The Neoclassical Paradigm

Abstract

The neoclassical tradition provides the orthodox analysis of capitalist and mixed economies in the developed countries of the West. Its roots in the earlier, classical economics are commonly traced to Adam Smith, whose legacy includes three items of particular importance: the consideration of markets comprising many, small sellers; the impersonality of the price-determining mechanism (the operation of the ‘invisible hand’); and the explanation of the behaviour of economic systems through the operation of individuals’ rationality. According to Blaug, the ‘marginal revolution’ in economic theory, from which the neoclassical analysis stems, shifted the focus of economics from macroeconomic issues of capital accumulation and population growth to microeconomics. The concern with macroeconomic issues reappeared with Keynes (Blaug, 1968, pp. 4, 303–4).