Introduction to Chapter 1

Mainstream economics, also called neoclassical economics, consists of two major paradigms: the conservative paradigm, which has come to be known in recent decades as neoliberal economics, and the liberal paradigm, which is called Keynesian economics. The central difference between these two versions of neoclassical economics is rather well-known: whereas neoliberal economists tend to promote faith in the self-correcting power of the market mechanism, Keynesian economists view such a strong trust in the inherent ability of the market system to self-correct unwarranted. Accordingly, the Keynesians argue that the market’s “invisible hand” may occasionally need the “visible” hand of the state in order to temper the potentially fatal gyrations of the market system, thereby helping to “protect capitalism from itself,” as Keynes purportedly put it.

While Keynesians disagree with neoliberals on the self-adjusting power of the market mechanism to maintain or restore full employment equilibrium, they share with them almost all other principles of neoclassical economics. These include (a) the utilitarian ideology of economics, according to which the value or morality of economic activities are determined by their consequences, that is, the end justifies the means; (b) the marginal productivity theory of income distribution, according to which each factor of production receives a fair share of what is produced, which is equal to its contribution to production (at the margin); and (c) the theory of general equilibrium, which postulates that supply and demand interactions in competitive markets tend to establish a set of prices that will result in an overall equilibrium.

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