Criticism of the Neoclassical Theory: Comparative Economics Essay

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Economics: Neoclassical, Keynesian, And Marxian Theories

Social theories attempt to explain how people interact with each other, and with their surroundings. For this reason, it is believed that social theories shape society, so much so that people will theorize elements in their surroundings based on their life situations and what they experience in their interactions. Towards this end, what one person thinks or believes about a certain aspect may not necessarily be what another person thinks; people hold different theories about how the economy works, and how it influences human interactions - and this is particularly why we have multiple economic theories today. Social theories are broadly categorized into three -- humanism, structuralism, and dialectics. These three have been applied to economic theory to explain how the various elements of the economy interact to realize maximum outcomes. This text demonstrates how the aforementioned social theories have been used to shape the neoclassical, Keynesian, and Marxian theories of economics.

Humanism and Neoclassical Theory

Humanism is a system of thought that summarizes the individual as the ultimate cause or source of thought (Wolff and Resnick 12). Under a humanistic approach, the human being, and not a supernatural Being, is perceived to be at the center of the universe, and he has the power to drive whatever outcomes that he feels maximize his own personal gain (Wolff and Resnick 12). From an economic perspective, the human being is at the center of the economic system; he has the ability to work, think logically, and drive growth, wealth, incomes, and prices in the economy (Wolff and Resnick 15). Simply stated, the human being is the master of his own life, and he has the right and power to induce outcomes that maximize his individual gains or improve his life (Wolff and Resnick 15).

Neo-classical economic theory is pegged on the humanistic line of thought.

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It postulates that the maximum overall gain for the whole society can only be achieved if the market is left to operate on its own without external interference; and the market would only operate on its own if each individual is left to use their personal laboring and reasoning abilities to realize the best outcomes for themselves (Wolff and Resnick 15). Neo-classical economists, therefore, advance the concept of self-interest -- that if everyone is left to act in their own self-interest, pursuing the outcomes that maximize their own personal benefit, without social constraints in the form of laws, regulations or government interference, the overall welfare of society would be maximized in the long-term.

The neo-classical approach has, however, been criticized by contemporary economists, who have cast doubt in its ability to bring about sustainable economic outcomes in the long-term. In his popular piece, 'The Tragedy of the Commons', for instance, professor Garrett Hardin used the metaphor of the commons - an open pasture to which all herdsmen took their cattle to feed, and each one had the power to bring as many as their cattle as is humanly possible to maximize their own gain - to illustrate this fact (Hackett 116). He demonstrated that the welfare of the herdsmen and their cattle would only be maximized in the short-term, when there is sufficient pasture to cater for everyone's needs; however, in the long-term, when the effects of….....

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