The Classical Economists

The Classical Economics is the first well structured system of thoughts in advocacy of the market economy based on the institution of private property and individualism. The medieval economy was tradition bound and robust. The Industrial Revolution (in the 18th Century, especially in England) perforce threw the domestic economy out of gear - large areas under crops went to pastures, people who were working in agricuture migrated in a large scale to the industrial townships, the hereditary occupations of the people lost the power to sustain them - entrepeneurs were flooding into the factory sector, the manufacturing sector was growing very fast and producing at large scale without knowing where to sell - and thus a natural question arose if the new order would be potent, stable and desirable. Stated differently (in a rather mathematical language), the new order gave rise to the six fundamental questions: (i) will the society organized on the principles of the market economy (where labour power, too, is on sale in the open market) stay composed or will it fall apart (the question of existence of equilibrium)?, (ii) will such an equilibrium be unique (a multiplicity of equilibria poses difficult and embarrassing questions)?, (iii) will such an equilibrium be robust (the question of stability of equilibrium)?, (iv) will such an economy (society) be efficient?, (v) will it grow or expand forever?, and (vi) will it be just? Adam Smith answered all these questions affirmatively using his characteristic methodology - philosophically based on harmony in spite of the self-interest (arguing that freedom and nature are a surer guide to the creation of a harmonious, functioning society), invisible hands (Smith, The Theory of the Moral Sentiments), division of labour and interdependence, etc. Smith argued that free trade will sustain the economy and thus he favoured the unrestrained market economy.

The Classical Economists visualized the society composed of three classes: the labourers, the landlords and the industrialists. The interests of those classes were harmonious as well as conflicting - harmonious because in matters of production they must cooperate and conflicting because in matters of distribution they must compete with each other. David Ricardo was not so much optimistic of the harmony of interests and did see more conflicts. But, on the whole, he argued for free trade among countries and of specialisation among individuals. He argued that there is mutual benefit from trade (or exchange) even if one party is more productive in every possible area than its trading counterpart as long as each concentrates on the activities where it has a relative productivity advantage. Ricardo's Essay on the Influence of a Low Price of Corn on the Profits of Stock argued that repealing the Corn Laws would distribute more wealth to the productive members of society. Robert Malthus undermined exploitation of the poor workers by the entrepreneurs and held the former responsible for their plight since they were many and multiplied fast. He opposed the Poor Law since it drained the investible and productive resources for ameliorating the culprits (poor workers). He also held that as wages increased, the birth-rate could be expected to increase while the death-rate decreased. Consequently, wage increases caused populations to grow. The misery of the poor workers is irreparable since they are themselves the cause of their misery. John Stuart Mill spoke in favour of free trade. But in him we also find the elements of favour for social causes.

The Classical Economists
Adam Smith David Ricardo
Thomas Robert Malthus John Stuart Mill



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