Classical Theory of Economics

by Shane Hall; Updated September 26, 2017

The classical theory of economics, which dominated in the 18th and early 19th centuries, laid the foundation for much of modern economics. Sometimes referred to as laissez faire economics, classical theory emphasized growth, free trade, and competition, as free from government regulation as possible. Under classical thought, when individuals pursue their own interest, society as a whole benefits.

Famous Ties

Key classical economists include Adam Smith, author of the “The Wealth of Nations,” David Ricardo and John Stuart Mill.

Features

Classical economic theory argues for the self-regulating market. Under this viewpoint, the concern for profit ensures that society’s resources are used in the most beneficial manner, without direction by government.

Benefits

Under classical economics, the self-regulating market transforms a seemingly chaotic process of buying and selling among consumers and producers into an orderly system of transactions that meets individual needs and increases national wealth.

Role of Government

Under classical economics, the role of government is to provide national defense, a system of justice that includes enforcement of contracts and a system of public works, including infrastructure and education.

Influences

Classical economics gave rise to neoclassical economic thought in the late 19th century. Neoclassical built on Classical ideas, giving them greater mathematical support and precision.

About the Author

Shane Hall is a writer and research analyst with more than 20 years of experience. His work has appeared in "Brookings Papers on Education Policy," "Population and Development" and various Texas newspapers. Hall has a Doctor of Philosophy in political economy and is a former college instructor of economics and political science.