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Classical Economics Definition
Classical economics is a school of thought in economics that became popular in the 18th and 19th centuries. This school of thought had Spanish scholastics and French physiocrats as contributors, other contributors include David Ricardo, Thomas Malthus, Anne Robert Jacques Turgot, John Stuart Mill, Jean-Baptiste Say, and Eugen Böhm von Bawerk while Adam Smith is the renowned progenitor of this theory.
A Little More on What is Classical Economics
This theory was developed as a countermeasure to the protectionist and inflationary policies of mercantilist Europe, however, self-regulating democracies and Capitalistic market developments form the basis of this theory. Before this theory became popular, most national economies are directed by dictated and autocratic government policies.
Here are some quick points to know about classical economics:
The classical economy became popular in the 17th and 19th century right after the birth of capitalism with Adam smith’s 1776 release of the ‘Wealth of Nations’ highlighting its need and features. This school of thought made it possible to give rise to self-regulated capitalistic democracy as against monarch rule.
The Rise of Classical Economic Theory
Classical economic theory aimed at discussing how capitalism works. Due to the fact that the theory was developed during the rise of western capitalism and the industrial revolution, its economist focussed and developed various theories like the theory of demand, value, prices, supply, and distribution. And most of the Economists supported laissez-faire or let it be market strategy with little or no control from the government.
Majority of the classical economy thinkers supports free trade and competition among workers and business while some do not. This is evidence of not having an agreement in terms of beliefs and characteristics of the school of thought, however, it is common to this school of thought thinkers to vehemently kick against class-based social structures in favor of meritocracies. This formed the founding principle of the economy.
The Decline of Classical Theory
During the 1880s and 1890s, the classical theory was challenged with the writings of Karl Max. Karl Max made very few lasting contributions to the theory while challenging what the classical economist has proffered. Likewise in the 1930s and 1940s, the mathematician John Maynard Keynes in his writings preached a more controlling role for the central government in economic affairs. Keynes was of the opinion that free-market economies eventually result to underconsumption and underspending. This he referred to the most important economic problem, he criticized high-interest rates and individual preferences for saving. He was able to refute Say’s law of the market.
This made him popular and shortly after the Great Depression and World War II, Keynesianism as the policy is being referred to had replaced classical and neoclassical economics as the world government’s widely accepted intellectual paradigm.
Real World Example of Classical Theory in Action
Adam Smith’s 1776 release of the ‘wealth of Nations’ stressed the essence of free trade and also the ‘invisible hand’. This served as the theory for the early phase of domestic and international supply and demand. With this theory, he emphasized the need to promote domestic trade and helped to achieve this while achieving efficient and rational pricing in the product markets based on supply and demand. This is one of the fundamental basis of the theory to move the market through demand and supply to price and production equilibrium.