Inadequacy of Neo-classical Theory and Its Reflection on the Market Economy

Abstract

The hypothesis and proposed policies of Neo-classical theory as the dominant ideology of economics in today, are becoming increasingly ineffective in solving current problems and even sometimes cause problems to be intensified. The most important reason for this is the failure of creating a healthy structure for the hypothesis of Neo-classical theory in order to implement it in the reality of today's market economies. The fact confirms the inadequacy of the theory is that even the signals of the recent global economic crisis were not noticed by the economists and the necessary precautions were not taken. The Neo-classical theory was dominating the system since it had emerged mainly focused on pure mathematical models in order to get economics closer to the natural sciences and therefore gradually detached from the social reality and created a fictional economical world. In the study examines the inadequacy of the Neo-classical theory, its reflection on market economics and concludes that a new perspective is needed to produce realistic solutions. Keywords” Ceteris paribus, laissez faire, Neo-classical theory, market economy, Pareto optimal