Classical Economics (1776-1890) - Lecture 4

Classical Economics

• Jean-Baptiste Say is credited with the statement "supply creates its own demand".
• The first assumption of classical economics is that prices are flexible.
• David Ricardo is associated with the work "Principles of Political Economy and Taxation".
• Jean-Baptiste Say contributed the idea that "supply creates its own demand" to classical economics.
• The saving-investment equality ensures that the amount saved is equal to the amount invested in the economy.
• The fundamental principle of the classical theory is that the economy is self-correcting and will always return to full employment.
• David Hume contributed to economic thought by developing the concept of the "specie-flow mechanism".
• David Hume was best known for his philosophical empiricism and skepticism.
• According to classical economics, free markets are considered to be self-regulating and efficient.
• The natural level of real GDP is the level of output that would occur if all prices were flexible and all markets were in equilibrium.

Influences and Assumptions

• The third assumption of classical economics is that the labor market is competitive.
• Say's law states that "supply creates its own demand".
• The first assumption of flexible prices implies that prices will adjust quickly to changes in supply and demand.
• Immanuel Kant was influenced by David Hume's system of radical philosophical empiricism, skepticism, and naturalism.
• One of the main focuses of classical economics was the analysis of the economy's long-run growth and development.