From Adam Smith to TikTok Economics: The Evolution of Economic Thought

From Adam Smith to TikTok Economics: The Evolution of Economic Thought

Ready for a wild ride through the history of economic ideas? Imagine economics as the ultimate group chat that's been going on for centuries, with some serious drama, heated debates, and total mic-drop moments. Today, we're diving into how economic thinking has evolved from the 18th century to now - and trust me, it should be way more exciting than it sounds!

The OG Influencer: Adam Smith (18th Century)

Before there were YouTube economics explainers or Instagram infographics, there was Adam Smith dropping knowledge bombs in 1776 with his book "The Wealth of Nations." This Scottish lad wasn't just any philosopher - he was basically the founder of economics as we know it today.

Smith's main value? "Let the market do its thing!" (or laissez-faire if you want to sound fancy in your IB exams). He believed that if everyone pursues their own self-interest, the invisible hand of the market would sort everything out for the greater good. It's like how no one plans the perfect Friday night in town, but somehow everyone ends up at Nando's at the same time.

The Invisible Hand Explained

Imagine you're scrolling through Depop looking for vintage clothes. You find a seller with amazing 90s jackets at decent prices. You buy one because it benefits YOU. The seller makes money because it benefits THEM. Neither of you planned to help the other out, but you both ended up happier.

Smith would say that's the invisible hand at work - when we all pursue our own interests, society often benefits without anyone explicitly planning it. Pretty clever, right?

Real-world application: Look at the UK's food delivery apps like Deliveroo and Just Eat. Nobody centrally plans how many drivers should be working or which restaurants should offer delivery - everyone makes decisions based on their own benefit, yet (usually) you can get your curry delivered within an hour on a Friday night. That's the invisible hand working its magic!

The 19th Century Chat: Classical Economics Takes Off

The 19th century was when economics really started popping off. Classical economists were the cool kids obsessed with how markets could efficiently allocate resources with minimal government interference.

Utility Theory: The Original "Worth It or Not Worth It"

Alfred Marshall introduced "utility theory" - basically measuring how much satisfaction we get from products. It's like your personal rating system for everything you buy.

Imagine your experience with a box of Cadbury chocolates:

• First chocolate: "OMG THIS IS AMAZING!" (high utility)

• Second chocolate: "Still pretty good!" (good utility)

• Fifth chocolate: "I should probably stop..." (lower utility)

• Tenth chocolate: "I feel sick..." (negative utility)

This is the law of diminishing marginal utility - each additional unit gives you less satisfaction than the previous one. It's why you eventually stop scrolling TikTok and interacting with Instagram users (or at least why you should).

Say's Law: Make It and They Will Come

French economist Jean-Baptiste Say came through with a revolutionary idea: "Supply creates its own demand." Basically, your ability to buy stuff depends on your ability to produce stuff.

Think of it like this: If the UK produces more goods and services, people earn more money, which they can then spend on - you guessed it - more goods and services. It's like a never-ending cycle of production and consumption.

Real-world application: Look at the smartphone industry. Apple and Samsung keep producing new phones with better features, creating demand for products we didn't even know we wanted. Before the iPhone, nobody was desperately seeking a touchscreen device that could also take photos, play music, and let you argue with unknown strangers online - but now we can't live without them!

The Plot Twist: Karl Marx Enters the Chat

While the classical economists were celebrating free markets, Karl Marx showed up with the ultimate "Well, actually..." energy.

Marx was like, "Hey, has anyone noticed that capitalism might be exploiting workers?" He pointed out that businesses profit by paying workers less than the value they create - what he called "surplus value."

If economics were a Netflix series, Marx would be that character who makes you question everything you thought you knew. He wasn't just criticising capitalism; he was offering an alternative system where the means of production would be owned by the people.

Real-world application: Remember when Uber drivers in the UK fought for better working conditions? In 2021, the UK Supreme Court ruled that Uber drivers are workers entitled to minimum wage and holiday pay - acknowledging the kind of worker exploitation that Marx highlighted over 150 years ago.

The Great Depression and Keynes' Comeback (20th Century)

Fast forward to the 1930s: the Great Depression hits, unemployment is skyrocketing, and classical economics is looking a bit awkward. Enter John Maynard Keynes, the British economist with big "I told you so" energy.

Keynes basically said, "The invisible hand has gone for a nap, and we need the government to step in."

Keynes' Revolutionary Ideas

Keynes disagreed with Say's Law and said, "Actually, supply doesn't always create its own demand." During the Great Depression, there was plenty of productive capacity, but nobody had money to buy anything - creating a vicious cycle of low demand and high unemployment.

His solution? The government should increase spending and cut taxes to boost demand in the economy. It's like when your mate is broke and can't go out, so you spot them some cash knowing they'll spend it at the pub, which keeps the pub in business, which keeps the bartenders employed... you get the idea.

Real-world application: During the COVID-19 pandemic, the UK government implemented the furlough scheme, paying up to 80% of people's wages to keep them employed. This was pure Keynesian economics - the government stepping in to maintain demand when the private sector couldn't. Without this intervention, many more businesses would have collapsed, leading to even higher unemployment.

The Monetarist Rebellion: Friedman Throws Shade

By the 1970s, Milton Friedman was like, "Keynes, I'mma let you finish, but..." He argued that Keynes had it wrong and that managing the money supply was the key to controlling inflation and maintaining economic stability.

Friedman and his monetarist squad believed that too much government spending leads to inflation. Their mantra was basically "Print too much money, get too much inflation."

Real-world application: In 2022-2023, the Bank of England has been aggressively raising interest rates to combat the highest inflation in 41 years. This is monetarist policy in action - trying to control the money supply to bring down inflation, even if it means slowing down the economy.

Supply-Side Economics: The 1980s Throwback

The 1980s weren't just about big hair and neon clothes - they also brought us supply-side economics. This approach flipped the script from Keynes' demand-focused policies and went back to basics with Say's Law.

Supply-siders believed in cutting taxes, reducing regulations, and privatising state-owned companies to boost production. It was all about making it easier for businesses to produce more stuff.

Real-world application: Margaret Thatcher's privatisation of British Telecom, British Gas, and other state-owned enterprises in the 1980s was textbook supply-side economics. The idea was that private companies would run these services more efficiently than the government could.

The Modern Era: Behavioural Economics and the Circular Economy

Behavioural Economics: We're All a Bit Irrational

In the 21st century, economists finally admitted what we all knew: humans aren't perfectly rational. Behavioural economics combines psychology with economics to understand why we make seemingly irrational decisions.

Richard Thaler (who won the Nobel Prize in 2017) introduced the concept of "nudges" - small changes that can influence behavior without restricting choice.

Real-world application: The UK's automatic enrollment in workplace pensions is a perfect example of a nudge. Rather than forcing people to save for retirement, the system automatically enrolls them while giving them the option to opt out. This simple switch from opt-in to opt-out drastically increased pension participation because it worked with human psychology rather than against it.

The Circular Economy: Economics Gets Eco-Friendly

The latest evolution in economic thinking recognizes that our planet has limited resources. The circular economy model aims to minimise waste and make the most of resources through recycling, reusing, and regenerating.

Unlike the traditional "take-make-dispose" model, the circular economy keeps resources in use for as long as possible, extracting maximum value before recovering and regenerating products and materials.

Real-world application: Companies like The Body Shop have embraced this with their packaging recycling program, and UK supermarkets like Tesco have committed to making all their packaging recyclable by 2025. Even fast fashion brands like H&M now offer clothing recycling in stores (though some might call this greenwashing - discuss in class!).

Why This Economic History Chat Matters for Your IB Exams

Understanding the evolution of economic thought isn't just about memorising dead economists' names (though that helps too). It gives you:

1. Context for current economic policies - When the UK government increases spending during a recession, you'll recognise the Keynesian influence

2. Better evaluation skills - You can critique policies by considering different economic perspectives (examiners LOVE this!)

3. Real-world application - You can explain why central banks raise interest rates (monetarism) or why governments use nudge tactics (behavioural economics)

Exam Corner: Show Off Your Knowledge

Here's how to impress your IB examiners with this content:

• Compare and contrast different economic schools of thought (e.g., "While Keynes advocated for government intervention during recessions, Friedman would argue that...")

• Apply historical economic theories to current events (e.g., "The UK government's response to the energy crisis reflects Keynesian principles...")

• Evaluate the strengths and limitations of each economic approach (e.g., "Although Smith's invisible hand promotes efficiency, it doesn't account for market failures such as...")

• Discuss how economic thought has evolved in response to real-world challenges (e.g., "The 2008 financial crisis led to renewed interest in Keynesian economics...")

What's Your Economic School of Thought?

Are you team Adam Smith with your belief in free markets? Or maybe you're vibing with behavioural economics and the importance of psychological factors? Perhaps you're all about that circular economy life?

Stay well