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 ?
Basically, one witnessed a triumphant swing-back of the pendulum of economic theory from the objective concepts of production, elaborated by the Physiocrats and the British Classical economists, to the subjective behavioural concepts behind the phenomena of trade and exchange which had been the major concern of the Mercantilists.
Now the fact that Hobbes' ideas encouraged classical economists and early free market advocates has been something of a liability for all those who love human liberty, as well as a boon to all who would find some excuse to denigrate such human liberty.
Classical economists treated all economic production as a function of three categories of factors: land, labor, and capital.
10) Mueller focuses his attention on the British classical economists, but neglects the writings of the French liberal school.
The latter's blend of 'politics' and 'economics' is a long stretch from the classical economists concern with the economic surplus.
This distinction between orientations corresponds to Peter Boettke's (2012) distinction between the mainline of economic theorists that extends back to the classical economists and the mainstream that arose late in the 19th century and dominates economic discourse today.
All these experiences were in the minds of the classical economists.
The author points out in his preface that classical economists of 100 years ago saw vanity as central to people's economic and social behavior, and they defined vanity basically as a desire to one-up other people in whatever ways are possible.
Capital in the Twenty-First Century" has reignited economists' interest in the dynamics of wealth and its distribution -- a topic that preoccupied classical economists such as Adam Smith, David Ricardo and Karl Marx.
According to the classical economists, workers got wages, capitalists got profits on the capital they invested, and the owners of natural resources got rents.
For classical economists, competition was about firm conduct; they adopted a dynamic process-based view of competition.
The new classical economists rarely mentioned aggregate demand and downplayed the possibility that a plunge in aggregate demand could generate a recession or that the cure for a recession would involve public policy that would raise aggregate demand.