classical economics

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Classical Economics

A set of related economic theories that trace their origins to the Enlightenment. Adam Smith is commonly thought to be the father of classical economics. He and those who followed him believed that economies work most efficiently when economic actors attempt to maximize their own self-interests, and that doing so tends to maximize the interests of society as a whole. For example, a man may open a mechanic shop to make a profit for himself, but, in the process, he may hire otherwise unemployed mechanics and service otherwise broken cars, which then facilitates business for the rest of the community. See also: Invisible hand, Neo-classical economics, Socialism.

classical economics

a school of thought or a set of economic ideas based on the writings of SMITH, RICARDO, MILL, etc., which dominated economic thinking until about 1870, when the ‘marginalist revolution’ occurred.

The classical economists saw the essence of the economic problem as one of producing and distributing the economic wealth created between landowners, labour and capitalists; and were concerned to show how the interplay of separate decisions by workers and capitalists could be harmonized through the market system to generate economic wealth. Their belief in the power of market forces led them to support LAISSEZ-FAIRE, and they also supported the idea of FREE TRADE between nations. After about 1870, classical economic ideas receded as the emphasis shifted to what has become known as NEOCLASSICAL ECONOMIC ANALYSIS, embodying marginalist concepts. Classical economists denied any possibility of UNEMPLOYMENT caused by deficient AGGREGATE DEMAND, arguing that market forces would operate to keep aggregate demand and POTENTIAL GROSS NATIONAL PRODUCT in balance (SAY'S LAW). Specifically they argued that business recessions would cause interest rates to fall under the pressure of accumulating savings, so encouraging businesses to borrow and invest more, and would cause wage rates to fall under the pressure of rising unemployment, so encouraging businessmen to employ more workers. See LABOUR THEORY OF VALUE, KEYNES, PRIVATE ENTERPRISE ECONOMY.

References in periodicals archive ?
Traditional Keynesians have always emphasized that a realistic view of how people actually think and behave is crucial to getting policy right--this insistence on realism has been at the core of the Keynesian critique of the new classical economics with its unrealistic assumption that everyone holds "rational" expectations and that workers promptly accept wages cuts needed to "clear" labor markets.
Models in the classical economic science do a good job describing big ideas (economies, markets, etc.
The intellectual failure springs from the treatment by the New Classical Economics of the unknown.
His whole purpose was to turn classical economics on its head.
Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything else" (Keynes, 1965, p.
Classical economics seems all too coy about where you are to get your workers from, and how they are to be employed with the dignity and efficiency necessary to create the optimal economic gain.
Classical economics assumes individuals make rational choices designed to maximize their own benefits.
Near the other end, Hobbes is recognized for initiating a debate over self-interest and public welfare that culminated in Adam Smith's work and the classical economics it initiated.
Again, classical economics would say: more finished steel available, lower price.
Thus, I see this movement toward New Classical economics as an important step in the development of economic thinking because it brings both micro and macro onto the same footing, and helps clarify the issues.
00--The methodology of classical economics presents a fascinating glimpse of Enlightenment scientists wrestling with ancient epistemological problems that were considered overcome in the new age.
This was the original definition of Say's Law and, while it postdated classical economics, it did capture one of Say's key insights, namely, that as long as sellers only offer those goods that buyers intend to buy, then it stands to reason that all goods will eventually be sold and that all markets will clear.