WHO WERE THE CLASSICAL ECONOMISTS? Keynes used the term "classical" to refer to virtually all orthodox (non-Marxian) economists who had written on macroeconomics prior to 1936 (the year of his General Theory). More conventional modern terminology distinguishes between two periods in the development of economic theory before 1930. The first, termed classical, is the period dominated by the work of Adam Smith (Wealth of Nations, 1776), David Ricardo (Principles of Political Economy, 1817), and John Stuart Mill (Principles of Political Economy, 1848). The second, termed the neoclassical period, is represented by such economists as Alfred Marshall and A. C. Pigou.
THEORY
BASE: Microeconomic + logical extensions
POLICY PHILOSOPHY: Laissez faire - Government should protect competition and the market, otherwise hands off. Classical economists were generally confidant that markets would self-correct and eliminate temporary problems.
SOME
SPECIFICS: Classical
economics assumed that the normal (or
equilibrium) level
of income at any point in time
was the
full employment
level. Why?
Classical economists
generally accepted
Say's
IMPLICATIONS OF SAY’S LAW: There would not be general or aggregate over-production. Since any level of production would call forth a level of spending sufficient (in the aggregate) to take that production/output off the market, then overproduction would not be a cause for concern. Insufficient aggregate demand thus could not be the cause of significant unemployment and recession. Finally, wage flexibility would eliminate any minor, temporary unemployment; price flexibility would clear product markets.