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Classical Economics

Classical Economics

Samuel Hollander
Copyright Date: 1992
Pages: 484
  • Book Info
    Classical Economics
    Book Description:

    In this unconvential and sharply written text Hollander introduces the work of Smith, Ricardo, and Mill, and, on specific topics, Malthus and Marx.

    eISBN: 978-1-4426-7299-4
    Subjects: Economics, Business

Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-xii)
  3. Preface
    (pp. xiii-xvi)
  4. 1 Introduction
    (pp. 1-14)

    Economic theories have to be selective; were they all-inclusive they would be ineffectual. No geographer would construct a three-dimensional map on a scale of 1 inch to 1 inch. But what, in economics, to select for special attention partly depends on circumstances – on the world environment, factual knowledge and our particular interests at any time (Hicks, 1976). From this it follows that an economic theory may be ‘rejected’ because it is inappropriate for the particular problems with which we are currently concerned, rather than because it is ‘wrong’. It may often appear when there is a change in economic...

  5. 2 The Precursors of Adam Smith: An Overview
    (pp. 15-39)

    This chapter presents a bird’s-eye view of some pre-Smithian literature by way of introduction to our subject. We shall proceed at a rapid pace, some of the main features of the pre-classical period being indicated only in general terms. We first treat (section 2.2) the ‘Scholastic’ tradition of the medieval Christian theologians with specific reference to their approach towardsvalue, an issue arising within an ethical framework involving justice in exchange. This discussion is followed by reference to the natural-law philosophers and ethical jurists of the seventeenth and early eighteenth centuries. In all this we discern significant ‘gaps’ in the...

  6. 3 The Physiocrats
    (pp. 40-59)

    French Physiocracy (physiocratemeans ‘the rule of nature’), unlike mercantilism, constitutes a genuine ‘school’, perhaps the first school of economic thought. The movement, a reaction against French mercantilism, considered land to be the sole source of income. It flourished during the 1750s and 1760s under the guidance of François Quesnay (1694–1774), but physiocratic attitudes are not limited to France during this particular period. There are even indications of agricultural bias in theWealth of Nations. In the first decade of the nineteenth century, William Spence (Britain Independent of Commerce, 1807), a British writer, argued that the source of Britain’s...

  7. 4 Smith on Value and Distribution
    (pp. 60-85)

    In contrast to his French contemporaries who frequently neglected demand by focusing upon the physical dimension of output, Adam Smith elaborated in hisWealth of Nationsthe consumer’s concept of wealth and the mechanism connecting production with demand, or the allocation of scarce productive factors within a competitive framework. The first concern of this chapter is the process whereby the demand–supply mechanism generates a pattern of market prices which reflects relative scarcity in the case of given commodity supplies (section 4.2). This mechanism is then shown in section 4.3 to be at work in the generation of long-run or...

  8. 5 Ricardo on Value and Distribution
    (pp. 86-116)

    While preparing thePrinciples of Political Economyfor publication (1817), David Ricardo explained what was preoccupying him: ‘In reading Adam Smith, again, I find many opinions to question, all I believe founded on his original error respecting value. He is particularly faulty in the chapter on bounties’ (Ricardo, 1951, VII, 100).* In a letter to J. R. McCulloch – at this time a ‘Smithian’ economist – he was equally explicit: ‘Your system proceeds upon the supposition that the price of corn regulates the price of all other things, and that where corn rises or falls, commodities also rise or fall,...

  9. 6 Mill on Value and Distribution
    (pp. 117-147)

    Ricardo’s fundamental theorem on distribution (the inverse profit–wage relation), we have seen, was not divorced from the corpus of allocation analysis. Ricardianism and neo-classicism have in common a similar ‘central core’ amounting to allocation theory based on the demand–supply mechanism. We now carry the story further. A primary theme of this chapter is John Stuart Mill’s Ricardianism – the inverse profit–wage relationship based upon the standard measure, and the linkages between distribution and the competitive allocation mechanism isolated in the investigation of Ricardo. Various theoretical contributions by Mill fit into the existing structure as ‘improvements’ and do...

  10. 7 Smith on Capital, Employment and Growth
    (pp. 148-178)

    We turn now from classical micro-economics to classical macro-economics. The following three chapters dealing with capital, employment and growth may be read as a unit since the same general issues emerge throughout the entire classical period. My main concern will be to trace out the refinements of and modifications to the Smithian doctrine by the nineteenth-century writers, especially with respect to the trend paths of the factor returns, and specific problems such as the impact of ‘machinery’.

    Sections 7.2 and 7.3 are devoted to the Smithian national income accounts and the savings process respectively. The determinants of aggregate employment capacity...

  11. 8 Ricardo on Capital, Employment and Growth
    (pp. 179-207)

    This chapter continues the main themes of our story, namely the determinants of employment capacity and the secular path of the factor returns. Economic development as such, which so much preoccupied Adam Smith, is of secondary importance in Ricardo’sPrinciples.

    In sections 8.2 and 8.3 the nature of capital-supply conditions is again taken up, now from Ricardo’s perspective. Sections 8.4, 8.5 and 8.6 deal with aggregate employment capacity; here we discuss the notion that ‘demand for commodities is not demand for labour’ – the phrase is due to J. S. Mill – and the problem of ‘machinery’. Aggregate labour supply...

  12. 9 Mill on Capital, Employment and Growth
    (pp. 208-240)

    This chapter is concerned with J. S. Mill’s treatment of the themes dealt with in the foregoing two chapters. The conceptual problem of capital, taken up in section 9.2, is followed in 9.3 and 9.4 by Mill’s version of the Ricardian proposition ‘demand for commodities is not demand for labour’ and the Ricardian ‘machinery’ issue. The three following sections (9.5–9.7) deal with aspects of the ‘wages fund’ theory, including its relationship with economic organization and its formal abandonment by Mill in 1869.

    The subsequent discussion deals with the secular path of the factor returns, setting the stage by a...

  13. 10 Money and Banking: I
    (pp. 241-278)

    The early nineteenth-century formulators of the ‘law of markets’ – the key classical monetary concept – took off from the Smithian doctrine of savings, which eulogized capital accumulation, criticized luxury consumption and maintained that the process of savings entails no leakages from the income stream: ‘Whatever a person saves from his revenue he adds to his capital, and either employs it himself in maintaining an additional number of productive hands, or enables some other person to do so, by lending it to him for an interest, that is, for a share of the profits’ (1776 [1937], 321). The doctrine implies...

  14. 11 Money and Banking: II
    (pp. 279-308)

    This chapter is concerned mainly with banking issues. Section 11.2 considers Smithian banking principles, which figured large in the nineteenth-century literature; this is prefaced by Smith’s position on the international adjustment process, which also entered into the later discussions. It is followed by a demonstration in section 11.3 of the classical championship of the gold standard on grounds of price stability. Section 11.4 takes up the ‘bullionist’ debates regarding Bank of England policy 1797–1819 when Britain was off gold; while section 11.5 deals with Ricardo’s qualification to his championship of a return to gold at the original par. Section...

  15. 12 Smith on Method
    (pp. 309-324)

    The next three chapters, which are concerned with methodology, draw upon the earlier discussions of value and distribution, growth and money. A methodological investigation will help place these specific contributions in broad perspective, by giving some idea of the classicists’ view of the nature and scope of economic theory.

    It has been well said that more than anyone Adam Smith directed English economics ‘toward logically consistent synthesis of economic relationships, toward “system-building”’, applying to economic phenomena ‘the unifying concept of a co-ordinated and mutually interdependent system of cause and effect relationships’ (Viner, 1958, 213–14). This chapter will place the...

  16. 13 Ricardo on Method
    (pp. 325-338)

    Smithian ‘system building’ was much commented on in early discussion of theWealth of Nationsand criticism of Smith for hasty applications of deductions drawn from incomprehensive models were quite common. Similar objections will also be found after the appearance in 1817 of Ricardo’sPrinciples. Sir Edward West, for one, complained that Smith had given a faulty direction to economics:

    The opinion that the demand for labour is regulated solely by the amount of capital, has originated in a mode of reasoning very much used by Dr Smith, which frequently furnishes very beautiful illustrations, often gives a clue to important...

  17. 14 Mill on Method
    (pp. 339-358)

    This chapter demonstrates the extensive empirical dimension to political economy envisaged by J. S. Mill in his formal methodological writings – his essay ‘On Definition and Method’ of 1836 (1967, IV), and in theSystem of Logicof 1843 (VII–VIII).* It is inviting, but quite wrong, to represent Mill’s ‘economic man’ as a deliberate abstraction, contrasting with Adam Smith’s entire man situated in the anonymous market place wherein self-interested motivation alone is relevant. Mill was at one with his great predecessors Smith and Ricardo, and insisted upon the empirical accuracy of the behavioural axiom. His position on method reflects...

  18. 15 Classical Features in Marxian Economics
    (pp. 359-397)

    Investigation of the classical features that characterize Marxian economics provides an opportunity to summarize much of the allocation and growth theory covered in this work. We shall approach the allocation issue having in mind a central proposition of various ‘Cambridge’ accounts of Marxian economics – namely the priority of distribution over pricing: ‘The nature of [Marx’s] approach required him to start from the postulation of a certain rate of exploitation or of surplus-value (or profit–wage ratio in Ricardo’s terms); since this waspriorto the formation of exchange-values or prices and was not derived from them. In other words,...

  19. 16 Some Intellectual Linkages
    (pp. 398-423)

    This chapter traces certain major intellectual linkages. Despite appearances, the Ricardian approach to value and the inverse wage–profit relationship based on the standard measure of value left a positive impression on the work of a number of authors traditionally regarded as ‘dissenters’, including T. R. Malthus, Samuel Bailey (1791–1870), Robert Torrens (1790–1864) and Mountifort Longfield (1802–84). A demonstration of the resilience in their works of the Ricardian distribution theorem points away from a dual development in the course of nineteenth-century economic analysis (see above, p. 6). These doubts are reinforced by the fact that in many...

  20. 17 Conclusion: The Classicists and After
    (pp. 424-440)

    The foregoing chapters will contribute to the on-going debate on the nature of the neo-classical developments of the 1870s, particularly the legitimacy of the term ‘revolution’, with its implication of analytical discontinuity, as a valid description of those developments. This representation has become particularly topical since the notion of a modern marginalist economics, with its roots in the contributions of the 1870s and contrasting sharply in analytical essentials with Ricardian classicism, constitutes a central theme of the historiography of the modern Cambridge (UK) School. The first two sections below (17.2 and 17.3) question the usefulness of the term ‘marginal revolution’...

  21. Appendix 1 The Sraffa Model
    (pp. 441-453)
  22. Appendix 2 Dramatis Personae
    (pp. 454-456)
  23. Bibliography
    (pp. 457-472)
  24. Index
    (pp. 473-485)