Business, Politics & Society

Major Developments in Economic Thought

Paul Krugman

Lesson time 9:49 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.
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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.

Brilliant. Great mind pulling it all together so it makes sense.

Great class. Was a good refresher for me and I love reading Paul's column in the Times.

I am a 62 year old student of lifelong learning. Most of what I glean from a course like this is a different perspective and an appreciation for a different interpretation.

I really learned a lot and I do like his professional style.


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.

A fellow student

I want to stop this at chapter 4 and come back tomorrow. Can i just close the window and have it recognize my computer when I open it again in the future?

Reagan V.

I found this class underwhelming. He is giving you an overview of economics but not delving into the principles of economics. In other words economic rules explained what to know and how they function in the economic system and how to break them.. or at least see that they are just rules and can be broken.


Question: Why did the workbook call Richard Posner a Nobel laureate? Was there an announcement or recent news that I missed?

A fellow student

I have been able to sign on only half the time. If I watch a couple lessons and and have to pause it. I can't get back on. Not to the one I started or any other one. I'ts really frustrating. What am I doing wrong? Sam

Glenn F.

I'm trying to understand the fallacy of Say's law. Basically he indicates that "supply creates its own demand" and uses the babysitting as an example. The problem there was corrected by printing more vouchers. Doesn't that support Say's law instead of showing its downfall? Starting out there were 4 families each with 5 vouchers. So the overall "supply" of babysitting services at any one time would be 20 units of babysitting. No one went out, so no vouchers used, so none were accumulated. But they then printed more vouchers, say double it to 10 per family. Now the supply of babysitting is 40 units and all of a sudden, the system works because people feel less inclined to want to accumulate. An increase in supply created its own demand. Right?

Ron C.

As I stated earlier, I took my basic Economics course back in 1960. As I recall Keynes stated that it was right to stimulate the economy by printing more money and create economic activity when things slowed down - recession or when people in the babysitters club dd not spend their vouchers. This would create a deficit. Yes, but as I recall, he also said that in times of surplus we need to also pay down the deficits we create over time. It seems to me that we only add to the national debt. All nations seem to be doing this now. Am I right in that Keynes stated that we needed to not only create economic activity in bad times but also offset this activity in good times?

A fellow student

Just a question. I have a very poor understanding of the 2008 crisis so it will be very helpful for me to understand this. After the 2008 crisis, the US started printing more money and making more jobs available to the economy which in turn would increase spending by the general public. So my questions is why people did not save the money up like in the babysitter example? Why did they not hoard it? Or was the situation so bad that they had to spend money for their livelihood which in turn would increase spending?

Matthew F.

So if the babysitters weren't obsessed with collecting vouchers, it seems to me, the system would have worked a lot better. Of course if you print more vouchers, it might help but that seems to be the problem with our economy now. We just print more and more money instead of balancing out the supply and demand on putting the money back into the pockets of people who will purchase more. In return create more demand and potentially more jobs and a more even circulation of money. (vouchers) Am I understanding that story and the economics concept?