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 ?
Put simply, classical economics (cost-cutting) streamlines the business, while behavioral economics creates organic growth.
Classical economics would suggest that such high profits would encourage new entrants to these markets, but the opposite appears to happening - they are getting stronger.
Beyond traditional economic theory, behavioral economics integrates human psychology with classical economics, and it has resulted in the unsettling exposure of numerous anomalies that contradict some established axioms and presumptions central to traditional economic theory.
Modern theories of the markets, finance and economics have their roots in the classical economics of the 18th and early 19th century, including Adam Smith's proposal that for the common good, markets are best left to regulate themselves according to natural competitive forces or the metaphorical 'invisible hand'.
Of course, this should not be a surprise since Darwin himself acknowledged his debt to Thomas Malthus, one of the founders of classical economics.
Homo economicus, the traditional hero of classical economics, would never be tempted with this ploy, but it seems the rest of us are at least influenced by an anchor.
To understand the value of this book you just need to follow closely the authors' journey from the classical economics theories to the newest ones.
Today, Smith's work is fundamental in classical economics.
Thus, classical economics is characterized by a "cost of production" theory of value.
It is worth noting, however, that the book is silent on cultural politics in classical economics, a politics that has nothing to do with limited math but with subtle commitments to a particular tradition of political theory (that of modern liberal individualism) among classical writers.
Contract award: supporting businesses of classical economics and insertion through economic activity on soci-organizational issues and change management.
In The Concept of Equilibrium in Different Economic Traditions, Bert Tieben offers a full-length, extensive study of the concept of equilibrium that chronicles its four-century evolution from the prehistory of classical economics to the heyday of neoclassical economics and contemporary heterodox economics.