What is Classical Economics?

The phrase “classical economics” refers to the predominant school of economic theory in the 18th and 19th centuries. The majority of people view Scottish economist Adam Smith as the father of traditional economic theory. However, earlier contributions came from French physiocrats and Spanish scholastics. David Ricardo, Thomas Malthus, Anne Robert Jacques Turgot, John Stuart Mill, Jean-Baptiste Say, and Eugen Böhm von Bawerk are a few more prominent figures in classical economics.

MAIN TAKEAWAYS

•  Classical economic theory was developed shortly after the birth of western capitalism. It refers to the dominant school of thought for economics in the 18th and 19th centuries.
•  Classical economic theory helped countries to migrate from monarchic rule to capitalistic democracies with self-regulation.
•  Adam Smith’s 1776 release of the Wealth of Nations highlights some of the most prominent developments in classical economics.
•  Theories to explain value, price, supply, demand, and distribution, were the focus of classical economics.
•  Classical economics was eventually replaced with more updated ideas, such as Keynesian economics, which called for more government intervention.

Understanding classical economics

Classical economics is based on self-regulatory democracies and capitalist market advances. Prior to the development of classical economics, the majority of national economies were governed by top-down, command-and-control monarchies. The theories of many of the most well-known classical thinkers, such as Smith and Turgot, were developed as alternatives to the inflationary and protectionist policies of mercantilist Europe.

Economic and later political freedom were closely linked to classical economics.

The Development of Classical Economics

The Industrial Revolution and the emergence of western capitalism were the catalysts for the development of classical economic theory. The best early attempts to describe capitalism’s fundamental workings came from classical economists. Theories of value, pricing, supply, demand, and distribution were created by the early classical economists. Nearly all preferred the laissez-faire, or “let it be,” market strategy over government meddling in market transactions.

Although there were observable common motifs in the majority of classical literature, classical thinkers were not entirely unified in their beliefs or understanding of markets. Most people supported open markets and competition between employees and firms. The goal of classical economics was to replace class-based social structures with meritocracies.

Classical Economics’s Demise

By the 1880s and 1890s, Adam Smith’s classical economics had undergone a significant evolution and change, but its fundamental principles remained the same. By then, the political theories of the classical school had been challenged by the writings of German philosopher Karl Marx. Marxian economics, however, contributed relatively little that has remained in the field of economic theory.

The publications of British mathematician John Maynard Keynes presented a more complete critique of classical theory in the 1930s and 1940s. Keynes was a follower of Thomas Malthus and a student of Alfred Marshall. Keynes believed that underconsumption and underspending were tendencies of free-market economies. He referred to this as the fundamental economic issue and used it as an argument against high interest rates and personal saving preferences.

Keynes became well-liked by British and American politicians thanks to his advocacy for a greater controlling role for central governments in economic issues in the form of Keynesian economics. Keynesianism had superseded classical and neoclassical economics as the main intellectual paradigm among international governments following the Great Depression and international War II.

Real-life illustration

The Wealth of Nations, published by Adam Smith in 1776, presents some of the most significant advancements in classical economics. His insights focused on free trade and the idea of the “invisible hand,” which served as the foundational framework for both domestic and global supply and demand.

According to this theory, the market tends to price and production equilibrium as a result of the dual and conflicting forces of supply and demand. Smith’s research aided in promoting domestic trade and produced more effective and sensible pricing in the supply and demand-based product markets.