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 ?
The first is Henry Hazlitt's classic Economics in One Lesson, which eloquently explains the practical benefits of free markets.
If classic economics insufficiently explains human behavior, it stands that a system predicated on rewards and punishments is also insufficient.
While quantity was considered in classic economics, quality was also taken into account in neo-classic economics.
Classic economics suggested that the only kind of economy that could exist would be barter.
In terms of classic economics high inflation should fuel growth.
He says Gallup has the point of view that says that everything we come to know about classic economics - 'perfect markets, well informed investors and purchasers and sellers making totally rationale decisions' is really only partially correct.
Classic economics holds that, in a competitive industry, the motive of profit and the effects of competition ensure that businesses (hospitals in this case) become optimised by using 'best practice' technology; choosing the combination of inputs that minimises costs (e.
We have an interview with Nobel Prize winner Daniel Kahneman about the growing impact of behavioral economics, a field that challenges and sometimes upends classic economics.
Students of classic economics look at economic cycles and say after the Great Recession, there has to be a sustained up cycle in our future, while students of globalization say the worldwide economy is just too complex and impossible to forecast.
Vice chairman of marketing consultancy Prophet and a professor emeritus of marketing strategy in the Haas School of Business at the University of California at Berkeley, Aaker spoke to editorial assistant Koa Beck about classic economics and the importance of creating subcategories.
The study questions the axiom of classic economics on "consumer sovereignty", saying that those who smoke do not do so because the pleasure of smoking is greater than its cost, but rather because of the addictive power of nicotine and their failure to understand its true cost.
Based on classic economics, the theory presupposes independent entities engaging in international relationships, exercising rational self-restraint, and building and maintaining law and order by maximizing self-interest and game playing.