From the father of Economic History who developed theories to

explain why capitalist economies have fluctuations and crises to the greatest economic thinker of the 20th century

Adam Smith argued for free trade, market competition and the
morality of private enterprise
1. ADAM SMITH (1723-1790)
A key figure of the Scottish Enlightenment, Smith is the giant on
whose shoulders subsequent economists have stood. He is best
known for The Wealth Of Nations, his 1776 landmark book on
economics, published at the dawn of the Industrial Revolution - and
was even consulted on economic matters by Pitt The Elder, the Whig
politician and Prime Minister. His arguments for free trade, market
competition and the morality of private enterprise remain as fresh and
influential as when written over 200 years ago. That said, Smith who studied and later taught at Glasgow University - saw only a
limited role for government and was hostile to economic nationalism.
However, his arguments have at times been misinterpreted by free
marketeers in recent decades. The fact is that he did not believe in
'laissezfaire' (an earlier French doctrine opposing any government
intervention in economic matters) - he saw government's sole job as
to establish law and justice, and provide for the nation's education and
basic infrastructure.

David Ricardo (left) dealt with the idea of economic 'rent', where the
rewards are greater than the cost of production. Fukuzawa Yukichi's
(right) ideas made a lasting impact on Japan
2. DAVID RICARDO (1772-1823)
British political economist - the third of 17 children from a Sephardic
Jewish family of Portuguese origin - Ricardo was a huge influence on
19th-century economics. After making a fortune as a stockbroker, he
became fascinated by economics - and wrote the influential The
Principles Of Political Economy And Taxation (1817). In it, he dealt
with questions of distribution (worker and landlord rewards, etc) and
the link with the value of production: in particular, the idea of economic
'rent', where rewards are greater than the cost of production. This
foreshadowed today's debate about 'fair' pay and rewards. Crucially,
he developed Adam Smith's thinking on free trade, and his work
helped the Anti-Corn Law League win the battle over the Corn Laws
(protective duties on corn, designed to protect the landed gentry,
which were repealed in 1846) which established Britain as a freetrading nation.

Yukichi pictured on the 10,000 yen note

3. FUKUZAWA YUKICHI (1834-1901)
An author, entrepreneur and political theorist, Yukichi's ideas made a
lasting impact on Japan following the 1868 Meiji Revolution, which
saw the restoration of imperial rule in Japan and set in train its
economic modernisation. Widely regarded as one of Japan's founding
fathers, Yukichi tried to understand how modern systems and
organisations worked and how 'civilisation', including business
enterprise and new technology, could be transplanted to Japan to
create economic development. He was an educator rather than an
economist but wrote many books that influenced a generation of
Japanese to embrace a rational and scientific approach to economic,
and wider, policy. If it hadn't been for Yukichi, I suspect the
modernisation and industrialisation of Japan, and subsequently the
rest of east Asia, would have probably been longer in coming.
4. KARL MARX (1818-1883)

Karl Marx, who spent much of his life in London (and is buried in
Highgate Cemetery), developed theories to explain why capitalist
economies - which he opposed - have fluctuations and crises
OK, Marx might now be remembered as a revolutionary advocate of
communism - he co-wrote The Communist Manifesto - but he was a
leading 19th-century economist in the 'classical' tradition. Indeed, in
many ways he is the father of Economic History, having developed
explanations for the evolution of the economic structure from
feudalism to capitalism. The German philosopher, sociologist and
economist, who spent much of his life in London (and is buried in
Highgate Cemetery), developed theories to explain why capitalist
economies - which he opposed - have fluctuations and crises.
However, despite his belief in capitalism's self-destructive tendencies,
much of his economic thinking stands up to scrutiny. Had it not been
for The Communist Manifesto, I think Western commentators would
recognise more readily today his role in advancing economic thinking.

Much of Marx's (left) economic thinking stands up to scrutiny. Bengalborn economist Amartya Sen (right) wrote that famine originates in a
shortage of income rather than food
5. AMARTYA SEN (1933-)
Among the most important events of my lifetime has been the
economic emergence through rapid growth of major developing
countries - most notably China and India, but also Korea, Brazil and
Mexico among others. A variety of fine economists have contributed to
understanding growth and development in the late 20th century:
among them Sen, the Indian Nobel Laureate (he was awarded the
1998 Nobel Prize in Economic Sciences). One of the Bengal-born
economist's key contributions was a book on famine whose essential
point was that it originates in a shortage of income rather than food.
More recently he has sought to inject an ethical dimension into
economic thinking. It's interesting to note that not only are nations like
India now making their mark economically, so are their economists.

John Maynard Keynes insistence on the central role that uncertainty

plays in economic decisions foreshadows much of the current interest
in behavioural economics
6. JOHN MAYNARD KEYNES (1883-1946)

The greatest economic thinker of the 20th century, Keynes (a Liberal

incidentally) challenged fundamentally the idea that market economies
will automatically adjust to create full employment. After working at the
Treasury during World War I, he was its chief representative at the
post-war Paris peace conference, but resigned in protest at the
harshness of the planned reparations. In the Twenties he developed
radical plans for dealing with unemployment through deficit financing
and state intervention. His insistence on the central role that
uncertainty plays in economic decisions foreshadows much of the
current interest in behavioural economics. While his basic economic
framework - in which short-term economic growth (and employment)
depends on 'aggregate demand' (consumption, investment and net
exports) is built into many of our forecasting models today. Later on,
he participated in the Bretton Woods conference (which looked at how
to establish a post-war monetary system that would avoid further
economic crises) that led to the creation of the International Monetary
Fund and the World Bank. Admittedly, he went out of fashion in recent
decades when inflation was a bigger worry than unemployment.
However, the present crisis has led to something of a revival in
Keynesian thinking, and his insights into how international imbalances
should be tackled remain highly relevant.

Milton Friedman (left) is associated essentially with two big ideas

which have inspired the Chicago School of Economics. Joseph
Schumpeter (right) believed 'monopoly rents' encouraged innovation
and investment
7. MILTON FRIEDMAN (1912-2006)
Wrongly described as the antithesis and an opponent of Keynes,
Friedman is associated essentially with two big ideas which have
inspired the Chicago School of Economics. One is an uncompromising
restatement and development of Adam Smith's views on the merits of
free markets. He made the case for floating exchange rates (as Britain
has had since Black Wednesday in 1992) - but the translation of this
idea into a belief in 'efficient' financial markets has been severely
tested (perhaps to destruction) in the recent financial crisis. His other
major contribution, the quantity theory of money - given its first clear
statement by the great Scottish thinker David Hume - linking money
supply to inflation, was embraced in the Eighties by Mrs Thatcher's
government with mixed results. It has, however, moved back to centre
stage in the current crisis as central banks have fought recession (and
the risks of deflation) by means of aggressive monetary policy:
minimal interest rates and expanding money supply via quantitative
easing.
8. JOSEPH SCHUMPETER (1883-1950)
The Austrian-American economist and political scientist is responsible
for the idea of capitalism as a (positive) source of 'creative
destruction'. Technology and capitalism together drive change and
growth - but traditional freemarket thinking would worry about
monopolies (albeit temporary) such as Microsoft's software platforms,
which are based on intellectual property protection of an innovation.
However, Schumpeter, who moved to the USA in 1932, saw the
process as benign. He believed that such 'monopoly rents'
encouraged innovation and investment, which are essential to growth.
Modern capitalism - often based on competition between innovative
giant companies - is somewhat closer to the Schumpeter model than
Adam Smith's. Incidentally, Schumpeter's followers are a part of the
so-called Austrian School, which is highly critical of the orthodox

(Keynesian and Friedmanite) attempt to fight the current crisis through

reflationary fiscal and monetary policy. They believe banks,
governments and individuals have no alternative but to learn from their
mistakes, not be rescued from them.c
9. DANIEL KAHNEMAN (1934-)

Daniel Kahneman, an Israeli-American psychologist - not an

economist - did much of the pioneering work in the fascinating field of
'behavioural economics'
Perhaps the most radical change in direction in economics in recent
decades has been the emergence of 'behavioural economics'. And
Kahneman, an Israeli-American psychologist - not an economist - did
much of the pioneering work in this fascinating field. Traditional
economics, from Smith and Ricardo to Marx, Keynes and Friedman,
has been based on general theories which treat it as a branch of
natural science. But people are not like atoms, or plants, or rats in
mazes. They learn and adapt (or we hope they do), invalidating
models based on past behaviour. However, people also hang on to

irrational habits and seemingly perverse ways of evaluating choices,

confounding those economists who premise their models on 'rational
economic man'. Some economists have retaliated by applying
economic rationality to explain non-economic problems such as crime
and punishment, prostitution and marriage patterns.

Hyman Minsky described with uncanny accuracy the seven stages of

a boom and bust cycle which we have now seen enacted in our own
country
10. HYMAN MINSKY(1919-1996)
The Western world has been painfully reminded over the past three
years of the way capitalist economies - especially their banks - can be
caught in speculative financial bubbles which burst with disastrous
effects.
The South Sea Bubble (which saw shares in an 18th-century British
company soar before crashing) was an early example of such an
event. The philosopher John Stuart Mill wrote about cycles leading to

bank collapses and ensuing 'credit crunches' in the 19th century - and
Minsky was the best analyst of the problem in recent times.
Sometimes described as a post-Keynesian economist (because he
supports some government intervention), the American described with
uncanny accuracy the seven stages of a boom and bust cycle which
we have now seen enacted in our own country.
The Coalition Government is now seeking to manage the
consequences and to stop another Minsky cycle developing.
VINCE CABLE PICTURE BYLINE: Geraint Lewis/Writer Pictures