Relationship between Neoliberalism, Austrian school of economics and Essay

Relationship between Neoliberalism, Austrian school of economics and Chicago school of economics - Essay Example These developments have been accompanied by mathematical tools that gradually helped old contents to be converted into new theories. In this manner, traditionally, the meaning of basic terms also changed such as competition, markets, unemployment, etc. These developments have encouraged establishment of many theories. At the same time applicability of those theories became more prominent and global. Communication networks also became internationalized between economists and governments that have resulted in complex perceptions and harder applications. Although several schools have tried to retain national label like the Austrian school of economics, the latter has become international.1 Bearing this in mind, from the end of 19th century to the early of 20th century, classical economics was threatened by world economic issues. Principles of classical economics include laissez faire, limited government intervention, private property rights, freedom of the individuals, and minimal welfa re provision, etc. However, classical economists have failed considerably to describe the causes of global financial and economic crises experienced by several economies in past many years. Classical economics have failed to explain the reasons for economic booms and busts. Unfortunately, this tendency of world economy relates back to the major recessions in 1873-75 and 1893-96 and stock market crash of 1929-30, which was well known terms as ‘The Great Depression’. During this time the unemployment rate reached to 25% in the United States2, and 30% in Germany.3 With application of the Keynesian economic theory, the world economy seemed to recover and indeed has experienced high growth with respect to some economic variables compared to ‘Washington Consensus period’. For instance, the average proportion of global growth in Keynesian period was higher than Washington Consensus period along with the unemployment rate which was lower compared to global status.4 The economic system was dominated by Keynesian theory from post Second World War till the seventies. It has been observed that during this time the primary goal for whole world was to develop each country’s economy, rather than repeating of the Great Depression.5 He observes that â€Å"the embedded liberalism that had delivered high rates of growth to at least the advanced capitalist countries after 1945 was clearly exhausted and no longer working.†6 Neoliberalism: On the other hand, when another global economic crisis came, there emerged different opinions which have shown perspectives against the Keynesian point of view. The term ‘neoliberalism’ was created by political opponents; however it is used by supporters with neoliberal policies.7 Neoliberalism means economic liberalism that focuses on the efficiency of the private ownership and control, liberalization of trade, promotion of open markets necessary to augment the growth path of globalization. Ne o-liberalists claim that all kinds of central planning destroy personal freedom. Although the role of a government is to maintain the rule of law, government intervention leads to totalitarianism. Markets should maintain freedom and efficiency without any kind of government intervention. In other words, economic and social policies are driven by the market. The theories emphasize on private enterprise, independent trade, and open market for private sector. In the global level of economy, economic crisis chronically spread out at the end of 1970s and the downfall of the Communist philosophy towards the conclusive years of 1980s.These world trends led to reform policies in order to