The following quote was actually left in the comment section of this blog post by Daniel Hannan. The original post is promoting a book called Compassionate Economics (which sounds intriguing). But I thought this comment was very helpful:
Judging from the Amazon reviews, some of the ideas which Norman touts are similar to the Austrian school of economic thought (to which Hayek and Mises belonged).
To understand the existing 'diversity' of economic opinion - you have to go back to the evolution of economic ideas. In the old days, there was 'Classical Economics' - in UK this is usually associated with Adam Smith and David Ricardo. They believed that the correct way to accumulate wealth was to have a free competitive market, largely unfettered by government intervention. They also argued that a sound monetary system - i.e. a gold standard - was essential to the functioning of a market economy.
By the second half of the 20th century however, three dominant schools of economic thought emerged - the Austrian school, the Monetarist school, and the Keynesian school:
1. The Austrian school (Friedrich Hayek, Ludwig von Mises, Wilhelm Roepke, Murray Rothbard) refined and improved upon the understanding of classical economics. Ron Paul is an adherent of this school.
2. The ideas of the Keynesian school had its roots in the Great Depression, which was engendered by government and central bank mismanagement (like almost all economic upheavals). Governments were determined to intervene in the economic order, and there were a lot of other stifling regulation which prevented the economy from adjusting. So Keynes came up with his economic prescriptions - mainly 'smoke-and-mirror' tricks in the hope of 'jump starting' the economy.
They never worked, of course - nonetheless, Keynes was a brilliant and original thinker. It is important to remember that his ideas were created to address the special circumstances surrounding the Great Depression. But Keynes' ideas have never waned in popularity - because it provides justification for government intervention, tailors to socialism/fascism, and provides cosmetic short-term fixes with disastrous long-term consequences (nice weapon to win democratic elections with).
3. The Monetarist school (e.g. Milton Friedman) can be considered to be sandwiched in-between the Austrian and Keynesian school. The Monetarists and Austrians actually agree on most issues, except on their understanding of capital theory and business cycles.
Mainstream economics (as propagated in universities and the media) is a mixture of Keynesian and Monetarist ideas. Most newspaper opinions can usually be pigeon-holed into either one of the above three schools.