Any economic principle which is in contrast with orthodox schools of economics.
Any economic thought or principle which is in contrast with orthodox schools ofand isn’t based on Neoclassical principles of economics is known as Heterodox Economics.
“The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions.” - John M.Keynes.
Ever thought of how all these economic theories were formed, who gave these, and on what concepts or assumptions? How can we challenge them? All these questions come to mind when citizens learn aboutHike rates and inflation. So let’s get this answered.
Unlike mainstream economics, Heterodox economics doesn’t consist of a core theory but is a mixture of various thoughts not aligning with mainstream economics.
These theories have little in common other than that they all contradict the teachings of orthodox schools of economics, including theories of far-left like socialism, marxism, and feminism.
Engaging in alternative theorizing, applied for work and economic policy analysis in a contested environment, often develop their arguments through critical engagement with mainstream economics.
Heterodox economics has seen various ups and downs in its acceptance during periods. Stephanie Kelton, and Sir John R. Hicks are some of the famous heterodox economists of the time.,
Trying to change the way Economics is thought and taught, heterodox economics is an important part of the world of economics. It helps establish new ideas and research and challenge established schools of economics.
There was a surge in heterodox schools of thought after the neo-classical revolution of the 1870s. Along with active critics of Capitalism, heterodox economists promoted various theories during the Great Depression.
But in the late 1930s, Keynesian economics theory was presented. It was used to define the Great depression through supply-demand economics, eventually suggesting that government intervention was required to.
They felt that supply and demand forces on their own would be insufficient.
In 1945, due to Neoclassical synthesis, an academic movement occurred, causing Keynesian theory and neo-classical ideologies to come together and encompass.
Thus, completely shifting the paradigm from Heterodox economics. But, not all economists aligned with neoclassical synthesis, deviated from mainstream economics to formulate heterodox schools, and worked upon various theories for the same.
Heterodox Economics uses research and analysis tools of other disciplines like human behavior and psychology to answer economic questions.
Theories considered under this branch of economics are explained below.
Some of the most known contradictory theories to mainstream economics are numbered below:
1. Marxian Economics
This theory is based on study and was propounded by famous economists and philosopher Karl Marx. He was against Capitalism and termed it self-destruction as its major flaws were surplus labor and its exploitation by crony capitalists.
Economic thought propounded by him contradicted the mainstream monetary policy of Adam Smith. He believed that the free market, powered by demand and supply forces, only helped a few as they could extract extra value from the working class's cheap labor.
Karl believed the value placed on goods and products was not indicative of true labor costs. Hence, specialization of labor with mild population growth was way down to tame labor wages, according to him.
2. Socialist Economics
Deviating from mainstream economics, where resources are allocated as per demand and supply forces, socialist theories believed that the motive of production should be service or use and not profit.
Thus, enabling social ownership of means of production where resources are supposed to be allocated where deemed appropriate and not per market forces.
This theory was propounded because some economists believed core economics promoting Capitalism leads to class divides and inequalities.
According to Friedrich Engles, who worked alongside Marx, the first phase of the revolution, in which class differences are removed through government, is known as socialism.
2. Feminist Theories
Analyzing the interrelationship between gender and economy asserts that patriarchy and Capitalism are interrelated forms of dominance.
Gender inclusivity and patriarchy being the main focus of these theories, they also consider the other neglected areas like poverty, inequalities, and power. This theory asserts that the mainstream framework lacks any basis for reality as its study lacks research and analysis about the very foundation of life, i.e., women.
Rejecting methodological individualism, which is the underlying concept of the core framework of orthodox economic schools, post-Keynesians believed Effective demand is the key.
It regards modern economics as systems of cash flows, not systems of equilibria between real variables.
PKE rejects neo-classical thought, believing wage cuts to reduce unemployment will lead to an ultimate reduction in consumption and hamper the economy's growth.
5. Austrian theory
Originating in Vienna during the late 19th century, it emphasizes cause and effect relationships in real-life economics.
Being overshadowed by mainstream economics during the mid-20th century, The Austrian school has gained momentum again as various scholars have started research on it in America.
After the neoclassical synthesis (a literary movement) of 1945, mainstream economics mainly consisted of microeconomics combined with a few versions of macroeconomics.
But the perception of theories contradicting orthodox schools was changing slowly and steadily.
Marxism, Austrian, and post-Keynesians were few constituting heterodox school thoughts.
During the early years of Heterodox schools, these theories consisted of components originating from orthodox schools of thought but ultimately changed outcomes and conclusions to avoid aligning with mainstream economics.
But economists working on the new research programs study human behavior differently and believe a bit of thought from neo-classical theories will also be subsumed in these thoughts. Still, attention from the whole profession was the need of the hour.
Taking a Pluralism way, ideas of heterodox economics are now being discussed in mainstream economics without mentioning heterodox because maybe orthodox have started considering it as a branch of economics.
One of the reasons could be that heterodox has started using methods, tools, and techniques developed by mainstream economics.
Leading economists have moved past old thoughts of heterodox schools and started thinking beyond marxism or post-Keynesian theories.
Thus, opening new lines for analysis and criticism. Modern economics advocates have argued that mainstream theories should not be viewed as enemies and should work well with the framework.
Embracing mathematics models and techniques by the heterodox is the way out!
Even if the heterodox ideas themselves fail to gain mainstream, heterodox economics may nonetheless enrich and extend conventional economic theory indirectly by criticizing it.
Heterodox economics always challenges traditional economics to show that it is superior in practice, not merely through tradition.
They also seem to suit a normal person's perception of the world and its history better than some of the more frequently accepted mainstream explanations.