Editing Neoclassical economics (section)

== Evolution ==
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The evolution of neoclassical economics can be divided into three phases. The first phase (= a pre-Keynesian phase) is dated between the initial forming of neoclassical economics (the second half of the nineteenth century) and the arrival of [[Keynesian economics]] in the 1930s. The second phase is dated between the year 1940 and the half of the 1970s. During this era, [[Keynesian economics]] was dominating the world's economy but neoclassical economics did not cease to exist. It continued in the development of its microeconomics theory and began creating its own macroeconomics theory. The development of the neoclassical macroeconomic theory was based on the development of the [[quantity theory of money]] and the [[theory of distribution]]. One of the products of the second phase was the [[Neoclassical synthesis]], representing a special combination of neoclassical microeconomics and Keynesian macroeconomics. The third phase began in the 1970s. During this era, [[Keynesian economics]] was in crisis, which encouraged the creation of new neoclassical lines of thoughts such as [[Monetarism]] and [[New classical macroeconomics]]. Despite the diverse focus and approach of these theories, they are all based on the theoretic and methodologic principles of traditional neoclassical economics.<ref>KODEROVÁ, J., SOJKA, M. and HAVEL, J. (2011) Teorie peněz. Praha: Wolters Kluwer Česká republika. pp. 46–47. ISBN 978-80-7357-640-0. Available at: https://ndk.cz/uuid/uuid:961ebdd0-60ab-11e6-b155-001018b5eb5c {{Webarchive|url=https://web.archive.org/web/20210920103003/https://ndk.cz/uuid/uuid:961ebdd0-60ab-11e6-b155-001018b5eb5c |date=September 20, 2021 }}.</ref>

An important change in neoclassical economics occurred around 1933. [[Joan Robinson]] and [[Edward H. Chamberlin]], with the nearly simultaneous publication of their respective books, ''[[The Economics of Imperfect Competition]]'' (1933) and ''The Theory of Monopolistic Competition'' (1933), introduced models of [[imperfect competition]]. Theories of [[market form]]s and [[industrial organization]] grew out of this work. They also emphasized certain tools, such as the [[marginal revenue]] curve. In her book, Robinson formalized a type of limited competition. The conclusions of her work for [[welfare economics]] were worrying: they were implying that the market mechanism operates in a way that the workers are not paid according to the full value of their [[marginal productivity of labor]] and that also the principle of [[consumer sovereignty]] is impaired. This theory heavily influenced the anti–trust policies of many Western countries in the 1940s and 1950s.<ref>SCREPANTI, E. and ZAMAGNI, S. (2005) An Outline of the History of Economic Thought. Second Edition. New York: Oxford University Press Inc. pp. 277.</ref>

Joan Robinson's work on imperfect competition, at least, was a response to certain problems of Marshallian [[supply and demand|partial equilibrium]] theory highlighted by [[Piero Sraffa]]. Anglo-American economists also responded to these problems by turning towards [[general equilibrium theory]], developed on the European continent by Walras and [[Vilfredo Pareto]]. [[J. R. Hicks]]'s ''[[Value and Capital]]'' (1939) was influential in introducing his English-speaking colleagues to these traditions. He, in turn, was influenced by the [[Austrian School]] economist [[Friedrich Hayek]]'s move to the [[London School of Economics]], where Hicks then studied.{{cn|date=June 2024}}

These developments were accompanied by the introduction of new tools, such as [[indifference curve]]s and the theory of [[ordinal utility]]. The level of mathematical sophistication of neoclassical economics increased. [[Paul Samuelson]]'s ''[[Foundations of Economic Analysis]]'' (1947) contributed to this increase in mathematical modeling.

The interwar period in American economics has been argued to have been pluralistic, with neoclassical economics and [[institutional economics|institutionalism]] competing for allegiance. [[Frank Knight]], an early [[Chicago school (economics)|Chicago school]] economist attempted to combine both schools. But this increase in mathematics was accompanied by greater dominance of neoclassical economics in Anglo-American universities after World War II. Some<ref>{{citation| last = Lee| first = Frederic| year = 2009| title = A History of Heterodox Economics: Challenging the mainstream in the twentieth century| url = https://books.google.com/books?id=fDyUAgAAQBAJ| journal = London and New York: Routledge| isbn = 978-1-135-97021-5| access-date = March 8, 2024| archive-date = September 23, 2020| archive-url = https://web.archive.org/web/20200923064040/https://books.google.com/books?id=fDyUAgAAQBAJ| url-status = live}}</ref> argue that outside political interventions, such as [[McCarthyism]], and internal ideological bullying played an important role in this rise to dominance.

Hicks' book, ''[[Value and Capital]]'' had two main parts. The second, which was arguably not immediately influential, presented a model of temporary equilibrium. Hicks was influenced directly by Hayek's notion of intertemporal coordination and paralleled by earlier work by Lindhal. This was part of an abandonment of disaggregated long-run models. This trend probably reached its culmination with the [[Arrow–Debreu model]] of [[intertemporal equilibrium]]. The Arrow–Debreu model has canonical presentations in Gérard Debreu's ''Theory of Value'' (1959) and in Arrow and Hahn's "General Competitive Analysis" (1971).

=== Neoclassical synthesis ===
Many of these developments were against the backdrop of improvements in both [[econometrics]], that is the ability to measure prices and changes in goods and services, as well as their aggregate quantities, and in the creation of [[macroeconomics]], or the study of whole economies. The attempt to combine neo-classical microeconomics and [[Keynesian economics|Keynesian]] macroeconomics would lead to the [[neoclassical synthesis]]<ref>Olivier Jean Blanchard (1987). "neoclassical synthesis", ''The [[New Palgrave: A Dictionary of Economics]]'', v. 3, pp. 634–36.</ref> which was the dominant paradigm of economic reasoning in English-speaking countries from the 1950s till the 1970s. Hicks and Samuelson were for example instrumental in mainstreaming Keynesian economics.

The dominance of [[Keynesian economics]] was upset by its inability to explain the economic crises of the 1970s-<ref>{{citation | last = Clark| first = B| year= 1998| title = Principles of political economy: A comparative approach|url= |journal=Westport, Connecticut: Praeger}}</ref> neoclassical economics emerged distinctly in macroeconomics as the [[new classical macroeconomics|new classical]] school, which sought to explain macroeconomic phenomenon using neoclassical microeconomics.<ref>{{citation | last1 = Snowdon | first1 = Brian | first2 = Howard | last2 = Vane | title = Modern Macroeconomics | publisher = E Elgar | location = Cheltenham | year = 2005 | isbn = 978-1-84542-208-0}}</ref> It and its contemporary [[New Keynesian economics]] contributed to the [[new neoclassical synthesis]] of the 1990s, which informs much of mainstream macroeconomics today.<ref>{{citation |last=Woodford |first=Michael |year=2009 |title=Convergence in Macroeconomics: Elements of the New Synthesis |url=http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf |journal=American Economic Journal: Macroeconomics |volume=1 |issue=1 |pages=267–79 |doi=10.1257/mac.1.1.267 |access-date=September 6, 2020 |archive-date=February 18, 2021 |archive-url=https://web.archive.org/web/20210218041330/http://www.columbia.edu/~mw2230/Convergence_AEJ.pdf |url-status=live }}</ref><ref>{{Citation | first = N Gregory | last = Mankiw | contribution = New Keynesian Economics | title = The Concise Encyclopedia of Economics | publisher = Library of Economics and Liberty | url = http://www.econlib.org/library/Enc/NewKeynesianEconomics.html | access-date = September 6, 2020 | archive-date = February 13, 2021 | archive-url = https://web.archive.org/web/20210213215857/http://www.econlib.org/library/Enc/NewKeynesianEconomics.html | url-status = live }}</ref>

=== Cambridge capital controversy ===
Problems exist with making the neoclassical general equilibrium theory compatible with an economy that develops over time and includes capital goods. This was explored in a major debate in the 1960s—the "[[Cambridge capital controversy]]"—about the validity of neoclassical economics, with an emphasis on economic growth, [[Capital (economics)|capital]], aggregate theory, and the [[marginal productivity]] theory of distribution.<ref>Avi J. Cohen and G. C. Harcourt (2003) Whatever happened to the Cambridge theory controversies? ''Journal of Economic Perspectives'', V. 17, No. 1, pp. 199–214.</ref> There were also internal attempts by neoclassical economists to extend the Arrow–Debreu model to disequilibrium investigations of stability and uniqueness. However, a result known as the [[Sonnenschein–Mantel–Debreu theorem]] suggests that the assumptions that must be made to ensure that equilibrium is stable and unique are quite restrictive.