Classical Economics

Search Dictionary

Definition of 'Classical Economics'

Classical economics is a school of economic thought that emphasizes the role of supply and demand in determining prices and the allocation of resources. It is based on the idea that the economy is self-regulating and that government intervention is not necessary to ensure economic growth.

Classical economics was developed in the 18th and 19th centuries by economists such as Adam Smith, David Ricardo, and Thomas Malthus. Smith's book, The Wealth of Nations, is considered to be the foundation of classical economics. In this book, Smith argued that the free market is the best way to allocate resources and that government intervention can only distort the market and lead to inefficiency.

Ricardo built on Smith's work by developing the theory of comparative advantage. This theory states that a country should specialize in the production of goods and services in which it has a comparative advantage. This will allow the country to trade with other countries and to achieve a higher level of economic welfare.

Malthus argued that population growth would eventually outstrip the food supply, leading to a decline in living standards. This theory has been challenged by later economists, but it remains an important part of classical economics.

Classical economics has been criticized for its focus on the individual and its neglect of the role of government in the economy. It has also been criticized for its assumption that the economy is always in equilibrium. However, classical economics remains an important school of economic thought and its principles continue to be used by economists today.

In the 20th century, classical economics was challenged by the Keynesian school of economics, which argued that government intervention is sometimes necessary to stabilize the economy. However, classical economics has made a comeback in recent years, as many economists have become disillusioned with the Keynesian approach.

Classical economics is still a controversial school of thought, but it remains one of the most important and influential schools of economic thought in history.

Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.

Is this definition wrong? Let us know by posting to the forum and we will correct it.