Classical economics is a foundational school of thought that dominated economic discussions in the 18th and 19th centuries. This paradigm, most notably associated with the Scottish economist Adam Smith, has deeply influenced how economies transition from monarchic systems to self-regulated, capitalistic democracies. Contributions from early economic thinkers such as Spanish scholastics and French physiocrats were instrumental, alongside the notable works of David Ricardo, Thomas Malthus, Anne Robert Jacques Turgot, John Stuart Mill, Jean-Baptiste Say, and Eugen Böhm von Bawerk.
Key Insights into Classical Economics
- Classical economic theory emerged in the wake of western capitalism, becoming the leading school of thought in the 18th and 19th centuries.
- This theory facilitated the shift from monarchic rule to self-regulating capitalistic democracies.
- Adam Smith’s 1776 work The Wealth of Nations highlights critical advancements in classical economics.
- Core concepts such as value, price, supply, demand, and distribution were focal points for classical economists.
- Eventually, Keynesian economics, advocating for greater government intervention, surpassed classical economic principles.
Understanding Classical Economics: The Origins
Classical economics is rooted in the development of self-regulating democracies and capitalistic market systems. Prior to this, economies were largely managed through top-down, command-and-control policies by monarchic governments. Thinkers like Adam Smith and Turgot developed classical theories in response to the protectionist and inflationary practices characterizing mercantilist Europe. This new economic perspective closely intertwined economic thinking with political freedom.
The Rise of Classical Economics
Classical economic theory advanced rapidly alongside the birth of western capitalism and the Industrial Revolution. Pioneering classical economists sought to explain new economic dynamics, developing theories on value, price, supply, demand, and the distribution of wealth. Embracing a laissez-faire, or “let it be,” approach, most classical economists vehemently opposed government interference in market exchanges.
While not entirely unified in their beliefs, musicians of this school shared common themes, including advocacy for free trade and competition among businesses and workers. Classical economists envisioned a societal shift away from rigid, hierarchical class structures towards merit-based systems.
The Transformation and Decline of Classical Economics
By the late 19th century, classical economics had been significantly transformed while retaining its core principles. However, the late 19th and early 20th centuries saw the emergence of critiques, most notably from Karl Marx and later, John Maynard Keynes.
Keynes, influenced by Malthus, perceived free-market economies as prone to underconsumption and underspending, citing saving preferences and high-interest rates as problematic. Keynes’ arguments challenged classical views such as Say’s Law of Markets.
Keynesian economics, promoting a more involved role for governments in economic affairs, gained traction among politicians, particularly after the Great Depression and WWII, ultimately replacing classical and neoclassical ideologies in the global economic discourse.
A Classic Case Study in Economy: Adam Smith’s The Wealth of Nations
Adam Smith’s The Wealth of Nations is a seminal text that marks notable advancements in classical economics. Smith introduced the notion of the
Related Terms: capitalism, free trade, markets, supply and demand, laissez-faire, Keynesian economics, mercantilism
References
- Mises Institute. “A.R.J. Turgot”.
- Adam Smith Institute. “About Adam Smith”.
- The Stanford Encyclopedia of Philosophy. “Karl Marx”.
- The Library of Economics and Liberty. “New Keynesian Economics”.
- The Library of Economics and Liberty. “John Maynard Keynes, 1883-1946”.
- Mises Institute. “Lord Keynes and Say’s Law”.
- International Monetary Fund. “What Is Keynesian Economics?”
- Adam Smith Institute. “The Wealth of Nations”.
- Adam Smith Institute. “The Theory of Moral Sentiments”.
