In this article, i will take you through Top 11 Famous Economists and discuss about their contributions to the world economy. Over the last 250 Years we saw a whole era of Brilliant Economists which more or less started from Adam Smith and then goes on with the list of David Ricardo, Karl Marx, Alfred Marshall and so on. All the economists tried to visualize the problems from very different perspective and thus opened the gateway for broad area of economics like Macroeconomics, Behavioral Economics, Environmental Economics etc. We will go through all the famous economists and will look into their unique contributions given to our society.
Famous Economists and their Contributions to World Economy
- Also Known as the Founding Father of Economics.
- Smith believed that real wealth was the sum of the annual produce of the land and labour of the whole country and that prosperity was based on increasing that.
- He focused on the concept of ‘natural liberty’, the idea that people can deploy their resources in competition with others.
- This process would identify which activities were most worth doing. For example, if mining produced higher returns than the average of other activities then capital would naturally swing towards that area and away from less productive areas.
Also Read: The Great Economists
- He was born in 1772 four years before Adam Smith’s The Wealth of Nations was published into an immigrant Jewish family in London’s East End as the third of 17 children.
- He built a model of the economy based on agriculture, and in particular the staple crop of corn, which was still predominant at the time.
- He saw that with a rising population, demand for food would increase and, to meet that, farmers would have to bring less fertile land into use.
- He argued that Corn prices had risen because of a lack of imports during wartime and this encouraged entrepreneurs into the farming industry to get a share of these profits, just as he argued in his writings.
- He would have seen that the poor wages of those ill-fated homebuyers were the result of a sustained period of exploitation by the business class.
- Marx’s economic theory is based on the classical economics of Smith and Ricardo.
- He too looks at commodities and the way that things are produced but comes up with his own theory of value by applying a Hegelian ‘materialistic dialectic’ to his predecessors’ theories.
- He saw value arising from the effort that the workers put in to produce the goods, as Smith and Ricardo did. But while Ricardo thought that the amount of labour used to make goods determined their prices over the long run, Marx focused on value.
- In his view the amount of labour determined the value of the good produced. A machine that takes five hours to make something has twice the value as one that takes ten hours. He distinguished between ‘use value’, which was ‘immutable’, and the ‘exchange value’ that the owners of the good could get by selling it.
- Marx could see that the workers did not retain all the value of their efforts by a long shot. A machine worker would be paid a wage to produce a box-worth of tools that would sell for a much higher price than his daily wage. Think of a supermarket checkout worker, a solicitor’s assistant or a bank teller and you can see that the same dynamic applies now.
- A top-class Cambridge mathematician, Marshall moved over to moral and social sciences early in his career and was determined to apply mathematical rigour to the emerging science of economics.
- Marshall’s understanding of how demand and supply work and how producers and consumers substitute one thing for another, whether coal or charcoal, machines for people, biscuits for croissants or leisure for work, led to the next concept for which he is rightly famous – elasticity.
- This unusual word is a measure of how responsive people are to changes in prices. If something rises in price will we grit our teeth and buy the same amount or cut our purchases? And if it were to fall suddenly, would we leap in to buy as much as we could?
- The answer depends on the nature of the product. Marshall saw there was little elasticity with human necessities.
- Looking at wheat, the staple food of his time, he realised that a fall in the price would not lead to a sudden rise in demand, as there are not many other uses for wheat than making bread. But people need to eat and so will be prepared to pay more for the amount that they need even if the price rises.
John Maynard Keynes
- John Maynard Keynes enjoyed a gilded upbringing. He was born in 1883 just six weeks after Marx was laid to rest.
- Keynes’s main impact was his theory that justified the need for state intervention in times of economic depression.
- Keynes said the decision to invest depended on people’s estimate of the difference between the profits they expected to make and the rate of interest they would earn by keeping the money in the bank.
- Keynes pointed out that if everyone took steps to save money this would actually lead to lower aggregate savings in the long run as there would be less economic growth an idea he called the ‘paradox of thrift’.
- If planned savings exceed planned investments that would lead to a downward pressure on growth, while an excess of investment would stimulate it.
- It is the instability of investment that is a prime cause of downturns. In its most simplistic form unemployment is caused by a lack of investment.
- Hayek was an active thinker and writer and he published books and articles for almost 60 years between 1929 and 1988.
- The philosophy Hayek set out sought to repudiate the principles not just of Keynesianism but also of socialism and any other isms that looked to government to play a major role in the running of the economy or of society.
- He saw open and free markets as not just the most efficient way of organising economic activity but as a guarantor of personal liberty. While Keynes is certainly the best economist of the first half of the 20th century, many would hand that title to Hayek for the second half.
- Friedman like Keynes and Marshall might never have been an economist and instead pursued a career in mathematics.
- Friedman’s early thinking on economics was heavily influenced by the Great Depression.
- Milton and Rose Friedman wrote in their joint memoir, Two Lucky People. But his analysis of the Depression led to him coming up with a diagnosis and solution for running economies that was diametrically opposed to that of Keynes and his intellectual disciples.
- Samuelson made a number of improvements to the Keynesian analysis of macroeconomics.
- He took the multiplier effect that Keynes developed that said that an injection of money into the economy by the government would have a greater impact on the economy than the sum of new money alone in the form of extra wages and spending for new workers taken on.
- Samuelson said that as economic output expanded then businesses would need to invest in new capital. These factors would feed off each other as the increase in investment led to more output thanks to the multiplier that in turn leads to more investment. In a downturn the multiplier-accelerator effect operates in reverse as cuts in investment leads to falls in output (via the multiplier) that in turn lead to falls in investment (via the accelerator).
- Becker believed that the ways that humans behaved in making economic decisions were determined by a fundamental set of economic principles. Behind these was the belief that individuals, whether people, firms or governments, tended to behave in a rational way and to pursue the course that gave them the greatest increase in their welfare.
- He applied these ideas to areas where scientists had previously assumed that behaviour was formed by entrenched habits or was simply irrational and thus not open to logical explanation.
- It is important to stress that this assumption about rational behaviour was more than simply adopting the doctrine of enlightened self-interest put forward by Adam Smith.
- Daniel Kahneman is a key mover behind the discipline of behavioural economics, which is a fast-growing and fascinating field that has become of increasing importance for governments and businesses as well as for economic policymakers and academics.
- At the heart of Kahneman’s contribution to economics is his analysis of how people make decisions and particularly financial decisions.
- Given that an integral part of economics is the collective weight of the decisions that millions of people and businesses make every day, it is important to understand how each one makes those decisions especially in the face of uncertain outcomes.
- The first step in this analysis is to accept that people often appear not to behave rationally.
Thomas Robert Malthus
- He believed that population grows geometrically, while food supply grows arithmetically. The end result would be poverty and misery as the population outgrows the food supply.
- His answer to the dilemma was moral restraint in having children to slow down population growth.
- Malthus was unable to predict the technology of the green revolution, which dramatically increased the productivity and yields of farmers, especially in the last half of the twentieth century after World War II.