Heterodox Economics

Heterodox economics is the analysis and study of economic principles considered outside of mainstream or orthodox schools of economic thought. Schools of heterodox economics include socialism, Marxism, post-Keynesian and Austrian, and often combine the macroeconomic outlook found in Keynesian economics with approaches critical of neoclassical economics.

Heterodox economics provides an alternative approach to mainstream economics that may help give explanation to economic phenomenon that don't received widespread credence. In addition, heterodox economics seeks to embed social and historical factors into analysis, as well as evaluate the way in which the behavior of both individuals and societies alters the development of market equilibriums.

Mainstream economics may be called orthodox or conventional economics by its critics. Alternatively, mainstream economics deals with the "rationality–individualism–equilibrium nexus" and heterodox economics is more "radical" in dealing with the "institutions–history–social structure nexus". Many mainstream economists dismiss heterodox economics as "fringe" and "irrelevant," with little or no influence on the vast majority of academic mainstream economists in the English-speaking world.

Heterodox economists remain dissatisfied with mainstream economics because no matter how many modifications the latter adds to its core framework, there is always an implication that, in the absence of various real world conflicts, the economy would function smoothly and achieve full employment, with near perfect utilization of resources, and stay there, perhaps buffeted by mild external shocks.

Following the neoclassical revolution of the 1870s, several heterodox schools of economic thought challenged the dominance of neoclassical economics. Heterodox schools of this period included advocates of various forms of mercantilism, such as the American School dissenters and advocates of unorthodox monetary theories, such as Social credit. Other heterodox schools active before and during the Great Depression included Technocracy and Georgism.

Physical scientists and biologists were the first to use energy flows to explain social and economic development. Joseph Henry, an American physicist and first secretary of the Smithsonian Institution, remarked that the "fundamental principle of political economy is that the physical labor of man can only be ameliorated by… the transformation of matter from a crude state to a artificial condition...by expending what is called power or energy."

The rise, and absorption into the mainstream of Keynesian economics, which appeared to provide a more coherent policy response to unemployment than unorthodox monetary or trade policies contributed to the decline of interest in heterodox economics.

After 1945, the neoclassical synthesis of Keynesian and neoclassical economics resulted in a clearly defined mainstream position, based on a division of the field into microeconomics and macroeconomics (divided between Keynesian and monetarist views on such issues as the role of monetary policy). Austrians and post-Keynesians who dissented from this synthesis emerged as clearly defined heterodox schools.