Neo-Classical Synthesis School
Neoclassical synthesis school refers to a new neoclassical synthesis based on the synthesis of classical economics and Keynesian theory after World War II. After World War II, the combination of Keynesian imperfect competition theory and neoclassical perfect competitioneconomic theory formed a neoclassical economic synthesis school. It is represented by the contributions of Paul Samuelson, John Hicks and Kenneth Arrow, who are considered to be the founders of the neoclassical economic synthesis school. American economist John Hicks and Samuelson proposed the Hicks-Samuelson Model in 1977, and simultaneously combined classical economics, Keynesian economics and Walrasian economics.
Neo-classical synthesis school can be divided into two main parts: macroeconomics and microeconomics. In macroeconomics, economists Robert Lucas, Jr. and Edmund Phelps are widely considered to be the founders of the new neoclassical macroeconomics. They developed the Hicksian free market equilibrium structure and combined it with the Keynesian demand management structure to produce the neoclassical synthesis macro-model. It lies in the rest of the earlier economists, from the Walrasian general equilibrium theory and new classical economics, drawing on Keynesian macroeconomic theories to explain various phenomena.
In microeconomics, the new neoclassical synthesis succeeded in reconciling the Walrasian economic model with the neoclassical substitute cost model, highlighting the differential characteristics of each part. It provides a neat, simple, and unified framework involving both competitive-firm models and monopoly models, non-competitive market models, and general equilibrium models.
The neoclassical synthesis school was successful in producing a unified total model of long-term macroeconomic equilibrium and short-term equilibrium of variable markets, which established the basis for a theory of macroeconomic dynamics. This total model covers macroeconomic long-term variables, including price levels, savings, investments, employment, etc. In addition, this model can also explain in detail the short-term behavior of firms in terms of production, revenue and use of resources. Finally, this model can also explain the cyclicality of macroeconomic performance.
From a methodological point of view, the neoclassical synthesis school is based on a set of propositions. First, neoclassicism postulates that there are “corrective” forces in the market that link the long and short run and permit the economy to move toward specific equilibrium points. Second, the school postulates that economic variables, such as prices and quantities, are “endogenous” variables and are determined by internal economic forces (such as supply and demand) rather than the external shocks given by outside forces.
Overall, the neoclassical synthesis school disregarded the importance of uncertainty and imperfect information in macroeconomic theory and economics in general. Its simple proposition that a given set of downward-sloping demand and upward-sloping supply curves could explain the behavior of markets is often seen as too simplistic. It does, however, still lay the foundation for macroeconomic theory and can be used in modern macro-models along with its Keynesian counterparts. By providing a unified framework for two different schools of thought, the neoclassical synthesis school provides a unified model of long-term macroeconomic performance and short-term market microeconomic performance.
The contribution of the neoclassical synthesis school to the development of modern economics has been varied and diverse. Its basic understanding of the market economy has withstood the test of time and continues to be taught in universities and practiced by businesses around the world. Moreover, its inclusion of both classical and Keynesian Market theories has allowed for the classic and Keynesian theories to remain open and complement each other in the development of modern economic theory. The neoclassical synthesis school is a valuable contribution to the development of modern economics, providing a viable and consistent framework for understanding both macroeconomic and microeconomic markets.
