The Classical School

Classical political economy authors - basically from William Petty in the 18th century to Karl Marx in the 19th century, including François Quesnay, Adam Smith and David Ricardo - tend to be misunderstood in modern economics. In particular, they are often seen as precursors of modern mainstream neoclassical economics. In reality, classical political economy was markedly different from the neoclassical school, which was developed after the so-called Marginalist Revolution in the 1870s, and which remains the dominant view in economics today. The crucial difference between the two schools revolves around the theory of value and distribution. Classical authors believed that economics should deal with objective, quantifiable data, and that would be instrumental in the understanding of the material conditions for the reproduction of society. Although it was fairly clear that people demanded goods and services for the satisfaction of their needs, and that a certain degree of subjectivity is inexorable once preferences are taken into consideration, classical authors tended to assume that social tastes were given, at least for short periods of time. They also assumed that the historical and institutional factors that determined social preferences were not directly relevant for the determination of prices. Prices were determined by costs of production, and for the most part the level of output was also taken as given in their analysis. The theory was concerned with the determination of the rate of profit, which was seen as central for the process of capital accumulation and growth. Competition, the process by which a uniform rate of profit was achieved, was seen as a central mechanism of the rising mercantile societies.