﻿ New Classical theory  New Classical Theory  During the 1980s,
mainstream economic theory rejected Keynesianism and returned to
its Classical market roots, with its emphasis on market freedom
and a limited role for the state. Both the IMF and World Bank
quickly began to adopt this New-classical perspective.  Three
different New-classical approaches emerged;    1. The free-
market approach, where markets alone are assumed to be
sufficient to generate maximum welfare.    2. The public-choice
approach, which is an extreme New-classical model which
emphasises that all government is ‘bad’ and leads to corruption
and the gradual confiscation of private property.    3. The
market-friendly approach, which suggests that, while markets
work, they sometimes fail to emerge, and a government has an
important role in compensating for three main market failures:
missing markets, imperfect knowledge and externalities.  New-
classical theorists rejected the Keynesian view which dominated
the 1970s. Despite differences of empha