Neoclassical economics: Origins, evolution, and critique

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.