The contributions of classical economics shaped both modern mainstream and Marxian economics.
The classical school of political economy, from David Hume’s Political Discourses (1752) and Adam Smith’s Wealth of Nations (1776) to John Stuart Mill’s Principles of Political Economy (1848), emphasized growth and efficient allocation through the workings of market forces, in contrast to the mercantilist belief in state direction of economic activity. They stressed the expansion of consumption possibilities rather than national power or a surplus of exports over imports.
With the exception of Jean-Baptiste Say, the leading classical economists were Scottish or English. Hume held that, as a loyal British subject, he wished France to be prosperous, viewing it as a trading partner, not a national rival. Hume showed that a lasting trade surplus was unattainable, because the resulting gold inflow would raise prices, reducing the trade balance and restoring equilibrium. Smith argued that international division of labor, like specialization and exchange between individuals or regions, permitted increased productivity (through economies of scale and learning by doing), which allowed both greater consumption and more capital accumulation. He viewed armed forces and government bureaucracy as unproductive diversions of labor from productive employments, and limited the proper functions of government to protection against foreign and domestic violence (national defense and administration of justice) and certain public works. Robert Torrens and David Ricardo expounded the principle of comparative advantage, showing that two trading partners both gain from specialization and voluntary exchange, even if one is more productive in all possible activities. John Stuart Mill analyzed the role of reciprocal demand in determining international prices and the division of the gains from trade between trading partners.
The classical economists were united in opposition to the Corn Law of 1815, which protected British agriculture against grain exports enacted during the depression following the Napoleonic Wars (except for Thomas Robert Malthus, who initially supported the Corn Laws). They objected that costlier food would squeeze profits and real wages, diminishing both consumption and capital accumulation, to the benefit only of landlords, who would receive higher rents as inferior land was brought into cultivation. The Irish potato famine was the proximate cause of the repeal of the Corn Laws in 1846, but prolonged agitation by classical economists had prepared political opinion for repeal. The Irish famine revealed the limitations of the classical laissez-faire approach to economic policy, since the famine was due not only to inadequate food supply (which could be overcome by unrestricted imports), but also to the collapse of the purchasing power of the Irish peasantry. Classical economics became so closely associated with free trade in the public mind that free-trade ideology was known in Germany as Smithianismus. The analytical contributions of classical economics shaped both modern mainstream neoclassical economics and Marxian political economy.
Robert W. Dimand
See also: Laissez-faire; Mill, John Stuart; Ricardo, David; Smith, Adam.
Chipman, John S. “A Survey of the Theory of International Trade: Part 1, The Classical Theory.” Econometrica 33, no. 3 (July 1965): 477–519.
Hollander, Samuel. Classical Economics. Oxford: Blackwell, 1987.
Hudson, Michael. Trade, Development and Foreign Debt. Vol. 1. London: Pluto, 1992.
O’Brien, D.P. The Classical Economists. Oxford: Clarendon, 1975.