Since the financial crisis of 2007–2009, there has been heated conflict within and without economics on the status and future of mainstream economics,and its future course is uncertain.
Some economists, in the vein of ecological economics, believe that the neoclassical “holy trinity” of rationality, greed, and equilibrium, is being replaced by the holy trinity of purposeful behavior, enlightened self-interest, and sustainability, considerably broadening the scope of what is mainstream.
Alternative economic schools, such as the Austrian School, also present views that counter indicate current mainstream economic theory of how the modern economy actually works. Since mainstream economics is characterised by the deductive methodology, the assumption of pervasive equilibrium and a neglect of the institutional role of banks and bank credit, another major counter current is the approach proposed by Southampton University economist Richard A. Werner. In his book ‘New Paradigm in Macroeconomics’ (Palgrave Macmillan, 2005) he presents an alternative approach, which is found to be empirically supported. Unlike mainstream economics, his approach is based on the inductive research methodology (it does not require axioms and assumptions, such as perfect information), but starts with economic reality. Since perfect information is a requirement of achieving equilibrium, his economics is based on the argument that in the ‘real world’ markets are in disequilibrium and quantity-rationing is common. A central piece is the institutional reality of the monetary system and the role of banks as creators and allocators of the money supply, which are at the core of the economy. Credit creation is linked to the quantity equation by a disaggregation into credit for transactions that are part of GDP (’real circulation credit’, which determines nominal GDP) and credit for transactions that are not (’financial circulation credit’, which determines asset prices). The model neatly resolves a dozen major puzzles and ‘anomalies’ of mainstream economics. Published in 2005, Werner’s book has chapters on ‘recurring banking crises’ and warns about the looming bursting of the British credit bubble and subsequent banking crisis. Werner himself labels this approach ‘non-fiction economics’, or ’scientific economics’.
Energy related theories of economic concepts also exist within energy economics relating to thermodynamic concepts of economic thinking, such as Energy accounting. Biophysical economics relates to this area.This area of study relates to ecological economics concepts, which relates to sustainability issues, such as natural capital.