*noun*; generic term for economic thought developed from 1776 to 1930, which assumed the following basic concepts:
1. all types of goods, including factors of production
, can be efficiently traded in markets;
2. given free markets, all goods available for purchase will, in fact, be purchased (including labor);
3. free markets include unlimited ability of prices of commodities to move upwards or downward to ensure the quantity supplied matches the quantity demanded.
Adam Smith (1723-1790), auther of *The Wealth of Nations
* (1776) is usually credited with compiling the critical ideas into a single theory.
Some historians regard the classical era as really beginning after 1817, with the work of David Ricardo (1772-1823) and Nassau Senior (1790-1864). Ricardo and David developed the concept of diminishing marginal utility
to explain the idea of factor cost
, and ultimately, market equilibrium
After 1870, however, classical economics experienced the marginal revolution
, in which the field adopted a much more systematic approach to addressing major research questions.
As a result of the Great Depression
(1929-1939), classical economics generally faded from view until the late 1970's. At this time, the rational expectations hypothesis
and real business cycle
theory were refined in order to address problems that had crippled classical economics in the 1920's.
Textbooks addressing classical economic research since 1964 usually call it "New Classical economics
." From 1982 to 2006, nearly all Nobel prizes in economics were awarded to New Classical economics such as
George Stigler, Ronald Coase, Robert Lucas Jr., Edward Prescott, and Edmund Phelps.
Proponents of classical economics are nearly always extremely conservative in their political views, and usually conclude that the sole legitimate role of the state is to defend property rights.