Business, Community & Government

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.

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Topics include: Know Your History • The Birth of Modern Economic Thinking • Adam Smith and the Redefinition of Wealth • John Maynard Keynes and the Rethinking of Say’s Law • Keynes in the Real World


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...

About the Instructor

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.

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Paul Krugman

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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