When the market makes a mistake… and when does the state save it?

The displayed image summarizes more than two centuries of economic thought development in a path that appears linear, but is in fact a dialectical and cumulative path, where no school has eliminated its predecessor, but rather reinterpreted it or rebelled against it in response to the transformations of economic reality.

First: Classical Economics – Free Market Economy
It appeared in the late eighteenth century with Adam Smith, in the context of the Industrial Revolution. He assumed that the market is capable of self-correcting through the price mechanism, and that supply creates demand (Say's Law). This thought was suitable for emerging economies with limited government intervention, where the fundamental problem is increasing production rather than managing crises.

Second: Neoclassical Economics – Market Rationalization
With Alfred Marshall at the beginning of the twentieth century, the analysis shifted from the philosophical macro level to mathematical micro analysis. The focus here is on maximizing utility and partial equilibrium, assuming complete rationality. This school did not change the spirit of classical economics, but it provided it with more precise analytical tools.

Third: Keynesianism – The Return of the State to the Stage
Keynesianism emerged in the 1930s as a direct reaction to the Great Depression. John Maynard Keynes turned the classical hypothesis upside down: the problem is not in supply but in demand. Unemployment can be equilibrium-based, and the state is required to intervene through fiscal policy. Here, economics shifted from "the science of markets" to "the science of managing cycles."

Fourth: New Keynesianism – reconciliation, not rupture
After World War II, economists like John Hicks and Paul Samuelson attempted to reconcile Keynesianism and neoclassical economics. The goal was no longer just full employment, but also stability and growth. This school is the theoretical foundation for post-war policies, but it later struggled in the face of stagflation in the 1970s.

Fifth: The New Classical School – The Counter-Revolution
In the 1970s, with Robert Lucas and Edward Prescott, the focus returned to rational expectations, and the effectiveness of discretionary policies was questioned. The economy here is built on dynamic models, markets are assumed to be efficient, and government intervention has limited impact.

The important summary:
This map is not a "history of corrected mistakes," but a record of attempts to understand an ever-changing economy. Each school was correct in its context, and wrong if generalized beyond its conditions. The common mistake today is to treat one school as an "absolute truth," while the smart policymaker is one who possesses a diverse toolbox and knows when to use each tool.

Economics is not a doctrine… but a tool#Gate2025AnnualReportComing $GT