In 1870 modern economic analysis emerged with the idea of responding to economic problems, especially the determination of the causes of development and the accumulation of wealth. The economy went on to worry about scarce resources between alternative uses in order to optimize consumer satisfaction.
1929 is the year of the Great Depression. This event caused a crisis of conscience among economists, who perceived that classical science did not allow them to analyze the expansion of economic activity and develop adequate economic policies to overcome the crisis.
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By 1800, agriculture and industry positioned the US as the most prosperous in the world. The revolution and its embargo set into motion industrialization, which lasted up to the Civil War. From 1880 to 1890 much wealth was accumulated, more than in Latin America because of US has mostly a temperate climate. The Protestant culture was also more favorable to America. The Great Depression and The New Deal in the US caused a feedback from economics to politics.
Deflation was a big problem up and through the Great Depression. The labor force grew and also big unions grew as a counteracting force. While Government policy during the industrialization period was to help building the railroads, after the Great Depression it was oriented towards tariffs and regulation. So, counter-factual measures of the Government, such as the New Deal still left around 9 million unemployed at the start of WWII, with no signs of restoring growth momentum. But the New Deal and WWII expenditures caused the economy to come back to the 1870-1929 trend. This had happened because of the mixed capitalism underscored by Keynesian Economics. This contrast with Government finance of WWI that had little economic effect: Presidents Harding-Coolidge-Hoover adopted neutral policy towards business, leading up to the Great Depression.
1776,The Wealth of Nation by Adam Smith
1760, 1820-1840, Industrial Revolution
1867-1883, Das Kapital
1914-1918, WorldWar I
1917, October Revolution, Russia
1922, USSR created, established the Soviet Union
1929, Great Depression in the US
The interim period between 1870-1929 saw the development of politico-economics, not economic theories. The introduction of Adam Smith's The Wealth of Nation over shadowed Turgot's physiocrat in France mercantilism in the Anglo-Saxon countries. The whole Europe was still adjusting to the new idea of division of labor and laissez faire which was followed by ghe industrial rebolution. In this period, we saw application of new theory. Nothing proligic in terms of theoretical development.
The lack of alternative led to the introduction of competing idea of poltico- economics as evident in Das Kapital. Events that ollowed saw the marriage between economics and politics. Political revolution finds newer rationale in economics.
The Great Depression in the US was an empirical evidence of theoretical stagnation and lethargy. The US found the fruit of capitalism and enjoyed the benefits of capital market, but did not know how to manage or regulate it; hence collapse followed.
It was after 1929 that we saw great harvest of theoretical works in economics. 11 yeas after the Versaille Treaty, Germany attempted to change the rule of the game. The Soviet Union, with Lenin and others, found more economic rationale for worldwide revolution. It was after WWI the politico-economics set the world on the road to bipolar system of capitalism and socialism as communiting economic theory tied to political philosophies. Any theoretical development in economucs thereafter was subsumed under these two dichotomy.
In just the last decade or so we have seen the rise of behavioral economics, allowing economists to recognize the existence and importance of homo non-economicus. This era is therefore a contender for the title.
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