The fall of communism symbolized the triumph of capitalism and free market over protectionist economics. Resultantly, the world has experienced the concepts of free trade and free government pushed as the most effective means of combating and alleviating poverty, disease, and various plights suffered in greatest numbers in the least developed parts of the world. In terms of economic prosperity, the United Nations classifies the world into two categories: the developed world, which includes the industrialized countries of Western Europe, the United States, Japan, Canada etc. The rest, where four fifths of the world’s population resides, is known as the developing world. Neoclassical economics has become so institutionalized and embedded into our way of thinking that countries are defined as being either a ‘Least Developed Country’ (LDC) or a ‘Developed Country’ before it is viewed in terms of culture, components of its economy, or its existing political institutions. Among the loudest cheerleaders of the globalized system of capitalism are the neoclassical economists. In neoclassical economics,
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The neoclassical economics theory has proven to be durable and the most popularly taught school of modern-day economics. The theories stressed in neoclassical economic teachings fit like a custom-made glove in a world that is increasingly globalized and democratized. Neoclassical economics theory focuses on the micro and individual level of the market, rather than the broader and macro system of economics. As a result, the classic chicken-or-the-egg riddle is asked when looking at the relationship between neoclassical economics theory and individualism in a society: Is it the principles of free market individualism and independent economic influence that shapes the democratization and focus on the individual in a society, or is it open political institutions as well as shifts in cultural attitudes that breed neoclassical economics? Neoclassical economists invert what has long been assumed by economists and sociologists: while other economists argue that individual behavior is influenced by surrounding economic institutions and social norms, neoclassical economists conclude that to understand a country’s economy requires an understanding of its people. The dimension of individualism attached to the “The Great Depression, like most other periods of severe unemployment,” wrote American economist Milton Friedman, “was produced by government mismanagement rather than by any inherent instability of the private economy.” Friedman’s early career was defined by his support of the Keynesian principles that embraced large-scale government intervention through spending in order to stimulate a depressive economy. The Keynesian Revolution enjoyed success in the aftermath of the Great Depression and World War II where governments around the world circulated money into their economies by investing in rebuilding infrastructure and boosting employment. As the economic growth the world enjoyed from the Keynesian fiscal policies melted into an environment of stagflation of the 1970s (which involves low growth and high inflation), Friedman began to investigate the flaws in the Keynesian philosophy of dealing with economics. His epiphany set the groundwork for the development of a new branch of neoclassical economics: monetarism. |
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