Classical Organisation Theory: The classical writers viewed organisation as a machine and human beings as components of that machine. One of the major underlying principles of neo classical economics is that prices are determined by the forces of demand and supply. The neo-classical school of economic thought is a wide ranging school of ideas from which modern economic theory evolved. 6. This theory says that workers need only physical and economic status and needs. Again, the liquidity preference theory is distinct from the loanable funds theory, which, like the classical theory, is basically a reformulation of the saving- investment theory of interest to include the elements of hoarding and bank money. 1. 1. 3. There are three different types of organizational theory to predict and explain the process and also behavior patterns in an organizational setting: Classical Organization Theory, Neo-Classical Organizational Theory, and Modern Organizational Theory. The liquidity preference theory is a more general theory than the other two theories in the sense that it is applicable to both full-employment as well as less-than-full employment situations. Determination of Rate of Interest – According to the classical theory, rate of interest is determined by the equality between the demand for and supply of capital. They were of the view that efficiency of the organisation can be increased by making human beings efficient. In this article, we will explore the Classical Organizational Theory. Moreover, there is a distinct difference between classical and neo classical theory in terms of their characteristics like organizational structure, strategies, considerations, rewarding systems etc. 1. 7. Nature of Interest – According to the classical economists, interest is a real non-monetary phenomenon and the theory of interest is a real theory of interest. The demand for transactions and precautionary motives is a constant function of income and is interest-inelastic, while the demand for speculative motive is a negative function of the rate of interest. Demand Side – In the neo-classical theory, the demand for loanable funds is the demand for investment, consumption and hoarding. Welcome to EconomicsDiscussion.net! 1. Money supply is fixed, interest-inelastic and stated in stock terms related to a specific point of time. 8. The supply of capital is a positive function of the rate of interest. Nature of Interest â According to the neo-classical economists, interest is a real-cum-monetary phenomenon and the theory of interest is a real-cum-monetary theory of interest. Moreover, classical management theory outlines a clear structure of the management, clear identification of roles and responsibilities of employees and division of labour to increase productivity. Supply Side – In the classical theory, the supply of capital comes from saving which depends on the willingness and power to save. Demand Side -In the classical theory of interest, the demand for capital is the demand for investment which is influenced by the marginal productivity of capital. Definition of Interest â According to the neo-classical economists, interest is a reward for the use of loanable funds. It will provide a general description of each of these management theories together with observations on the environment in which these theories were applied and the successes that they achieved. Neo-Classical Theory of Economic Growth: We know that Hicks, J.E. Definition of Interest – According to the classical economists, interest is a reward paid for the use of capital. Relative Importance – Neoclassical Theory – The loanable theory, which is stated in real as well as money terms, is an improved and more realistic version of the classical theory of interest. Furthermore, it allows autonomy and initiative at the lower level. It modified, improved and extended the classical theory. 5. Thus, this process is quick in comparison to decision making and execution by a team. Competition for goods or â¦ The top layer is the owners, while the middle layer is the middle management who oversees the entire operation. 2. But, both the classical and neo-classical theories are special theories based on the assumption of full employment, wrongly regard the rate of interest (and not the income level) as the equilibrating force between saving and investment and, above all, are indeterminate theories due to their neglect of the importance of income level. 7. Classical theory has a hierarchical organization structure with layers of management. Neoclassical Economics is an attempt to restore some of the principles that Adam Smith, a pioneer for capitalist markets, advocated for in his Classical Economic theory. Nature of Interest – According to Keynes interest is a purely monetary phenomenon and the theory of interest is a monetary theory of interest. Classical economics also developed in conflict with an earlier set of ideas called mercantilism(15th century to the early to mid-19th century) Mercantilist political policy aimed at increasing national power, symbolized by the might of the state. It lay out many principles of economics that were then to be built on by the neo-classical school. However, it emphasises specialization of labour, centralized leadership and decision-making, as well as profit maximization. Furthermore, the classical management theory follows an autocratic leadership model to a certain extent where it is considered as the central part of the management system. The third layer is supervisors who take part in the day to day operations and engage in employee’s activities and training. 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