classical economics

classical economics

School of economic thought largely centred in Britain that originated with Adam Smith and reached maturity in the works of David Ricardo and John Stuart Mill. The theories of the classical school were mainly concerned with the dynamics of economic growth. Reacting against mercantilism, classical economics emphasized economic freedom. It stressed ideas such as laissez-faire and free competition. Many of the fundamental principles of classical economics were set forth in Smith's Wealth of Nations (1776), in which he argued that a nation's wealth was greatest when its citizens pursued their own self-interest. Neoclassical economists such as Alfred Marshall showed that the forces of supply and demand would ration economic resources to their most effective uses. Smith's ideas were elaborated and refined by Ricardo, who formulated the principle that the price of goods produced and sold under competitive conditions tends to be proportionate to the labour costs incurred in producing them. Mill's Principles of Political Economy (1848) gave the ideas greater currency by relating them to contemporary social conditions. Among those who have modified classical economics to reach very different conclusions are Karl Marx and John Maynard Keynes.