Other broad distinctions within economics include those between positive economics, describing "what is", and normative economics, advocating "what ought to be";[4] between economic theory and applied economics; between rational and behavioural economics; and between mainstream economics and heterodox economics.[5]
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Robbins described the definition as not classificatory in "pick[ing] out certain kinds of behaviour" but rather analytical in "focus[ing] attention on a particular aspect of behaviour, the form imposed by the influence of scarcity."[34] He affirmed that previous economists have usually centred their studies on the analysis of wealth: how wealth is created (production), distributed, and consumed; and how wealth can grow.[35] But he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it (as a sought after end), generates both cost and benefits; and, resources (human life and other costs) are used to attain the goal. If the war is not winnable or if the expected costs outweigh the benefits, the deciding actors (assuming they are rational) may never go to war (a decision) but rather explore other alternatives. We cannot define economics as the science that studies wealth, war, crime, education, and any other field economic analysis can be applied to; but, as the science that studies a particular common aspect of each of those subjects (they all use scarce resources to attain a sought after end).
Keynesian economics derives from John Maynard Keynes, in particular his book The General Theory of Employment, Interest and Money (1936), which ushered in contemporary macroeconomics as a distinct field.[76] The book focused on determinants of national income in the short run when prices are relatively inflexible. Keynes attempted to explain in broad theoretical detail why high labour-market unemployment might not be self-correcting due to low "effective demand" and why even price flexibility and monetary policy might be unavailing. The term "revolutionary" has been applied to the book in its impact on economic analysis.[77]
The Chicago School of economics is best known for its free market advocacy and monetarist ideas. According to Milton Friedman and monetarists, market economies are inherently stable if the money supply does not greatly expand or contract. Ben Bernanke, former Chairman of the Federal Reserve, is among the economists today generally accepting Friedman's analysis of the causes of the Great Depression.[79]
The Austrian School emphasizes human action, property rights and the freedom to contract and transact to have a thriving and successful economy.[81] It also emphasizes that the state should play an infinitesimally small role (if any role) in the regulation of economic activity between two transacting parties.[82] A key component of Austrian economics is the principle of sound money. As Ludwig Von Mises, one of the most prominent 20th century Austrian economists, stated, "Ideologically it (sound money) belongs in the same class with political constitutions and bills of rights."[83] Austrian economists assert that sound money prevents government actors from debasing the currency, disrupting the savings rate of the population and artificially distorting the economic choices of individual actors.
Much applied economics in public policy is concerned with determining how the efficiency of an economy can be improved. Recognizing the reality of scarcity and then figuring out how to organize society for the most efficient use of resources has been described as the "essence of economics", where the subject "makes its unique contribution."[106]
Game theory is a branch of applied mathematics that considers strategic interactions between agents, one kind of uncertainty. It provides a mathematical foundation of industrial organization, discussed above, to model different types of firm behaviour, for example in a solipsistic industry (few sellers), but equally applicable to wage negotiations, bargaining, contract design, and any situation where individual agents are few enough to have perceptible effects on each other. In behavioural economics, it has been used to model the strategies agents choose when interacting with others whose interests are at least partially adverse to their own.[117] 2ff7e9595c
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