History of Economic Thought - Classical Political Economy

Classical Political Economy

The classical economists were referred to as a group for the first time by Karl Marx. One unifying part of their theories was the labour theory of value, contrasting to value deriving from a general equilibrium of supply and demand. These economists had seen the first economic and social transformation brought by the Industrial Revolution: rural depopulation, precariousness, poverty, apparition of a working class.

They wondered about the population growth, because the demographic transition had begun in Great Britain at that time. They also asked many fundamental questions, about the source of value, the causes of economic growth and the role of money in the economy. They supported a free-market economy, arguing it was a natural system based upon freedom and property. However, these economists were divided and did not make up a unified current of thought.

A notable current within classical economics was underconsumption theory, as advanced by the Birmingham School and Malthus in the early 19th century. These argued for government action to mitigate unemployment and economic downturns, and was an intellectual predecessor of what later became Keynesian economics in the 1930s. Another notable school was Manchester capitalism, which advocated free trade, against the previous policy of mercantilism.