Adam smith:

 Adam smith is the founder of classical school. He has been described as the father
of father of political economy .His work Wealth of nation (1776) is generally
regarded as the starting point of classical school. The entire philosophy of classical
school was based on economic liberalism.
• The classical writers believed in personal liberty, private property and individual
initiative and private enterprise.
• Classical features are as follows: Classical believe of liberalism. The classical
economist believed in laissez-fair. That government is best which governed least.
They believed in a market economy based on free and perfect competition.
• Government interference is seen as inefficient in driving economic activities.
• They believed that individual by seeking their own interest would serve the best
interest of society. In other words they believe on the harmony of interests. The
classical emphasized the importance of all economic activities especially the
industry. The classical economist provided a method of analyzing the economy and
economic laws that operate with in them.
BUT
•Criticisedfor bringing wealth only to the rich, whereas the poor get poorer.
•Focused only on capital accumulation and growth, without explaining the impact
on development.

Karl Marx:
• Planned economy.
• Private property should be abolished.
• Linked to development through illustrating the importance of human development
and how the socioeconomic environments could change the shape of
developments.
• The feasible system should be based on social or public ownership of property.
But:
• The collapse of the Soviet Union.
• Provide no answers to dealing with poverty and inequality.
• Showed no improvement in the living of standard of the poor.
The Linear Stages of Growth Models: Harrod Domar (1947)
• Harrod-Domar Model Increase national savings Increase in net investment
larger capital stock Rise in real GDP Increased factor incomes.
• Harrod-Domar Growth Model stresses the importance of savings and
investment, Rate of growth depends on: – Level of national saving (S) –
Productivity of capital investment.
• Exogenous.
BUT
• The key weakness of these models lies in their simplifying assumptions.
• The development process is highly nonlinear
• Emphasis on the growth perspective as it only increases production output but
neglected human and social aspects of development.
New classical:
NEOCLASSICAL COUNTER REVOLUTION
A. 3 component approaches
1. Free-market approach: markets alone are efficient; competition is effective,
technology and information freely available and costless; gov’t is
counterproductive
2. New political economy approach: governments do nothing right because of
selfish interests; misallocation of resources.
3. Market-friendly approach – imperfections in economy and need gov’t for
market-friendly interventions (social services and climate for private enterprise);
acceptance of market failures.
B. Social Justice
The effect of "trickledown" can achieve social justice. The provision of economic
benefits, through the investment of new wealth in the economy and thus the
provision of wealth to those with high incomes will benefit society as a whole.
C. Expanding H&D Model –Solow and Swan Model
Solow (1956) and Swan (1956) neoclassical growth models stress the importance
of three factors of output growth: increases in the quantity and quality of labour,
 increases in capital (through savings and investments) and improvements in
technology.
BUT
•Trickle Down never happened.
•No role for Human Capital and political economy aspects.
•Market failure.
Endogenous growth theory (Lucas & Romer)
• Criticize solo model.
• Endogenous growth theory (Romer, Lucas) emphasizes different growth
opportunities in physical capital and knowledge.
• Diminishing marginal returns to physical capital, but perhaps not knowledge.
• Policy intervention is thus considered necessary to influence growth in the long
term.
But
• Ignoring the importance of social and institutional structures.
• Impact on short-and medium-term growth has been neglected.

New Institutional Economics (NIE)

• Institutions are “the rules of the game”
• Combines economic theory with the analysis of institutions.
• Explain the failure of neoclassical theory as it is incomplete.
• Optimistic about the possibilities for the evolution of efficiency-enhancing
economic institutions.
• NIE is linked to development by emphasizing the elements of development
management such as accountability, publicly known rules, information, and
transparency.