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Classical economics, a field dominated by Adam Smithian thought¹ introduced a lot of what modern economics looks like. Beginning, basically with the publication of The Wealth of Nations in 1776, Classical thought was driven by scientific and economic revolutions within Europe and to a lesser extent internationally.

Self-interest and self-control. Classical economics pushed the idea that the working class and individualist classes could manage their own lives, with reduced government intervention (at least, less than that of the Mercantilists) and a free and competitive market, which could self-regulate and guide it’s own distribution and exchange through market forces (such as price indicators)). The most debated of this anti-interventionist policy, is of course, the belief that the conglomerate of self-interested behavior tends to produce the best social well-being - modern ideas such as the Tragedy of the Commons and the game theory Prisoners Dilemma make it clear that the sum of individual interests is not the social interest, however, the cost of implementing interventionist policy to solve this may often be more expensive than leaving the unoptimized scenario - ala the Theory of Second Best.

All activity is important. Rejecting the Physiocratic belief that only agriculture was important (and the Mercantile belief that only commerce, particularly international commerce, was relevant), Classicalists believed that all economic activity and resources - often considered land, labor and capital - made a serious contribution to what determined wealth and well-being.

Competition. The main value of classical economics was that of competition - particularly the driving forces that push prices down and innovation up, while maintaining something akin to the social interest in terms of producing what people need. Eliminating remnants of feudalism and mercantilism caused competition in this era to flourish, while producing a powerful regulatory force to eliminate government waste and corruption in the form of corporate necessity and responsibility. If a corporation wasn’t responsible with it’s spending, the theory holds, that competition would replace it successfully.

Contributors like David Hume contributed precursors to theories of elasticity in price levels in his theories of economic lag, as well as basic theory in price level-oriented inflation and deflation with regard to the amount of money or specie available within an economy - one of the classical school’s longest lasting contributions to modern economics. Hume was also greatly responsible for defeating the idea that states could only gain at the expense of one-another (the Mercantilist view of the economy as a zero-sum game).

Adam Smith, of course, published his legendary book, An Inquiry into the Nature and Causes of the Wealth of Nations, which unpointedly ripped apart theories of Mercantile and Physiocratic origin about what truly causes wealth. Smith contributed concepts such as the Division of Labor, particularly with regard to how such a division could generate optimization and increased productivity through specialization and experience. “The greatest improvement in the productive powers of labour and the greater part of the skill, dexterity and judgment with which it is any where directed or applied, seem to have been the effects of the division of labour,” Smith said, explaining with his famous example of a pin factory in which 10 people working independently could not produce a single pin in a day, but ten people working together could, through specialization, produce thousands of pins in a day.

Smith’s contributions to the fields of value (particularly in the “water-diamond paradox,” where he distinguished between value in use and value in exchange, where diamonds had little value in use, but huge value in exchange (compared to water), while water was the opposite), as well as those in labor/wage theories and market price determination are too numerous to cover here in adequate detail to do the man justice.

Thomas Malthus contributed a lot to the field of pre-macroeconomics and population dynamics, though, his theories were rather “inhumane” by today’s moral standards. The main contribution of Malthus was a rejection of Smithian and classical growth theories - the idea that intensive growth was possible - by claiming that as intensive production occurred, population would grow at an increasing rate (he compared production growth at a arithmetic level, and population growth at an exponential level) and takeover for any real growth achieved. Using this rationale, Malthus rejected the idea of helping poor people (suggesting that it would encourage more reproduction, and thus more poor people) - and his ideas were implemented in to the Poor Law Amendment of 1834, which eliminated all political relief for those who were able-bodied and could produce, unless they were within government run “workhouses” where men were not allowed to visit their wives.

Ricardo came along, and rejected much of Malthus’ thought through simple observation that families did not grow at exponential rates, despite that possibility. Ricardo also did a lot of work in currency and money supply theory, additionally formalizing theories of diminishing return and rent. Ricardo’s lasting contribution to economics was that of equivalence - a theory that may be disagreed with by many economists of now - Ricardo stated that there is no real difference between borrowing money to pay for wars or taxing to pay for it, as they will both result in the same payment. Modern economics disagrees with Ricardo’s rationale, but, suggests that government spending in debt is likely to increase private saving equally, and higher future taxes will be required to pay the added interest expenses, causing at least long-term equality between debt and taxation.

1. And Malthusian, Ricardian, Bentham’s and Mill’s. [↩]

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