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C H A P T E R E I G H T Classical Economics Classical economics ruled economic thought for about 100 years. It focused on macroeconomic issues and economic growth. Because the growth was taking place in an open economy, with a currency that was convertible into gold | CHAPTER EIGHT Classical Economics Denis P. O Brien 8.1 Introduction Classical economics ruled economic thought for about 100 years. It focused on macroeconomic issues and economic growth. Because the growth was taking place in an open economy with a currency that except during 1797-1819 was convertible into gold the classical writers were necessarily concerned with the balance of payments the money supply and the price level. Monetary theory occupied a central place and their achievements in this area were substantial and - with their trade theory - are still with us today. Those ideas developed amid an international economy free from major wars. However the French wars of 17931815 had a powerful influence on classical economics leading to major problems with public finance and to a significant national debt. Because convertibility of the note issue into gold was suspended it was necessary to develop a theory of the operation of an inconvertible paper currency. 8.2 Foundations The intellectual basis for virtually all classical economics is found in Adam Smith s Wealth of Nations of 1776 O Brien 1975 . Earlier work including that by Smith himself his Theory of Moral Sentiments 1759 and Lectures 1763 and of David Hume 1711-76 can be seen in the context of the research program that Smith established. Apart from Adam Smith 1723-90 the most famous and influential figure was David Ricardo 1772-1823 . There are several views of Ricardo. Schumpeter 1954 regarded Ricardo s work as essentially a detour. The Sraffians regard it as the start of the only valid tradition in economics running from Ricardo to Marx and thence to Sraffa. Alfred Marshall and Samuel Hollander 1979 have interpreted Ricardo as a neoclassical economist. Ricardo excelled in model building but his restrictive type of model grafted uneasily on to the main part of classical economics and the work of later writers Classical Economics 113 such as J. R. McCulloch 1789-1864 and J. S. Mill 1806-73 owed much more
