cournot AA (1927) Researches into the mathematical principles of the theory of wealth. Macmillan, New York. English translation of Cournot (1838)

    Google Scholar 

  • Cournot AA (1973-2010) Oeuvres completes, 11 vols. Vrin, Paris

    Google Scholar 

  • De Grauwe P (2012) Lectures on behavioral macroeconomics. Princeton University Press, Princeton

    Book  Google Scholar 

  • Dequech D (2007-2008) Neoclassical, mainstream, orthodox, and heterodox economics. Journal of Post Keynesian Economics 30:279–302

    Article  Google Scholar 

  • De Vroey M (2016) A history of macroeconomics from Keynes to Lucas and beyond. Cambridge University Press, Cambridge, UK

    Book  Google Scholar 

  • De Vroey M (2017) Review of: DA Walker and J van Daal (eds and trans) Léon Walras, Elements of theoretical economics: or the theory of social wealth, Cambridge University Press, Cambridge 2014. Journal of the History of Economic Thought 39(special issue 1):144–147

    Google Scholar 

  • Di Iorio F (2015) Cognitive autonomy and methodological individualism. The interpretative foundations of social life. Springer, Cham

    Book  Google Scholar 

  • Dixit AK, Stiglitz JE (1977) Monopolistic competition and optimum product diversity. Am Econ Rev 67:297–308

    Google Scholar 

  • Düppe T, Weintraub E (2014) Finding equilibrium. Arrow, Debreu, McKenzie and the problem of scientific credit. Princeton University Press, Princeton

    Book  Google Scholar 

  • Faccarello G, Kurz HD (eds) (2016) Handbook of economic analysis, 3 vols. Edward Elgar, Cheltenham

    Google Scholar 

  • Fair RC (2012) Has macro progressed? J Macroecon 34:2–10

    Article  Google Scholar 

  • Friedman M (1956) The quantity theory of money – a restatement. In: Friedman M (ed) Studies in the quantity theory of money. University of Chicago Press, Chicago, pp 3–21

    Google Scholar 

  • Friedman M (1957) A theory of the consumption function. Princeton University Press, Princeton

    Book  Google Scholar 

  • Friedman M (1961) The lag in effect of monetary policy. J Polit Econ 69:447–466

    Article  Google Scholar 

  • Friedman M (1968) The role of monetary policy. Am Econ Rev 58:1–17

    Google Scholar 

  • Friedman M (1970) A theoretical framework for monetary analysis. In Gordon RJ (ed) Milton Friedman’s monetary framework. A debate with his critics. University of Chicago Press, Chicago pp. 1–62

    Google Scholar 

  • Friedman M, Meiselman D (1963) The relative stability of monetary velocity and the investment multiplier in the United States, 1897–1958. In: Commission on money and credit, stabilization policies. Prentice-Hall, Englewood Cliffs, pp 165–268

    Google Scholar 

  • Gallois N (2011) L’école française contre Walras, économiste hétérodoxe. L’Economie politique 51(3):7–32

    Article  Google Scholar 

  • Gossen HH (1854) Entwickelung der Gesetze des menschlichen Verkehrs, und der daraus fließenden Regeln für menschliches Handeln. Viehweg, Braunschweig

    Google Scholar 

  • Gossen HH (1983) The laws of human relations and the rules of human action derived therefrom. MIT Press, Cambridge MA. English translation of Gossen (1854), with introductory essay by N Georgescu-Roegen

    Google Scholar 

  • Harrod (1951) The life of John Maynard Keynes. WW Norton, New York

    Google Scholar 

  • Hayek FA (1991) Hermann Heinrich Gossen. In: Bartley WW III, Kresge S (eds) The trend of economic thinking. Essays on political economists and economic history. Collected works of F.A. Hayek. Liberty Fund, Indianapolis, pp 352–372

    Google Scholar 

  • Hicks JR (1937) Mr Keynes and the “classics”: a suggested interpretation. Econometrica 5:147–159

    Article  Google Scholar 

  • Hommes C (2021) Behavioral and experimental macroeconomics and policy analysis: a complex systems approach. J Econ Lit 59:149–219

    Article  Google Scholar 

  • Jaffé W (1976) Menger, Jevons and Walras de-homogenized. Econ Inq 14:511–524

    Article  Google Scholar 

  • Jevons WS (1866) Brief account of a general mathematical theory of political economy. J Stat Soc Lond 29:283–287. Also Appendix III in Jevons (1957)

    Google Scholar 

  • Jevons WS (1871) The theory of political economy. Macmillan, London

    Google Scholar 

  • Jevons WS (1874) The principles of science: a treatise on logic and scientific methods. Macmillan, London

    Google Scholar 

  • Jevons HS (ed) (1957) The theory of political economy by W. Stanley Jevons, 5th edn. Kelley & Millman, New York

    Google Scholar 

  • Kahn RF (1984) The making of Keynes’ general theory. Cambridge University Press, Cambridge, UK

    Google Scholar 

  • Keynes JM (1909) Recent economic events in India. Econ J 19:51–56. Also in vol XI of Keynes (1971–1989)

    Article  Google Scholar 

  • Keynes JM (1913) Indian currency and finance. Macmillan, London. Also vol I of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1919) The economic consequences of the peace. Macmillan, London. Also in vol II of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1921) A treatise on probability. Macmillan, London. Also vol VIII of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1922) A revision of the treaty. Macmillan, London. Also vol III of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1923) A tract on monetary reform. Macmillan, London. Also vol IV of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1925) The economic consequences of Mr. Churchill. Hogarth Press, London. Also in vol IX of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1926) The end of Laissez-faire. Hogarth Press, London. Also in vol IX of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1930) A treatise on money. Vol 1: The pure theory of money. Vol 2: The applied theory of money. Macmillan, London. Also vols V and VI of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1936) The general theory of employment, interest and money. Macmillan, London. Also vol VII of Keynes (1971–1989)

    Google Scholar 

  • Keynes JM (1937) The general theory of employment. Quarterly Journal of Economics 51: 209–223. Also in vol XIV of Keynes (1971–1989)

    Google Scholar 

  • Keynes (1971–1989) The collected writings of John Maynard Keynes. Macmillan, London

    Google Scholar 

  • Kirchgässner G (2008) Homo oeconomicus. The economic model of behaviour and its applications in economics and other social sciences. Springer, New York

    Google Scholar 

  • Kirman A (2016) General equilibrium theory. In: Faccarello G, Kurz HD (eds) Handbook of economic analysis. Edward Elgar, Cheltenham, vol III p 236–253

    Google Scholar 

  • Kurz HD (2016) Hermann Heinrich Gossen. In: Faccarello G, Kurz HD (eds) Handbook of economic analysis, Edward Elgar, Cheltenham, vol I, p 196–202

    Google Scholar 

  • Kydland FE, Prescott EC (1977) Rules rather than discretion: the inconsistency of optimal plans. J Polit Econ 85:473–491

    Article  Google Scholar 

  • Kydland FE, Prescott EC (1982) Time to build and aggregate fluctuations. Econometrica 50:1345–1370

    Article  Google Scholar 

  • Lawson T (2013) What is this 'School' called neoclassical economics? Camb J Econ 37:947–983. Also in: Morgan J (2015) p 30–80

    Article  Google Scholar 

  • Leijonhufvud A (1968) On Keynesian economics and the economics of Keynes. Oxford University Press, New York

    Google Scholar 

  • Leroux R (2019) Antoine-Augustin Cournot as a sociologist. Palgrave Macmillan, London

    Book  Google Scholar 

  • Lucas R (1976) Econometric policy evaluation: a critique. In Brunner K, Meltzer A (eds) The Phillips Curve and Labor Markets. Carnegie-Rochester Conference Series on Public Policy 1, Elsevier, New York pp 19–46

    Google Scholar 

  • Maas H (2018) Jevons, William Stanley (1835–1882). In: The new Palgrave dictionary of economics, 3rd edn. Palgrave Macmillan, London, pp 7115–7128

    Chapter  Google Scholar 

  • Malinvaud E (1977) The theory of unemployment reconsidered. Basil Blackwell, Oxford

    Google Scholar 

  • Marshall A (1890) Principles of economics. Macmillan, London. Variorum edition 1961

    Google Scholar 

  • Martin T (2016) Cournot (A). In: Kristanek M (ed) L’Encyclopédie philosophique. https://encyclo-philo.fr/cournot-a

  • Menger C (1871) Grundsätze der Volkswirthschaftslehre. Braumüller, Vienna. English translation: Menger C (1976) Principles of economics. New York University Press, New York

    Google Scholar 

  • Menger C (1883) Untersuchungen über die Methode der Socialwissenschaften und der Politischen Oekonomie insbesondere. Duncker & Humblot, Leipzig. English translation: Menger C (1996) Investigations into the method of the social sciences. Libertarian Press, Grove City, PA

    Google Scholar 

  • Menger C (1884) Die Irrthümer des Historismus in der deutschen Nationalökonomie. Hölder, Vienna

    Google Scholar 

  • Modigliani F (1944) Liquidity preference and the theory of interest and money. Econometrica 12:45–88

    Article  Google Scholar 

  • Moggridge DE (1980) John Maynard Keynes. An economist’s biography. Macmillan, London

    Google Scholar 

  • Moore HL (1905) The personality of Antoine Augustin Cournot. Q J Econ 19:370–399

    Article  Google Scholar 

  • Morgan J (2015) What’s in a name? Tony Lawson on neoclassical economics and heterodox economics. Camb J Econ 39:843–865

    Article  Google Scholar 

  • Morgan J (ed) (2016) What is neoclassical economics? Debating the origins, meaning and significance. Routledge, London

    Google Scholar 

  • Morrison CC (2003) Augustin Cournot and neoclassical economics. Atl Econ J 31:123–132

    Article  Google Scholar 

  • Nash J (1951) Non-cooperative games. Ann Math 54:286–295

    Article  Google Scholar 

  • Neck R (2014) On Austrian economics and the economics of Carl Menger. Atl Econ J 42:217–227

    Article  Google Scholar 

  • Niehans J (2018) Gossen, Hermann Heinrich (1810–1858). In: The new Palgrave dictionary of economics, 3rd edn. Palgrave Macmillan, London, pp 5390–5394

    Chapter  Google Scholar 

  • Pareto V (1906) Manuale di Economia politica con una introduzione alla scienza sociale. Società Editrice Libraria, Milan. English variorum edition: Pareto V (2014) Manual of political economy. Oxford University Press, Oxford

    Google Scholar 

  • Patinkin (1956) Money, interest and prices: an integration of monetary and value theory. Row, Peterson and Company, Evanston IL

    Google Scholar 

  • Peach T (2018) Jevons as an economic theorist. In: The new Palgrave dictionary of economics, 3rd edn. Palgrave Macmillan, London, pp 7106–7115

    Chapter  Google Scholar 

  • Phelps ES (1967) Phillips curves, expectations of inflation and optimal unemployment over time. Economica NS 34:254–281

    Article  Google Scholar 

  • Phillips AW (1958) The relation between unemployment and the rate of change of money wage rates in the United Kingdom, 1861-1957. Economica NS 25:283–299

    Google Scholar 

  • Pigou AC (1920) The economics of welfare. Macmillan, London

    Google Scholar 

  • Pigou AC (1933) The theory of unemployment. Macmillan, London

    Google Scholar 

  • Pigou AC (1950) Keynes’s general theory – a retrospective view. Macmillan, London

    Google Scholar 

  • Poole W, Kornblith EBF (1973) The Friedman-Meiselman CMC paper: new evidence on an old controversy. Am Econ Rev 63:908–917

    Google Scholar 

  • Robbins L (1935) An essay on the nature and significance of economic science, 2nd edn. Macmillan, London

    Google Scholar 

  • Roll E (1992) A history of economic thought, 5th edn. Faber and Faber, London

    Google Scholar 

  • Samuels WJ (1990) Introduction. In: Hennings K, Samuels WJ (eds) Neoclassical economic theory. Kluwer, Boston, pp 1–12

    Google Scholar 

  • Samuelson PA (1947) Foundations of economic analysis. Harvard University Press, Cambridge MA

    Google Scholar 

  • Samuelson PA (1955) Economics. An introductory analysis, 3rd edn. McGraw-Hill, New York

    Google Scholar 

  • Sandelin B, Trautwein HM, Wundrak R (2014) A short history of economic thought, 3rd edn. Routledge, London

    Book  Google Scholar 

  • Sargent TJ, Wallace N (1976) Rational expectations and the theory of economic policy. J Monet Econ 2:169–183

    Article  Google Scholar 

  • Sbordone AM et al (2010) Policy analysis using DSGE models: an introduction. Federal Reserve Bank of New York Economic Policy Review 16:23–43

    Google Scholar 

  • Schmoller G (1883) Zur Methodologie der Staats- und Sozialwissenschaften. Jahrbuch für Gesetzgebung, Verwaltung und Volkswirthschaft im deutschen Reiche 7:239–258

    Google Scholar 

  • Schumpeter JA (1954) History of economic analysis. Allen & Unwin, London

    Google Scholar 

  • Shubik M (2018) Cournot, Antoine Augustin (1801–1877). In: The new Palgrave dictionary of economics, 3rd edn. Palgrave Macmillan, London, pp 2416–2424

    Chapter  Google Scholar 

  • Simons HC (1936) Rules versus authorities in monetary policy. J Polit Econ 44:1–30

    Article  Google Scholar 

  • Skidelsky R (1983–2000) John Maynard Keynes. 3 vols. Macmillan, London

    Google Scholar 

  • Smets F, Wouters R (2003) An estimated dynamic stochastic general equilibrium model of the Euro Area. J Eur Econ Assoc 1:1123–1175

    Article  Google Scholar 

  • Stiglitz JE (2018) Where modern macroeconomics went wrong. Oxf Rev Econ Policy 34:70–106

    Google Scholar 

  • Streissler EW, Streissler M (eds) (1994) Carl Menger’s lectures to Crown Prince Rudolf of Austria. Edward Elgar, Cheltenham

    Google Scholar 

  • Taylor J (1979) Staggered wage setting in a macro model. Am Econ Rev 69(2):108–113

    Google Scholar 

  • Theocharis RD (1990) A note on the lag in the recognition of Cournot’s contribution to economic analysis. Can J Econ 23:923–933

    Article  Google Scholar 

  • von Thünen JH (1826) Der isolirte Staat in Beziehung auf Landwirthschaft und Nationalökonomie. Friedrich Perthes, Hamburg

    Google Scholar 

  • Udehn L (2001) Methodological individualism. Background, history and meaning. Routledge, London

    Google Scholar 

  • Veblen T (1900) The preconceptions of economic science. Q J Econ 14:240–269

    Article  Google Scholar 

  • Walras L (1954) Elements of pure economics or the theory of social wealth. Allen & Unwin, London. English translation of: Walras L (1926) Éléments d’économie politique pure ou théorie de la richesse sociale, definitive edition, R Pichon, Paris

    Google Scholar 

  • Walras (1885) Un économiste inconnu: Hermann-Henri Gossen. Journal des Économistes 30:68–90. Also in Walras and Walras (1987–2005) vol IX, p. 311–330

    Google Scholar 

  • Walras A, Walras, L (1987–2005) Auguste et Léon Walras: Oeuvres économiques complètes, 14 vols. Economica, Paris

    Google Scholar 

  • Whaples R (1995) Where is there consensus among American economic historians? The results of a survey on forty propositions. J Econ Hist 55:139–154

    Article  Google Scholar 

  • Weber M (1921/1922) Wirtschaft und Gesellschaft. Mohr, Tübingen. English translation: Weber M (1968) Economy and society. An outline of interpretive sociology. Bedminster Press, New York

    Google Scholar 

  • Zahle J, Collin F (eds) (2014) Rethinking the individualism-holism debate. Essays in the philosophy of social science. Springer, Cham

    Google Scholar 

Download references

Acknowledgments

Parts of this chapter have been reprinted/adapted with permission from Neck, R. (2014) On Austrian Economics and the Economics of Carl Menger. Atlantic Economic Journal 42, 217–227 (2014). https://doi.org/10.1007/s11293-014-9422-6

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Reinhard Neck .

Editor information

Editors and Affiliations

Section Editor information

Rights and permissions

Reprints and permissions

Copyright information

© 2022 The Author(s), under exclusive licence to Springer Nature Singapore Pte Ltd.

About this entry

Check for updates. Verify currency and authenticity via CrossMark

Cite this entry

Neck, R. (2022). Neoclassical Economics: Origins, Evolution, and Critique. In: McCallum, D. (eds) The Palgrave Handbook of the History of Human Sciences. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-15-4106-3_5-1

Download citation

  • DOI: https://doi.org/10.1007/978-981-15-4106-3_5-1

  • Received:

  • Accepted:

  • Published:

  • Publisher Name: Palgrave Macmillan, Singapore

  • Print ISBN: 978-981-15-4106-3

  • Online ISBN: 978-981-15-4106-3

  • eBook Packages: Springer Reference Behavioral Science and PsychologyReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences

Publish with us

Policies and ethics