Classical school of thought was developed by Adam Smith and Jean Baptiste as a reaction against mercantilism. It stresses laissez-faire, economic freedom, and the belief that the market will monitor itself.
As far as monetary policy, the classical school of thought holds that velocity and quantity of money remain constant- never actually change. They say that only the money supply and price levels fluctuate, which corresponds to the theory that only price levels and wages change. -Megan Myers
a problem i see with classical is that some people may not be able to regulate the system by themselves. some may not care what happens, some are too dumb/self centered to do what may be for the best interest of the economy as a whole. so involvement from experts is needed to ensure that the entire system doesn't go to sheer waste
I think the recent economic crisis has shown that the "invisible hand" really can't work as well nowadays as it did during Adam Smith's time. 18th century economies were a lot simpler than they are nowadays, with overspeculation and much of the stock market manipulation of 2008 obvious pitfalls to unchecked economics. Lack of government "refereeing" causes selfish acts - the selfish acts that Smith argued moves the economy forward - to screw Main Street over. -Ian Carroll
Ok so for a little history, the classical economists came up during a period in which capitalism begining from feudalism and the industrial revolution was leading to vast changes in society. In general the "theory" is that things will fix them self in time and that the governement should just leave things alone. It makes since in most cases...
The "classical" way of looking at economic problems means no involvement beyond government regulation. Classical thinking brought on the idea of automatic stabilizers within the aggregate model. These stabilizers shift themselves in a set pattern based upon the type of movement out of equilibrium, thus bringing the economy back to a stable condition wihout any sort of government involvement.
The classical, auto-stabilizer theory, on the macro scale, works quite well most of the time. However, there are times when the economy swings too far out of balance, and runs the risk of plummeting; that's when government intervention is not just recommended, but necessary. The Great Depression was one of those times: this was a time when even the more laissez-faire "trickle down" policies did not work, and FDR's unprecedented New Deal policies were essential. In times of relative stability, however, auto-stabilizers prove quite effective.
The main proponent for classical school economics was Adam Smith. classical school economics advance the natural ability of the economy to right itself. as a result, classical school backers practiced limited government action as far as economy is concerned.
Adam Smith really started the classical school economics and stressed the idea of economic growth and economic freedom. It was an act against mercantilism. It stresses the autostabilizers and trickle down idea. I like this because it is very hands off however sometimes the economy needs the government to intervene. This makes the theory imperfect.
Classical Schools boast that their static behavior and lack of action towards the economy are the solutions for a damaged economy. The question that comes to mind however is why is there a need for a plan and algorithm of action that boasts inactivity?
It's nice however I feel that the government should not get involved except when it comes to prices of a product. Monopolization would just make products easier to assimble and make simpler forcheaper prices. The government should just make sure that the company doesn't use it's power to over price products. Such as what happened with gas in OPEC situation. Oil is monopolized but the government controlled our prices. Thus causing the product to run dry. Than people had to make due with what they had. As long as a company continues to make there products there shouldn't be any issues.
Classical Economics was developed by Adam Smith. It is the opposite of Keynesian Economics in which the Government lets the economy fix itself by limiting government action.
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. Classical economists developed a theory of value, or price, to investigate economic dynamics.
Classical Economics is the complete opposite of Keynesian Economics. Classical economists believe that the economy will "bounce back" from any resession, inflationary period of time, etc. Keynesians believe the government needs to take action at all times in economics, but Classical economists feel it will figure itself out without a third party help.
Classical economics believes that the economy will return to its norm at full employment whether in a recession or an overextended economy. They also believe that government involvement should confined to regulation and nothing else, like the referee. I feel that this is a good philosophy in theory, but in practice people act too irrationally for the philosophy to be flawless.
Classical economic thought is characterized by the government's relative lack of involvement in comparison to Keynesian thought. It is widely associated with Republican ideology.
I really like the Classical Theory. The way that the economy can stabilize itself is simply amazing and makes so much sense. When aggregate demand increases, it only makes sense that businesses cannot keep the same number of workers and the same productivity. Thus aggregate supply decreases. With lower supply, less people can buy the goods, so GDP goes down and aggregate demand goes down. With lower demand and an inefficient economy, more workers and more productivity are possible, raising aggregate supply back up. Equilibrium. Wonderful.
Classical school says that the government should completely let the market fix itself. As the Aggregate model predicts, the market's ability to cycle back into equilibrium is clear. In a sense though, Classical or Keynsian is just a matter of opinion and what works and what doesn't depends a lot of times on many more variables such as time period and etc; both Keynsian and Classical have the potential to either fix the economy or get booted out of the respective administration's to do list.
Classical school of thought was developed by Adam Smith and Jean Baptiste as a reaction against mercantilism. It stresses laissez-faire, economic freedom, and the belief that the market will monitor itself.
ReplyDeleteAs far as monetary policy, the classical school of thought holds that velocity and quantity of money remain constant- never actually change. They say that only the money supply and price levels fluctuate, which corresponds to the theory that only price levels and wages change. -Megan Myers
ReplyDeleteSorry Megan, This comment is about Montarist Reaction, not Classical School. Its a great comment, just move it to the other school. Thanks
ReplyDeleteit is thought to be the first school of economic thought
ReplyDeletea problem i see with classical is that some people may not be able to regulate the system by themselves. some may not care what happens, some are too dumb/self centered to do what may be for the best interest of the economy as a whole. so involvement from experts is needed to ensure that the entire system doesn't go to sheer waste
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteI think the recent economic crisis has shown that the "invisible hand" really can't work as well nowadays as it did during Adam Smith's time. 18th century economies were a lot simpler than they are nowadays, with overspeculation and much of the stock market manipulation of 2008 obvious pitfalls to unchecked economics. Lack of government "refereeing" causes selfish acts - the selfish acts that Smith argued moves the economy forward - to screw Main Street over. -Ian Carroll
ReplyDeleteOk so for a little history, the classical economists came up during a period in which capitalism begining from feudalism and the industrial revolution was leading to vast changes in society. In general the "theory" is that things will fix them self in time and that the governement should just leave things alone. It makes since in most cases...
ReplyDeleteThe "classical" way of looking at economic problems means no involvement beyond government regulation. Classical thinking brought on the idea of automatic stabilizers within the aggregate model. These stabilizers shift themselves in a set pattern based upon the type of movement out of equilibrium, thus bringing the economy back to a stable condition wihout any sort of government involvement.
ReplyDeleteThe classical, auto-stabilizer theory, on the macro scale, works quite well most of the time. However, there are times when the economy swings too far out of balance, and runs the risk of plummeting; that's when government intervention is not just recommended, but necessary. The Great Depression was one of those times: this was a time when even the more laissez-faire "trickle down" policies did not work, and FDR's unprecedented New Deal policies were essential. In times of relative stability, however, auto-stabilizers prove quite effective.
ReplyDeleteThe main proponent for classical school economics was Adam Smith. classical school economics advance the natural ability of the economy to right itself. as a result, classical school backers practiced limited government action as far as economy is concerned.
ReplyDeleteAdam Smith really started the classical school economics and stressed the idea of economic growth and economic freedom. It was an act against mercantilism. It stresses the autostabilizers and trickle down idea. I like this because it is very hands off however sometimes the economy needs the government to intervene. This makes the theory imperfect.
ReplyDeleteClassical Schools boast that their static behavior and lack of action towards the economy are the solutions for a damaged economy. The question that comes to mind however is why is there a need for a plan and algorithm of action that boasts inactivity?
ReplyDeleteVery Adam Smith. The economy will fix itself. Government only plays a regulatory role.
ReplyDeleteIt's nice however I feel that the government should not get involved except when it comes to prices of a product. Monopolization would just make products easier to assimble and make simpler forcheaper prices. The government should just make sure that the company doesn't use it's power to over price products. Such as what happened with gas in OPEC situation. Oil is monopolized but the government controlled our prices. Thus causing the product to run dry. Than people had to make due with what they had. As long as a company continues to make there products there shouldn't be any issues.
ReplyDeleteClassical Economics was developed by Adam Smith. It is the opposite of Keynesian Economics in which the Government lets the economy fix itself by limiting government action.
ReplyDeleteClassical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. Classical economists developed a theory of value, or price, to investigate economic dynamics.
ReplyDeleteClassical Economics is the complete opposite of Keynesian Economics. Classical economists believe that the economy will "bounce back" from any resession, inflationary period of time, etc. Keynesians believe the government needs to take action at all times in economics, but Classical economists feel it will figure itself out without a third party help.
ReplyDeleteClassical economics believes that the economy will return to its norm at full employment whether in a recession or an overextended economy. They also believe that government involvement should confined to regulation and nothing else, like the referee. I feel that this is a good philosophy in theory, but in practice people act too irrationally for the philosophy to be flawless.
ReplyDeleteIn this the government seeks to act merely as a rule enforcement body, and the market is seen as self-stabilizing. Straight up capitalism.
ReplyDeleteClassical economic thought is characterized by the government's relative lack of involvement in comparison to Keynesian thought. It is widely associated with Republican ideology.
ReplyDeleteI really like the Classical Theory. The way that the economy can stabilize itself is simply amazing and makes so much sense. When aggregate demand increases, it only makes sense that businesses cannot keep the same number of workers and the same productivity. Thus aggregate supply decreases. With lower supply, less people can buy the goods, so GDP goes down and aggregate demand goes down. With lower demand and an inefficient economy, more workers and more productivity are possible, raising aggregate supply back up. Equilibrium. Wonderful.
ReplyDeleteClassical school says that the government should completely let the market fix itself. As the Aggregate model predicts, the market's ability to cycle back into equilibrium is clear. In a sense though, Classical or Keynsian is just a matter of opinion and what works and what doesn't depends a lot of times on many more variables such as time period and etc; both Keynsian and Classical have the potential to either fix the economy or get booted out of the respective administration's to do list.
ReplyDelete