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Major Developments in Economic Thought

Paul Krugman

Lesson time 09:48 min

Paul walks you through the history of economic thought through the theories of Adam Smith and John Maynard Keynes to make an important point—you have to understand the past to improve the future.

Paul Krugman
Teaches Economics and Society
Nobel Prize-winning economist Paul Krugman teaches you the economic theories that drive history, policy, and help explain the world around you.


It is kind of important to understand that people have been doing economics for 250 years or so, that if you think you have a brand new idea nobody's ever thought of, it's about 90%-- 98% odds that you're wrong. It doesn't mean that nothing new can ever happen because we do get new ideas. But having some notion of where smart people have been before matters. And then knowing a lot of history matters. History doesn't repeat, but it rhymes. If you can understand the Panic of 1893, that's probably giving you a lot of useful information about the financial crisis of 2008. If you try to understand how the coming of railroads and telegraphs created what we sometimes call the first global economy, that's going to tell you a lot about globalization. So history is still your best guide. If you think that something has utterly, utterly changed, you might be right. But you should operate on the working assumption that it hasn't and then look for really strong evidence that it has. [MUSIC PLAYING] Economic progress is a relatively recent invention on the human time scale. Society in the year 1700 was in a lot of ways a lot like society in the year 2000 BC. There were peasants, and there were nobles, and there were kings. And that was the way things were. And then you start, through a combination of new technologies, new ways of doing business, to develop this whole set of new ways of living, new institutions. People start to live mostly in cities, not in the countryside. They start to work first mostly in factories and then later, mostly in service jobs, rather than tilling the land. We have for the past two centuries become accustomed to a world in which on average each decade the world is richer than it was before. And that's a transformation. It becomes a world in which innovation is the norm, instead of something that happens only at very rare intervals. By the way, it's not an accident that economics as a subject emerges about the same time as this transformation. Just about when things are making this great breakpoint is when people start to look around and say how is this happening, what are the rules of this game? [MUSIC PLAYING] Adam Smith began his book in what for the time was a very strange place. He had a book called "The Wealth of Nations." And at the time, if you said that I think to most people in the 18th century world, when you said wealth, they would have thought gold and silver. What Adam Smith did, he starts his book by talking about a pin factory, people making pins. And he said, look, if you had a guy who was just-- a skilled craftsman making pins, he would be able to turn out a fairly small number of pins a day because it's an elaborate process, a lot of steps in the process. But in a pin factory, that process is broken up into many stages. There's one person who heats the metal, another pounds, another one stretches it out, another one sharpens the point. And the result is that they're able to prod...

Think like an economist

For Nobel Prize-winner Paul Krugman, economics is not a set of answers—it’s a way of understanding the world. In his economics MasterClass, Paul teaches you the principles that shape political and social issues, including access to health care, the tax debate, globalization, and political polarization. Heighten your ability to read between the lines and decipher the underlying economics at play.


Students give MasterClass an average rating of 4.7 out of 5 stars.

It was great to take a class when I had free time. The format is very modern in the way that it felt conversational almost with the teacher. It was interesting to learn about Economics and Paul Krugman was a cool teacher. Highly recommend his class.

Nice overview and explanation of what has happened and the failure of past economic theories that were based on some assumptions that have been update

Amazingly clear exposition, very relevant topics to better understand today's world issues and dilemmas, and a great compass for thinking - hard and independently. A must see. For everyone.

I've learn a way of hard thinking and to be curious about how the world works, in order to not only listen but question the policies governments implement and how myself as a citizen can implement my own ideas in order to improve the quality of life of our society.


Ekin Ö.

1. The claim of new ideas are often wrong is actually a big revelation on many areas. It's a rewarding thought that you can come up with brilliant ideas that you're sure will work. However, there are 8 billion people living on this planet, and the area you're working on has probably been there for decades if not centuries. You'll most likely see someone else already thought about this, or even worked on that idea. Perhaps they even came up with some results. So it's best to conduct a research first, and at least build upon their work to avoid the mistakes that are already made by others. 2. "Productivity is the source of wealth." It's a magnificent notion. This is as true for individuals as it is for nations.

A fellow student

I would like to know what do you think about the role of violence in economics.

Wen X.

Why is the money that a government spends will be subtracted from the money that the private sector spends?

Jorge G.

So far nothing I didn't learn from text-books, although his point of wealth creation by production and not money and his two principles in the previous lesson may give me a practical insight into the field.

Brian K.

Prof. Krugman, thank you so much for such great lessons on fundamentals of economics. I myself as an economics major, often forget about how we should look at things and how we should approach to some real life issues. I have one question though. You mentioned about the "amorality" as a principle, but when I look at the textbook you wrote on microeconomics (yes about more than 10 years old) you clearly mention "moral hazard" as one of the externalities. So did the theory and content change? or is it that I misunderstood you?

Tapan P.

Good lesson, though I'm curious on the idea of wealth. Shouldn't wealth be not production (that's productivity- anyone can be highly productive with resources) but rather the capacity to be highly productive through resources and assets?

Freeland F.

The problem people are having with him saying the solution to the babysitting coupons is that they are thinking in terms of inflation, the solution of printing more works in the babysitting scenario works because the coupons have a set value that does not change. People didn't want to go out because they wanted to accumulate more money so they could go out on longer trips, when more money is introduced, they feel they have enough to spend some of it on a night out and the "economy" picks back up again. It is different than printing more money because if you print more money, the value of the money goes down. whereas in this case, adding more coupons does not make there value go down and the families got "richer" in general.

Seth E.

On p. 14 of the full workbook (final paragraph in chp. 4), the author writes, "In most cases, governments can mitigate and reverse downturns by printing more money and effectively loaning it out at cheap interest rates." But how does a government loan money? I understand that a government can borrow money by selling bonds. But what does loaning look like? Who borrows the money and how is it paid back to the government?

Jason M.

Or the solution of printing more coupons, very much like “ modern monetary policy” whereby we run deficits on top of debt and simply print more money.

A fellow student

I appreciate that lessons are of varying length to cover the topic and no more. I enjoy these lessons. I was an econ minor in college and I enjoy this for review and summary.