Neo-classical economics is the approach to the subject which developed mainly in Europe (and particularly the UK) in the late nineteenth century. It is still regarded as the mainstream of economic thinking and has revived in recent years with the decline in emphasis on Marxist and Keynesian concepts.

Economists who led the 'neo-classical revolution' did not reject classical economics, with its emphasis on the efficiency of markets in allocating resources. Their contribution was to refine the analysis of markets by applying the logic of differential calculus - marginal analysis. The result is a model in which individuals maximize their own satisfaction and firms maximize profits. Provided that there is sufficient competition in all markets, the consequence of this pursuit of individual gain is optimum welfare for the community as a whole.

The logic of neo-classical economics underlies not only much of current political thinking but also much of the conceptual framework applied in 'practical' management disciplines - for example, finance, marketing and business strategy. This is because this logic is mainly deductive - once the assumption of maximization (of profit, sales, output or any other outcome) is adopted, the implications are theoretically irrefutable. Criticisms of neoclassical economics relate mainly to the excessive simplicity of the initial assumptions and/or to the impractical complexity of the derived implications for business decisions.

Francis Fishwick