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.
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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.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
Among these, treating people as humans and not as robots as in classical economics, creating data as a public good, enhancing the legal system for enforcement of contracts, insuring consistency of policy with the blueprint are some tools.
In time, as the new status quo shorn of classical economics' imperiousness set in, the details of what had happened would be recorded and heroized.
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Classical economics still run on the assumption that each household is a single economic unit.
Elsewhere, Joseph Stiglitz -- Nobel laureate in economics -- has criticized classical economics, and stated that inequality and unearned income kill an state's economy.
As John Maynard Keynes famously wrote, "Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist." Our political parties appear to have locked-in long ago on classical economics. The politics of each is organized around one of the two dominant factors that classical economics thought (wrongly) was behind growth: capital supply and labor supply.
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Founder of the Classical economics Adam Smith has rightly said, 'If wishes were horses beggars might have ridden on them all the time.'
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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'.