The
Limits of the| by Andrew Rowson, supervised by Prof. A.R.Champneys | ||
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Classical Economics
Smith and Ricardo Classical economists Adam Smith (An Inquiry into the Nature and Causes of the Wealth of Nations, 1776) and David Ricardo (On the Principles of Political Economy and Taxation, 1817) are among the first to attempt to theorise human behaviour in an economic environment. The main themes in the Wealth of Nations are division of labour, pursuit of self interest, and freedom of trade.  
Adam Smith and David Ricardo Production and commerce are the main areas of interest and growth is seen essentially as a supply side phenomenon. The theory of the market was developed and was comprised of individuals who, in the natural pursuit of their own self interest, deliver benefits for society as a whole. This has since been described as a 'laissez-faire' policy where the chief mechanism of the market is price and acts as an 'invisible hand', rising in times of shortage and falling when there is a glut. Markets, including the market for labour, leave no unsold goods or unsatisfied demands and arrive at this equilibrium without intervention. Smith was as much a philosopher as a political economist and it was David Ricardo whose more theoretically sophisticated approach formalised many of the ideas into what became known as the Classical school. A central concept, known as 'Say's Law', was that supply determines demand. Across the whole economy surplus in one area is countered by excess in another and total demand cannot exceed or fall below total supply. The impossibility of a 'general glut' was extended by Ricardo to include savings and investment so that all savings are used for investment. In the classical system therefore saving is essential for economic growth. |
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