Question

We know Alfred Marshal, John Keynes, Irving Fisher, Paul Samuelson, Robert Solow, Milton Friedman, Joseph Schumpeter, Ronald Coase, Gary Becker were important 20th-century economists. What were their key contributions to the economic issues of that time? How do their contributions impact economics?

Answer 1

Major contribution in economics in the twentieth century is economies of information. Before great depression, the start of twentieth century was recognized as the period of neoclassical economics.

Marshall recognized that workers are not regularly paid according to their performance and) productivity. The Fundamental theorems of Welfare Economics, which includes the economics of imperfect information was one of the important contributions in this century from Economists like Arrow (1971), Radner (1968). For example, incentives and moral hazard is a category of information problem.

Irving Fisher has great contribution in economies as the relationship of inflation with the real and nominal interest rate, which is known as Fisher effect. Fluctuations in inflation and interest rates due to monetary policy can be explained by this theory.

During the great depression, assumptions of classical economies such as full employment and supply side economics were severely criticized by J.M Keynes. Keynes focused on short run concepts and emphasized to focus on aggregate demand at the time of recession. After Keynes, a group of monetarist theories developed. He advocated for increase in government expenditure and decreasing taxes during recession to stimulate the demand. Without sufficient demand, economic growth cannot be boosted up.

After Keynesians, monetarists such as Milton Friedman, Schwartz emphasized the role of monetary policy in increasing national income. Main theoretical contribution of this group was quantity theory of money. They argued that great depression was occurred due to contraction in money supply and not due to lack of investment.

Robert Solow has great contribution in the growth economics. Role of technological progress apart from inputs in production and economic growth gained immense importance in Solow’s growth model.

Industrial revolution in twentieth century led to enormous increase in resource consumption. Therefore, modern discipline of Ecological economics was evolved in this century to evaluate social and environment impact of the industry.

Economists such as Gary Becker, Ronald Coase, Frank Knight, Robert Lucas, George Stigler are among the prominent post Keynesian economists from Chicago School of Economics. Becker is famous for work on human capital and other real-life topics such as diverse as marriage, racial discrimination and criminal behavior. Fundamental work of Coase is transaction costs in property right assignment from the point of view of economic efficiency and equity.

Schumpeter is well-known for his theory of dynamic economic growth and creative destruction. This is very useful theory in modern economics and trade. This theory explains how an old institution or firm is replaced by a new one constantly.