2008-03-04T04:33:00.000-08:00

Classical political economy
The "classical" tradition in economic thought emerged in Britain in the late 18th century. The classical political economists Adam Smith, David Ricardo, Jean-Baptiste Say, and John Stuart Mill published analyzes of the production, distribution, and exchange of goods in a capitalist economy that have since formed the basis of study for most contemporary economists. Contributions to this tradition are also found in the earlier work of David Hume and the physiocrats like Richard Cantillon.

Adam Smith
Adam Smith's attack on mercantilism and his reasoning for "the system of natural liberty" in The Wealth of Nations (1776) are usually taken as the beginning of classical political economy. Smith devised a set of concepts that remain strongly associated with capitalism today, particularly his theory of the "invisible hand" of the market, through which the pursuit of individual self-interest unintentionally produces a collective good for society. He criticized monopolies, tariffs, duties, and other state enforced restrictions of his time and believed that the market is the most fair and efficient arbitrator of resources. This view was shared by David Ricardo, second most important of the classical political economists and one of the most influential economists of modern times.[8] In The Principles of Political Economy and Taxation (1817) he developed the law of comparative advantage, which explains why it is profitable for two parties to trade, even if one of the trading partners is more efficient in every type of economic production. This principle supports the economic case for free trade. Ricardo was a supporter of Say's Law and held the view that full employment is the normal equilibrium for a competitive economy.[9] He also argued that inflation is closely related to changes in quantity of money and credit and was a proponent of the law of diminishing returns, which states that each additional unit of input yields less and less additional output.[10]

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