What are the most important economic ideologies? How did they originate? Who were the theorists behind them? And how did these ideas evolve? In this Spark session, Ravi traces the history of economic thought from seventeenth century onwards to provide a context to the current fractious economic policy debates and how one amongst these ideas will define our future.

1. Battle of Economic Ideas
February 2015
Ravi Saraogi | ravi.saraogi@ifmr.co.in

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How best to organize our society so as to satisfy all human wants
and need with our finite resources?
Image courtesy: Georgist Journal

3. • The Age of Enlightenment: 1650s to 1780s
– Weakening of the State
• Golden Period of Classical Liberalism: 1750s to 1880s
– Weakening of the State
• The Marxian-Keynesian Backlash: 1880s to 1970s
– Strengthening of the State
• Neo-liberalism: 1970s to 2007
– Weakening of the State
• The current scenario: 2007-current
– ?
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Structure

4. The Age of Enlightenment (1650s to 1780s)
Golden Period of Classical Liberalism: 1750s to 1880s
The Marxian-Keynesian Backlash: 1880s to 1970s
Neo-liberalism: 1970s to 2007
The current splintering of economic ideas: 2007-current

5. The Age of Enlightenment: 1650s to 1780s
Defining Feature
 ‘Divine right of the Kings’ to rule was
questioned
 Separation of the State from the
Church
 Reason was given prominence in the
discovery of truth over religion
 Natural rights
Source: Wiki Images

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The Age of Enlightenment: 1650s to 1780s
Rene Descartes (1596-1650)
 Father of modern western
philosophy
 His focus on reason shifted the
onus of truth from God to
humanity
“I think, therefore I am”
Source: Wiki Images

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The Age of Enlightenment: 1650s to 1780s
John Locke (1632-1704)
 Advocated natural rights as
inalienable laws
“Every man has a property in his
own person. This nobody has a
right to but himself.”
Source: Wiki Images

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The Age of Enlightenment: 1650s to 1780s
Voltaire (1694-1778)
“I say that we should regard all men as
our brothers. What? The Turk my
brother? The Chinaman my brother?
The Jew? The Siam? Yes, without doubt;
are we not all children of the same
father and creatures of the same God?”
“I do not agree with what you have
to say, but I'll defend to the death
your right to say it.”
Source: Wiki Images

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The Age of Enlightenment: 1650s to 1780s
Events
 The Glorious Revolution (1688-1689)
o Battle between the “Diving rights of
kings” vs “Parliament of England”
o Abolition of absolute monarchy in
England through the Bill of Rights 1689
 American Declaration of Independence
(1776)
o Opening lines from the Declaration of
Independence,
“We hold these truths to be self-
evident, that all men are created equal,
that they are endowed by their Creator
with certain unalienable Rights, that
among these are Life, Liberty and the
pursuit of Happiness”
Source: Wiki Images

10. The Age of Enlightenment (1650s to 1780s)
- Decline of absolute monarchy
Golden Period of Classical Liberalism: 1750s to 1880s
The Marxian-Keynesian Backlash: 1880s to 1970s
Neo-liberalism: 1970s to 2007
The current splintering of economic ideas: 2007-current

11. The Golden Age of Classical Liberalism: 1780s to 1880s
Defining Feature
Democracy
+
Free Markets
The Classical Liberal Credo
Maximize individual liberty by minimizing the role of the State

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The Golden Age of Classical Liberalism: 1780s to 1880s
Adam Smith (1723-1790)
 Laid the foundations of classical
free-market economic thought
 Published An Inquiry into the
Nature and Causes of the Wealth of
Nations in 1776
“It is not from the benevolence of the
butcher, the brewer, or the baker that
we expect our dinner, but from their
regard to their own interest.”
Source: Wiki Images

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The Golden Age of Classical Liberalism: 1780s to 1880s
Frédéric Bastiat (1801-1850)
“If the natural tendencies of mankind
are so bad that it is not safe to permit
people to be free, how is it that the
tendencies of these organizers are
always good? Do not the legislators and
their appointed agents also belong to
the human race? Or do they believe that
they themselves are made of a finer clay
than the rest of mankind?”
Source: Wiki Images

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The Golden Age of Classical Liberalism: 1780s to 1880s
Industrial Revolution (1760-1820)
Source: The Mises Circle

15. The Age of Enlightenment (1650s to 1780s)
- Decline of monarchy
Golden Period of Classical Liberalism: 1750s to 1880s
- Free markets
The Marxian-Keynesian Backlash: 1880s to 1970s
Neo-liberalism: 1970s to 2007
The current splintering of economic ideas: 2007-current

16. The Marxian-Keynesian Backlash: 1880s to 1970s
Background: Revolt of Romantics against Industrial Revolution
Source: Wiki Images

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The Marxian-Keynesian Backlash: 1880s to 1970s
Karl Marx (1818-1883)
 Published the Communist Manifesto
along with Engels in 1848
 His magnum opus was Das Capital
published in three volumes over (1867-
1894)
“The history of all hitherto existing society
is the history of class struggles.”
Capitalism Socialism Communism
Source: Wiki Images

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The Marxian-Keynesian Backlash: 1880s to 1970s
John Maynard Keynes (1883-1946)
 Founder of modern macro-
economics
 Published his magnum opus The
General Theory of Employment,
Interest and Money in 1936
“Economists set themselves too easy, too
useless a task, if in tempestuous seasons
they can only tell us, that when the storm
is long past, the ocean is flat again”
Source: Wiki Images

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The Marxian-Keynesian Backlash: 1880s to 1970s
Decline of classical liberalism: Business cycles
Franklin D. Roosevelt (1882-1945)
“Let us never forget that government
is ourselves and not an alien power
over us. The ultimate rulers of our
democracy are not a President and
senators and congressmen and
government officials, but the voters of
this country.”
The Great Depression (1930)
Source: Wiki Images

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The Marxian-Keynesian Backlash: 1880s to 1970s
Decline of classical liberalism: World Wars
Economic hardships Large scale destruction
Source: Wiki Images
Source: Wiki Images

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The Marxian-Keynesian Backlash: 1880s to 1970s
Decline of classical liberalism: Totalitarian States
Adolf Hitler
(Germany)
Stalin
(Soviet Union)
Benito Mussolini
(Italy)
Source: Wiki Images

22. The Age of Enlightenment (1650s to 1780s)
- Decline of monarchy
Golden Period of Classical Liberalism: 1750s to 1880s
- Free markets
The Marxian-Keynesian Backlash: 1880s to 1970s
- Reassertion of the State in the affairs of a nation
Neo-liberalism: 1970s to 2007
The current splintering of economic ideas: 2007-current

23. Neo-liberalism: 1970s to 2007
Stagflation: The Death Knell of Keynesian Ideas
Stagnation
+
Inflation
=
Stagflation
Source: Wiki Images

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Neo-liberalism: 1970s to 2007
Collapse of Socialism
Dissolution of the Soviet Union (December 1991)
Source: The Economist

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Neo-liberalism: 1970s to 2007
Origin of the classical liberal counter-revolution (neo-liberalism)
The Mont Pelerin Society (Founded in 1947)

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Neo-liberalism: 1970s to 2007
F.A. Hayek (1899-1992)
“The curious task of economics is
to demonstrate to men how little
they really know about what they
imagine they can design”
 Was awarded the Nobel prize in
economic science for the year
1974
 Published the “Road to
Serfdom” in 1944
Source: Wiki Images

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Neo-liberalism: 1970s to 2007
Milton Friedman (1912-2006)
“If you put the federal government in
charge of the Sahara desert, in 5 years,
there’d be a shortage of sand.”
“The government solution to a
problem is usually as bad as the
problem.”
“Nothing is so permanent as a
temporary government program.”
 Was awarded the Nobel prize in economic
science for the year 1976
 Laid the blame for the Great Depression
at the Federal Reserve doorsteps
Source: Wiki Images

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Neo-liberalism: 1970s to 2007
Political Icons of Liberty
Ronald Reagan (1911-2004)Margaret Thatcher (1925-2013)
The problem with
socialism is that you
eventually run out of
other peoples'
money.
-Margaret Thatcher
The nine most
terrifying words in
the English language
are: I'm from the
Government, and
I'm here to help.
-Ronald Reagan
Source: Wiki Images
Source: Wiki Images

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Neo-liberalism: 1970s to 2007
The Indian Neo-Liberal Gang
C. Rajagopalachari
(1878-1972)
Minoo Masani
(1905-1998)
B.R. Shenoy
(1905-1978)
Source: Wiki Images

30. The Age of Enlightenment (1650s to 1780s)
- Decline of monarchy
Golden Period of Classical Liberalism: 1750s to 1880s
- Free markets
The Marxian-Keynesian Backlash: 1880s to 1970s
- Reassertion of the State in the affairs of a nation
Neo-liberalism: 1970s to 2007
- Reassertion of moderate free market ideas
The current scenario: 2007-current

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Current Scenario: 2007 onwards
The Dot Com Bust (2001), The Subprime Crisis (2007) and the
Euro Crisis (2010)
Source: Wiki Images

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What Next?
Economic freedom
Political
Freedom
Pre Age of
Enlightenment
Age of
Enlightenment
Classical
Liberalism
Marxian
Backlash
Keynesian
Backlash
Neo-
liberalism
?

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Thank you