This document provides a summary of different economic theories from Physiocrat to Institutional Economics. It discusses the key ideas and contributors of each theory over time including Physiocrat, Mercantilism, Classical Economics, Keynesian Economics, Neo-Classical Economics, New Classical Economics, New Keynesian Economics, Structural Economics, and Institutional Economics. The document is a group assignment report submitted by 5 students at the Sri Lanka Institute of Information Technology for their Fundamentals of Economics course. It includes an introduction, discussion on each theory in turn, and references section.

1. Sri Lanka Institute of Information Technology
Fundamentals of Economics (IM105)
GROUP ASSIGNMENT
(REPORT)
Submitted by:
1. IT15054364 - H.A.M. Peiris
2. IT15118028 - K.U.K. Perera
3. IT15024428 - M.M.C.B Munasinghe
4. IT15089250 - S.A.N.R Gunasekara
5. IT15045454 - T. M. N. Darshana
Date of submission: 11/07/2016

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Table of Content
 Introduction…………………………………………………………………………… 3
 Discussion
1. Physiocrat………………………………………………………………4
2. Mercantilism……………………………………………………………5
3. Classical Economics……………………………………………………7
4. Keynesian Economics…………………………………………………..8
5. Neo-Classical Economics……………………………………………….9
6. New Classical Economics……………………………………………...10
7. New Keynesian Economics…………………………………………….11
8. Structural Economics…………………………………………………...12
9. Institutional Economics…………………………………………………13
 Conclusion………………………………………………………………………………14
 References……………………………………………………………………………….15

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Introduction
The History of economic is a brief discussion about how economy transformation bit
by bit. And the running story line is man’s search for wealth and prosperity and the economic
model that best serves the needs of the common man. Economics is the social science studying
the production, distribution and consumption of goods and services. The economy may be the
study of complex tables and graphs, statistics and numbers, but more specifically, it is the study
of what is a rational human behavior in an effort to meet the needs and wants.
In order to study these things, the economy makes the assumption that human beings will strive
to fulfill their own interests. It also assumes that people are rational in their efforts to fulfill their
unlimited desires and needs. The economy, therefore, is a social science, which explores people
behave in accordance with their personal interests. The definition has been established at the turn
of the twentieth century, "Alfred Marshall", author of the book "Principles of Economics"
(1890), reflects the complexity of the underlying economy, "Thus, on one side a study of wealth,
and on the other, more important side, a part of the study man. "

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Discussion
1. Physiocrat
Physiocrat was develop in 18th
century by the group of French economists. They
believed that the wealth of the nations was derived solely from land agriculture and land
development. This theory very popular during second half of 18th
century. The Economist Dupont
de Nemours (1767) build the term called “Physiocracy” literally translates to “the rule of
nature”. Physiocracy is perhaps the first well developed theory of economics.
Physiocrat economics most significant contribution is their emphasis on productive work as the
source of national wealth.
The movement was particularly dominated by physician of the French court François Quesnay
(1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).It immediately preceded the first
modern school, classical economics, which began with the publication of Adam Smith's The
Wealth of Nations in 1776. Physiocratic François Quesnay axiom that only agriculture yielded a
surplus or exceed. Manufacturing, the Physiocrats argued and questioning, took up as much value
and cost as inputs into production as it created in output, and consequently created no net product.
Before physiocracy consolidate, economist believed gold silver or balance of trade is the main
wealth of the nations but physiocrat economists discard this fact and their emphasis on productive
work as the source of national wealth. It means national wealth depend on the size of net product.
Physiocrat laid the foundation for modern field of economics and the first real school of
economics.at the time physiocrat formulating their ideas, economies were entirely agrarian.as
example: -
 Supply and Demand ruled economic behavior
 As productivity rises wages will also rises
 Laissez Faire based economic policy
 Government should allow people to make own choices
 Free trade encourage among nations through the absence of excessive laws
and taxes.

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2. Mercantilism
Mercantilism was a theory of Economic that a system of political and economic
policy, evolving with the modern national state and seeking to secure a nation’s political and
economic supremacy in its rivalry with other states. It was placing and dominant in modernized
parts of Europe during the 16th to the 18th century, for the purpose of building a wealthy and
powerful states. This economic theory common in Europe that promoted governmental regulation
of a nation’s economy for the purpose of augmenting state power at the expense of rival national
powers. It was the economic counterpart of political absolutism.
A mercantilist economy stresses national self-sufficiency and the preservation of national wealth
through a favorable balance of trade. According to this system, money was regarded as the store
of wealth, and they try to obtain as much silver and gold as possible. The goal of state was
accumulation of precious metals by exporting the largest possible quantity of its products and
importing as little as possible, thus establishing a favorable balance of trade. Mercantilism is a type
of command economy, strictly regulating the production, distribution, and consumption of goods
and services.
Mercantilism views trade as a Zero-sum game one in which gain by one country results in a loss
by another. By the way most of the European nations like British, Spain, France attempt to create
colonies to use as markets to sell their goods, and they restricted their colonies from trading with
other countries. During the mercantilist period, military conflict between nation-states was both
more frequent and more extensive than at any other time in history. Each government’s primary

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economic objective was to command a sufficient quantity of hard currency to support a military
that would deter attacks by other countries and aid its own territorial expansion.
For nations almost, fair as the almost continuous wars exhausted the gold and the silver was
nothing accounted of one another's business benefits almost straight. Adam Smith (1723-1790)
opinion is refuted by the "wealth of the nations" is measured by the size of the famous treatise in
the treasury of the "wealth of the nations", the book of the foundation of the economic system.
First, he demonstrated that trade, when freely initiated, benefits both parties. Second, he argued
that specialization in production allows for economies of scale, which improves efficiency and
growth. Finally, Smith argued that the collusive relationship between government and industry
was harmful to the general population. While the mercantilist policies were designed to benefit the
government and the commercial class, the doctrines of laissez-faire, or free markets, which
originated with Smith, interpreted economic welfare in a far wider sense of encompassing the
entire population.
While the publication of The Wealth of Nations, is usually considered to mark the end of the
mercantilist era, laissez-faire of free market economy also reflect the general disappointment of
the imperialist policy of national states. The Napoleonic wars in Europe and the Revolutionary
War in the United States marked the end of the period of military confrontation in Europe and
mercantilist policies that supported it.

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3. Classical Economics
Classical economic developed in 18th
and 19th
century by the operations of
the world greatest economist Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus,
and John Stuart Mill. Classical Economic also known as liberal economics Basically classical
economic based on School of economic thought which stresses that economies function most
efficiently if everyone is allowed to pursue his or her self-interest, in an environment of free and
open competition. This theory relies on three key assumptions, they are flexible prices, say’s law
and saving investment equality in the analysis of macroeconomics.
According to Say’s Law, when an economy produces a certain level of real GDP, it also generate
income needed to purchase that level of real GDP. In other words the economy is always capable
of demanding all of the output that its workers and firms choose to produce. Hence, the economy
is always capable of achieving the natural level of real GDP.
Classical economic can trace its roots to Adam Smith in 1776.In the Wealth of Nations Adam
Smith presented a comprehensive analysis of economic phenomena based on the notion of free
markets and actions guided by individual self-interest in a laissez faire environment. And observe
that markets generally regulate themselves, when free of coercion. Adam Smith referred to this as
a metaphorical "invisible hand," which moves markets toward their natural equilibrium, when
buyers are able to choose between various suppliers, and companies which do not successfully
compete are allowed to fail. Smith warned repeatedly of the dangers of monopoly, and stressed
the importance of competition.
Adam Smith acknowledged that there were areas where the market is not the best way to serve the
public good, education being one example, and he took it as a given that the greater proportion of
the costs of these public goods should be borne by those best able to afford them.

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4. Keynesian Economics
Keynesian Economic is an economic theory named after John Maynard
Keynes (1883-1946), a British economist. It was his simple explanation for the cause of the great
depression for which he is the most well-known. Keynes’ economic theory was based on a circular
flow of money.
Keynesian economics is a total spending in the economy (called Aggregate demand) and its effects
on output and inflation. In the Keynesian view, aggregate demand does not necessarily equal the
productive capacity of the economy; instead, it is influenced by a host of factors and sometimes
behaves erratically, affecting production, employment, and inflation.
Keynesian economic warns against the practice of too much saving, or under consumption, and
not enough consumption, or spending, in the economy. It also supports considerable redistribution
of wealth, when needed. Keynesian economics further concludes that there is a pragmatic reason
for the massive redistribution of wealth. If the poorer segments of society are given sums of money,
they will likely spend it, rather than save it, thus promoting economic growth.
They assert that unemployment can be readily cured through governmental deficit spending, and
that inflation can be checked by means of government tax surpluses. The key to Keynes’s
contribution was his realization that liquidity preference (the desire of individuals to hold liquid
monetary assets). Keynes’ solution to this poor economic state was to prime the pump. By prime
the pump Keynes argued that the government should step in to increase spending, either by
increasing the money supply or by actually buying things on market itself.
Keynesian economic advocates for the public sector to step in to assist the economy generally, it
is a significant departure from popular economic thought which preceded it (laissez-faire
capitalism).

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5. Neo-Classical Economics
Neo classical economic refers to general approach in economic focusing on
the determination of prices, outputs, and income distributions in markets through supply and
demand. These are mediated through a hypothesized maximization of income-constrained utility
by individuals and of cost-constrained profits of firms employing available information and factors
of production.
Neoclassical economics, as its name implies, developed from the classical economics dominant in
the eighteenth and nineteenth centuries. Neoclassical economics dominates microeconomics, and
together with Keynesian economics forms the neoclassical synthesis which dominates mainstream
economics today.
This term was originally introduced by Thorstein Veblen in his 1900 article 'Preconceptions of
Economic Science’, in which he related marginality in the tradition of Alfred Marshall to those in
the Austrian School. Although neoclassical economics has gained widespread acceptance by
contemporary economists, there have been many critiques of neoclassical economics, often
incorporated into newer versions of neoclassical theory.
Basically, neoclassical economics has not been entirely successful in forecast the actual action of
people, markets, and economies in the world so far, nor does it offer a view of an entire society
that resonates with the ideals of a world in which people are able to express their uniqueness as
part of a society of peace, harmony, and prosperity.

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6. New Classical Economics
New classical economic also called new classical Macroeconomic. This
term firstly used by the economist Adam Smith from his publication of The Wealth of Nations.
But this economy theory developed in 1970 as a response to the failure of Keynesian economics
to explain stagflation. Robert Lucas, Jr. and Milton Friedman are the economist that led close
contribution to this theory.
New classical economic based on the controversial theory of “rational expectation”, this theory
was introduce by the economist Robert Lucas. And also this theory began with Lucas’s and
Leonard Rapping’s attempt to provide micro foundations for the Keynesian labor market. Lucas
and Rapping applied the rule that equilibrium in a market occurs when quantity supplied equals
quantity demanded. In other words, the market clears at all time.
This turned out to be an initiative and radical step. Because involuntary unemployment is exactly
the situation in which the amount of labor supplied exceeds the amount demanded, their analysis
leaves no room at all for involuntary unemployment.
The concept of rational expectations was originally used by John Muth, and was popularized by
Lucas. One of the most famous new classical models is the real business cycle model, developed
by Edward C. Prescott and Finn E. Kydland. Real business cycle theorist Bernd Lucke define the
new classical macroeconomics model the ″caricature of an economy" because its underlying
imaginary recant any non-rational behavior or the ability of market failure, prices are always fully
elastic, and the market is always in economic equilibrium.

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7. New Keynesian Economics
New Keynesian method of the moderns into the ideas of the new
economy of the Keynesian school of thought is to say, that the macroeconomics of Maynard
Keynes. Keynes wrote the latest general theory of profit and money in the 1930s and 1960s among
academics and policymakers increased. In the 1970s, however, that it is so strange, Classical
economists Robert Lucas, Thomas J. Sargent, and Robert Barro in reference to so many of the
precepts of the "Keynesian revolution". The label "new Keynesian" describes those who
economists, in the 1980s, a new Classical age, he said, when referring, to the original Keynesian
tenets.
Two basic assumptions determine the New Keynesian approach to macroeconomics. As the new
classical approach, New Keynesian macroeconomic analysis usually assumes that households and
firms have "rational expectations." But these two schools differ in that the New Keynesian analysis
usually involves a variety of "market failures". In particular, New Keynesians assume that there
are "imperfect competition" in price and wage setting, to help explain why prices and wages can
be "sticky," meaning that they do not adapt quickly to changes in economic conditions.
Wage and price stickiness, and other market failures present in the New Keynesian model, suggest
that the economy can achieve "full employment". Thus, the new Keynesians argue that the
macroeconomic stabilization of the Government (from fiscal policies), or the central bank (through
monetary policy), can lead to better macroeconomic results than politics "non-interference".

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8. Structural Economics
Structural Economics originated in Economic Commission for Latin America. Its approach
to importance of taking into account structural features undertaking the economic analysis. Early
structural Economics is based on internal and external loss of productivity structure and its
interaction with the dependent relationship countries had with developed world. Dutt and Ross
identify the specific hard structural economics to differentiation there characteristics and
developing countries approach and adjust development policies. A normal assumption within this
approach that the price mechanism fails and different spaces focus to this thought.
 As an equilibrating mechanism,
 To deliver steady growth,
 To produce a “desired” income distribution.
After a time ago Colmon D.Nixson reports the Bitar S. to argument that there broad
consensus on amount of the neostrucuralist approach. Then it’s recognized for some
terms.
 Importance of political and institutional factors in the analysis of economic problems.
 Need to raise the level of domestic saving in order to raise the rate of investment given
that external sources of finance are likely to be hard by inflation.
 Inflation as a “Social phenomenon” requiring for its elimination social, psychological
and political-institutional charges, as well as orthodox monetary and fiscal policies.
 Facing nature false problems between for ISI and EOI planning and market agriculture
and industry.
 Strength the productive base.
 Importance of trying to improve the terms on which countries are integrated into the
global economic and international competiveness.
 Structural adjustment as only one component of structural change.
Highlighted to the Structural Economic distribution across both productive sectors and
social groups. The institution and sectors incorporated with the macroeconomic and multi
sectoral models. Macrocosmic focus to problems of financing Economic Development
in Mixed Economy. This model facing the three community markets (food, manufactures
and capital goods). Multispectral model Social Accounting Matrices. New Structural
Economic is combination of both neoclassical economics and structural Economics.

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9. Institutional economics
Institutional Economics focus to importance of nonmarket factors in
influencing economic behavior, economic analysis being subordinated to consideration
sociological factors, history and institutional development. Institutional economist were typically
critical of American social, financial and business institutions.
Behavioral economic is another
feature of institutional economics. This is based on what is known about psychology and cognitive
behavior based on economic factors. Economic activities take place in the context have a barrier
of society, both formal and informal. Institutional Economics retain the institution in few of
members in society and understand the economic activities that take place and in so doing to
benefit society.
Institutional Economics focus
to abstract over time and although it purports otherwise, in fact it is often little concerned with
what happens in the real world. Father Economics Adam Smith have devoted themselves to
formalizing his doctrine of the “invisible hand,” the coordination of the economic system by the
pricing system.
Today we can see the Institutional economics in all kinds of social
constructrivitism and postmodern relativism.

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Conclusion
In the beginning of the 18th
century the world economy came an
unprecedented rapid growth period together with the rapid advance in political developments,
social reformations, religious reformations, science and technology developments and
competitions among nations. Nations and regions have formed closer economic and trade relations,
and their economic assets more and more involved. Big nations give priority to strengthen the
economy and the desire for the most advantageous position in the global economy.
This whole theories were introduce by world recognize and famous economist in the world. (Karl
Marx, Adam Smith, John Maynard Keynes, David Ricardo, Paul Samuelson, Alfred Marshall etc.)
They are persons who create, propose and even implement certain policies that are designed to
better serve they work for. The sectors where they are found generally include the private sector
and the public sector or the government sector.
As second year information systems student we had the opportunity to concentrate on origins of
economic so this project gave us so many knowledge about economic. And we discussed how
economic has been growing over the years. And we made our suggestions and conclusions into
this booklet to make it a perfect one. This booklet made our economic knowledge to get sharpen
enough. And there were some members who has never studied about economic and even they
said that they could get some kind of an understanding about economic by involving in make this
book. This project was a learning curve for all our members.

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References
 Smith, Adam. 1965 [1776] - The Wealth of Nations.
 John Maynard Keynes 1936 -The General Theory of Employment, Interest and Money.
 Mark Skousen 2001 – The Making of Modern Economic.
 Robert Lucas Jr - Studies in business-cycle theory.
 Alfred Marshall - Money, credit & commerce.
 https://en.wikipedia.org
 http://www.investopedia.com
 http://www.encyclopedia.com
 http://www.econlib.org
 http://www.merriam-webster.com