Chapter 7 : ADAM SMITH (1723-1790)

ADAM SMITH (1723-1790)

The Classical School

Adam Smith is the founder of the classical school and is widely described as the "Father of Political Economy." The publication of his landmark work, Wealth of Nations (1776), is generally regarded as the starting point of the classical school.

• Origin of the term: According to J. M. Keynes, the name 'The classical economists' was originally invented by Karl Marx to cover David Ricardo, James Mill, and their predecessors. However, Keynes expanded the definition to include "the followers of Ricardo, that is to say, who adopted and perfected the theory of the Ricardian economics," such as J. S. Mill, Alfred Marshall, and F. Y. Edgeworth.
• Leading Economists: The classical school's leading figures are Adam Smith, Jeremy Bentham, Thomas Robert Malthus, David Ricardo, J. B. Say, and J. S. Mill.
• The Classical Trinity: Formed by Smith, Ricardo, and J. S. Mill.
• Four Main Pillars of the Classical System:

1. The Malthusian Population doctrine
2. The Wages-Fund Theory
3. The Ricardian Theory of Rent
4. The Labour Theory of Value

The Essential Features of Classical School

The entire philosophy of the classical school was based on economic liberalism, emphasizing personal liberty, private property, individual initiative, and private enterprise.

The nine basic features of the classical school are:

1. Laissez-faire: Implied a minimum role for government in economic matters, operating on the maxim: "That government is best which governs least."
2. Free Market Economy: Production, exchange, and distribution are guided entirely by market forces under conditions of free and perfect competition.
3. Assumption of Full Employment: The economy is viewed as self-adjusting, naturally tending towards full employment without government intervention. (Criticism: This assumption was heavily criticized later by J. M. Keynes).
4. Harmony of Interests: Individuals seeking their own self-interest inadvertently serve the best interests of society. (Debate: Ricardo was an exception and did not believe in this so-called harmony of interests).
5. Importance of All Economic Activities: The classical economists regarded industry, commerce, and…