classical economics


classical economics
classical economist.
a system or school of economic thought developed by Adam Smith, Jeremy Bentham, Thomas Malthus, and David Ricardo, advocating minimum governmental intervention, free enterprise, and free trade, considering labor the source of wealth and dealing with problems concerning overpopulation.

* * *

School of economic thought largely centred in Britain that originated with Adam Smith and reached maturity in the works of David Ricardo and John Stuart Mill.

The theories of the classical school were mainly concerned with the dynamics of economic growth. Reacting against mercantilism, classical economics emphasized economic freedom. It stressed ideas such as laissez-faire and free competition. Many of the fundamental principles of classical economics were set forth in Smith's Wealth of Nations (1776), in which he argued that a nation's wealth was greatest when its citizens pursued their own self-interest. Neoclassical economists such as Alfred Marshall showed that the forces of supply and demand would ration economic resources to their most effective uses. Smith's ideas were elaborated and refined by Ricardo, who formulated the principle that the price of goods produced and sold under competitive conditions tends to be proportionate to the labour costs incurred in producing them. Mill's Principles of Political Economy (1848) gave the ideas greater currency by relating them to contemporary social conditions. Among those who have modified classical economics to reach very different conclusions are Karl Marx and John Maynard Keynes.

* * *

      English school of economic thought that originated during the late 18th century with Adam Smith (Smith, Adam) and that reached maturity in the works of David Ricardo (Ricardo, David) and John Stuart Mill (Mill, John Stuart). The theories of the classical school, which dominated economic thinking in Great Britain until about 1870, focused on economic growth and economic freedom, stressing laissez-faire ideas and free competition.

      Many of the fundamental concepts and principles of classical economics were set forth in Smith's An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Strongly opposed to the mercantilist (mercantilism) theory and policy that had prevailed in Britain since the 16th century, Smith argued that free competition (capitalism) and free trade, neither hampered nor coddled by government, would best promote a nation's economic growth. As he saw it, the entire community benefits most when each of its members follows his or her own self-interest. In a free-enterprise system, individuals make a profit by producing goods that other people are willing to buy. By the same token, individuals spend money for goods that they want or need most. Smith demonstrated how the apparent chaos of competitive buying and selling is transmuted into an orderly system of economic cooperation that can meet individuals' needs and increase their wealth. He also observed that this cooperative system occurs through the process of individual choice as opposed to central direction.

      In analyzing the workings of free enterprise, Smith introduced the rudiments of a labour theory of value and a theory of distribution. Ricardo expanded upon both ideas in Principles of Political Economy and Taxation (1817). In his labour theory of value, Ricardo emphasized that the value (i.e., price) of goods produced and sold under competitive conditions tends to be proportionate to the labour costs incurred in producing them. Ricardo fully recognized, however, that over short periods price depends on supply and demand. This notion became central to classical economics, as did Ricardo's theory of distribution (distribution theory), which divided national product between three social classes: wages for labourers, profits for owners of capital, and rents for landlords. Taking the limited growth potential of any national economy as a given, Ricardo concluded that a particular social class could gain a larger share of the total product only at the expense of another.

      These and other Ricardian theories were restated by Mill in Principles of Political Economy (1848), a treatise that marked the culmination of classical economics. Mill's work related abstract economic principles to real-world social conditions and thereby lent new authority to economic concepts.

      The teachings of the classical economists attracted much attention during the mid-19th century. The labour theory of value, for example, was adopted by Karl Marx (Marx, Karl), who worked out all of its logical implications and combined it with the theory of surplus value, which was founded on the assumption that human labour alone creates all value and thus constitutes the sole source of profits.

      More significant were the effects of classical economic thought on free-trade (free trade) doctrine. The most influential was Ricardo's principle of comparative advantage, which states that every nation should specialize in the production of those commodities it can produce most efficiently; everything else should be imported. This idea implies that if all nations were to take full advantage of the territorial division of labour, total world output would invariably be larger than it would be if nations tried to be self-sufficient. Ricardo's comparative-advantage principle became the cornerstone of 19th-century international-trade (international trade) theory.

* * *


Universalium. 2010.

Look at other dictionaries:

  • Classical economics — is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. Adam Smith s The Wealth of Nations in 1776 is usually considered to …   Wikipedia

  • classical economics — ➔ economics * * * classical economics UK US noun [U] ECONOMICS ► a theory about economics, developed in Britain in the 18th and 19th centuries, which states that the economy will be most successful when people are allowed to work at jobs that… …   Financial and business terms

  • classical economics — classical economist. a system or school of economic thought developed by Adam Smith, Jeremy Bentham, Thomas Malthus, and David Ricardo, advocating minimum governmental intervention, free enterprise, and free trade, considering labor the source of …   Useful english dictionary

  • Classical Economics — refers to work done by a group of economists in the eighteenth and nineteenth centuries. They developed theories about the way markets and market economies work. The study was primarily concerned with the dynamics of economic growth. It stressed… …   Investment dictionary

  • classical economics — /ˌklæsɪkəl ɛkəˈnɒmɪks/ (say .klasikuhl ekuh nomiks) noun a system of thought developed by Adam Smith and David Ricardo, according to which the wealth of nations is promoted by free competition with a minimum of government intervention and by… …   Australian English dictionary

  • New classical economics —   [njuː klæsɪkl iːkə nɔmɪks, englisch], neue klassische Makroökonomik …   Universal-Lexikon

  • neo-classical economics — Economics, as an academic discipline, is predominantly the study of the allocation of scarce resources to alternative uses via market prices. The dominant paradigm in modern economics is neo classical theory which developed from the so called… …   Dictionary of sociology

  • Classical theory of growth and stagnation — Classical economics refers to work done by a group of economists in the eighteenth and nineteenth centuries. The theories developed mainly focused on the way market economies functioned. Classical Economics study mainly concentrates on the… …   Wikipedia

  • Economics — This article is about the social science. For other uses, see Economics (disambiguation). For a topical guide to this subject, see Outline of economics. Economics …   Wikipedia

  • economics — /ek euh nom iks, ee keuh /, n. 1. (used with a sing. v.) the science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind. 2. (used with a pl. v.) financial considerations;… …   Universalium


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.