4. Classical Economics - 8. Classical Economics Denis P....

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8. Classical Economics Denis P. O'Brien Subject Economics » History of Thought Key-Topics classical tradition DOI: 10.1111/b.9780631225737.2003.00009.x 8.1 Introduction Classical economics ruled economic thought for about 100 years. It focused on macroeconomic issues and economic growth. Because the growth was taking place in an open economy, with a currency that (except during 1797–1819) was convertible into gold, the classical writers were necessarily concerned with the balance of payments, the money supply, and the price level. Monetary theory occupied a central place, and their achievements in this area were substantial and - with their trade theory - are still with us today. Those ideas developed amid an international economy free from major wars. However, the French wars of 1793–1815 had a powerful influence on classical economics, leading to major problems with public finance, and to a significant national debt. Because convertibility of the note issue into gold was suspended, it was necessary to develop a theory of the operation of an inconvertible paper currency. 8.2 Foundations The intellectual basis for virtually all classical economics is found in Adam Smith's Wealth of Nations of 1776 ( O'Brien, 1975 ). Earlier work, including that by Smith himself (his Theory of Moral Sentiments , 1759 , and Lectures , 1763 ) and of David Hume (1711–76) can be seen in the context of the research program that Smith established. Apart from Adam Smith (1723–90), the most famous and influential figure was David Ricardo (1772–1823). There are several views of Ricardo. Schumpeter (1954) regarded Ricardo's work as essentially a detour. The Sraffians regard it as the start of the only valid tradition in economics, running from Ricardo to Marx and thence to Sraffa. Alfred Marshall and Samuel Hollander (1979) have interpreted Ricardo as a neoclassical economist. Ricardo excelled in model building, but his restrictive type of model grafted uneasily on to the main part of classical economics, and the work of later writers such as J. R. McCulloch (1789–1864) and J. S. Mill (1806–73) owed much more to Smith than to Ricardo. To interpret classical economics in terms of Smith and Ricardo alone is a mistake ( O'Brien, 1988 ). Contemporary with Ricardo were T. R. Malthus (1766–1834), James Mill (1773– 1836), Nassau Senior (1770–1864), Robert Torrens (1780–1864), and numerous writers on special topics, especially monetary theory.
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Most classical economists had intellectual interests besides economics. Few had academic employment. Journalism, the law, and business - especially banking - were mostly their occupations. Yet these writers formed a “scientific community.” With the exception of the French economist J.-B. Say (1776–1832), they lived in the British Isles. They read the literary reviews of the day, and there was an active circulation of pamphlets. They met at the Political Economy Club and in other societies such as the [Royal] Statistical Society. Economics grew out of philosophy. Smith and Hume were the products of a distinctive
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This note was uploaded on 03/31/2010 for the course ECONOMICS 321 taught by Professor H during the Spring '10 term at Kadir Has Üniversitesi.

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4. Classical Economics - 8. Classical Economics Denis P....

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