CLASSICAL ECONOMICS: ORIGIN, POSTULATES AND REPRESENTATIVES - ECONOMY - 2025

The classical economics is a school focused on the economic front. It originated in England in the late 18th century with the postulates of the Scottish economist Adam Smith. It was consolidated with the works of other English economists, such as John Stuart Mill, Thomas Malthus and David Ricardo.

His postulates focused on promoting economic freedom and economic growth. This school placed particular emphasis on the famous laissez-faire thesis (in French, "letting go") and on free competition. The term classical economics was coined by Karl Marx to characterize the school of thought of these three economists.

Adam smith

The theories of the classical school dominated British economic thought until about 1870. The classics opposed the mercantilist thought and policy that prevailed in England until the 16th century and in Europe until the 18th century.

The main concepts and foundations of classical economics were exposed by Adam Smith in his book An inquiry into the nature and causes of the wealth of nations (1776).

Smith argues that free competition and free trade alone, without state intervention, promote the economic growth of a nation.

Origin

The classical school developed shortly after Western capitalism originated. Many historians establish the rise of capitalism to the period when serf labor collapsed in England, along with the creation in 1555 of the first stock company.

With capitalism came the Industrial Revolution, the causes and consequences of which have been the subject of extensive debate among intellectuals throughout history. The first successful attempts to study the inner workings of capitalism were made precisely by the classical economists.

They developed theories about key economic concepts, such as value, prices, supply, demand, and distribution. State interference in commerce and the economy in general was rejected by the classics.

Instead they introduced a new market strategy based on the physiocratic concept of laissez-faire laissez passer ("let go, let go"). Classical thinking was not totally unified around the functioning and nature of markets, although they did coincide.

However, most of its thinkers favored the operation of the free market and competition between companies and workers. They believed in meritocracy and tried to move away from social class structures.

Subjective theory of value

The period of greatest growth in classical economics began in the third decade of the 19th century. In 1825 the English merchant Samuel Bailey put the subjective theory of value into vogue. Then, around 1870, the so-called Marginalist Revolution shattered Adam Smith's theory of value.

From then on, classical thought was divided into rivaling factions: the neoclassicals and the Austrians. Despite the evolution of Smith's classical economics towards the end of the 19th century, his core of thought remained intact. The emergence of new schools, such as Marxism, challenged the classical postulates.

Postulates

After analyzing the operation of free enterprise, Adam Smith developed his labor theory of value along with the theory of distribution. Both theories were later expanded by David Ricardo in his work Principles of political economy and taxes (1817).

Ricardo emphasized that the market value (price) of goods produced and sold tends to be proportional to the labor costs of their production. Likewise, the principle of comparative advantage introduced by Ricardo was another of the most influential in classical economic theory.

This principle establishes that each country must specialize in the production of those goods that have the greatest comparative advantages and are more efficient. In other words, make the most of the territorial division of labor and import everything else that is not produced.

This is contrary to the self-sufficiency of nations that the mercantilists proposed. The postulate of comparative advantage became the main foundation of international trade during the 19th century.

Foundations of classical thought

Other of the postulates or foundations of the thought of the classical school are the following:

- Only the free market allows an optimal allocation of available resources.

- The government must refrain from intervening in the operation of the market, because doing so only manages to generate inefficiency and hinder its equilibrium

- The value of a good is determined by the amount of labor required to produce it.

- Prices, together with wages, are regulated by the market itself, as these are naturally adjusted up or down.

- The labor market is generated in a situation of full employment. When there is unemployment, it will be voluntary or frictional.

- To achieve total production, full use of resources is necessary. As supply is established in the market, prices will be determined by changes in demand.

- The monetary policy and fiscal policy of the mercantilist states are ineffective in achieving economic growth.

- The classical economy arose in opposition to the mercantilist ideas that defended protectionism and its inflationary policies. Classical thought was born out of the hand of economic and political liberalism.

Main managers

Adam Smith (1723 - 1790)

It is considered the precursor of the classical school of economic thought. His work The Wealth of Nations is considered the first compact and finished treatise on political economy.

Smith is the author of the still current doctrine of the "invisible hand of the market." He was one of the greatest exponents of the freedom of the market to achieve economic and social development.

In his works, he explained how the market was in charge of the efficient allocation of resources and how far its responsibilities in society went.

He also studied the role of government in society as a protector against violence and injustice, while assigning it the task of offering and maintaining public services and protecting the environment.

Thomas Malthus (1766 - 1790)

He was an English clergyman who did research on demography and political economy. He formulated his thesis about the reasons for the exponential growth of the population in the world, contrary to the slow growth of per capita food production, which led to an inevitable and dangerous decrease in the standard of living of the population.

Consequently, he argued that population growth depended on the available and fixed amount of fertile soil.

David Ricardo (1772-1823)

This English economist deepened Smith's studies on the value of labor and formulated the thesis of decreasing agricultural yield in the long run.

Likewise, he considered that the changing quality of the available soil was the main cause of the decrease in returns in agricultural crops.

Ricardo was also pessimistic about population growth. Like Malthus, he believed that this would lead to poverty and stagnation mainly due to the increasingly limited resources available.

John Stuart Mill (1806-1873)

He was an English politician and economist whose contributions to classical economics were on the conditions in which the law of diminishing returns occurs.

To the works of the classics that preceded him, Mill adds the concepts of human knowledge development and technological advances in the agricultural and productive field.

He argued that technological progress could reduce the limits of economic growth, regardless of population growth; therefore, the economy could remain at a certain level of production or steady state. However, he did not rule out the phenomenon of long-term stagnation.

References

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