Classical and

Neoclassical Economics
CONVENTIONAL THEORIES OF DEVELOPMENT
JAMUEL JAMES T. BERANGGA

AB, SOCSI

4TH YEAR STUDENT

INTERNSHIP STUDENT

22 YEARS OLD
conventional theories of development and how
classical and neo-classical economics have contributed
to its evolution over time

• Conventional theories of development are a set of

dominant and influential perspectives on how
underdeveloped or developing countries can catch up
with developed countries in terms of economic,
political, and social progress. These theories have
evolved over time, and have been shaped by various
intellectual and historical forces, including the
contributions of classical and neo-classical economics.
 CLASSICAL ECONOMICS
Classical economics, which emerged in the late 18th and early
19th centuries, viewed economic growth and development as
being driven by the invisible hand of the market, the division of
labor, and the pursuit of self-interest. Classical economists, such
as Adam Smith and David Ricardo, emphasized the importance
of free trade, specialization, and competition in creating a
prosperous and efficient economy.
 NEO-CLASSICAL ECONOMICS
• Neo-classical economics, which emerged in the late
19th and early 20th centuries, built on the ideas of
classical economics but also introduced new concepts
such as marginal utility, rational behavior, and
efficient markets. Neo-classical economists, such as
Alfred Marshall and Milton Friedman, argued that the
market was the best mechanism for allocating
resources and achieving economic growth.
WHAT IS CLASSICAL ECONOMICS?
• Emphasizes the idea of laissez-faire, or free market
capitalism, and the natural regulation of the economy
through market forces
• Argues that individuals act in their own self-interest
and that the pursuit of self-interest leads to the greatest
overall benefit for society
• Emphasizes the importance of free trade and the
division of labor in increasing economic efficiency
 EXAMPLE OF CLASSICAL ECONOMICS
• An example of classical economics can be seen in Adam Smith's "The
Wealth of Nations," in which he argued that free trade and the
division of labor can lead to increased economic growth and
prosperity. Smith's famous metaphor of the "invisible hand" refers to
the idea that self-interested individuals pursuing their own economic
interests will inadvertently promote the greater good of society as a
whole. Classical economics continues to influence modern economic
thought and policy, particularly in discussions of the benefits and
drawbacks of free market capitalism.
WHAT IS NEOCLASSICAL ECONOMICS
• Builds upon classical ideas and adds the concept of marginal
analysis, which argues that economic agents make decisions based
on marginal benefits and costs
• Argues that market prices reflect the interaction of supply and
demand at the margin, and that this determines resource allocation
• Develops the concept of market failure, which occurs when the
market does not allocate resources efficiently, and argues for
government intervention in certain cases
EXAMPLE OF NEOCLASSICAL
ECONOMICS
• An example of neoclassical economics can be seen in the theory of
supply and demand, which is a fundamental concept in
microeconomics. According to this theory, the price of a good or
service is determined by the interaction of supply, which is the
amount of the good or service that producers are willing to sell at a
given price, and demand, which is the amount of the good or service
that consumers are willing to buy at a given price.
• Overall, classical and neoclassical economics share many
similarities, but neoclassical economics offers a more
refined and nuanced understanding of how markets
work, and when and how government intervention may
be necessary to address market failures.
CLASSICAL VS NEOCLASSICAL
ECONOMICS
• Classical and neoclassical economics are two different schools of
economic thought that emerged in different time periods and have
some fundamental differences. Here are some of the key differences
between classical and neoclassical economics:
• Time period: Classical economics emerged in the late 18th century
and continued into the 19th century, while neoclassical economics
emerged in the late 19th century and continued into the 20th century.
• Role of government: Classical economists believed in laissez-faire, or
a hands-off approach to government intervention in the economy,
while neoclassical economists recognized the potential for market
failures and advocated for government intervention in certain cases.
• Assumptions about human behavior: Classical economists believed that
individuals act in their own self-interest and that the pursuit of self-interest
leads to the greatest overall benefit for society. Neoclassical economists built
upon this idea and added the concept of marginal analysis, which argues that
economic agents make decisions based on marginal benefits and costs.
• Market equilibrium: Classical economics saw the economy as naturally tending
toward a state of equilibrium, where supply and demand are balanced and
prices are stable. Neoclassical economics developed the concept of market
equilibrium based on marginal analysis, which suggests that prices will adjust
to balance supply and demand at the margin.
• Methodology: Classical economics tended to rely on deductive reasoning and
abstract models, while neoclassical economics introduced the use of empirical
data and statistical analysis.
REFERENCES
• "An Inquiry into the Nature and Causes of the Wealth of Nations" by
Adam Smith (1776)
• "Principles of Political Economy and Taxation" by David Ricardo (1817)
• "Essay on the Principle of Population" by Thomas Malthus (1798)
• "Principles of Economics" by Alfred Marshall (1890)
• "The Theory of the Leisure Class" by Thorstein Veblen (1899)
• "The General Theory of Employment, Interest, and Money" by John
Maynard Keynes (1936)
THANK YOU!