Classical Economics Economic Theory 12 PDF

Classical Economics Economic Theory 12  “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” –Fredric Hayek (Austrian School of Thought)  Key Understandings: Classical economic theory is...

Classical Economics Economic Theory 12  “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” –Fredric Hayek (Austrian School of Thought)  Key Understandings: Classical economic theory is a school of thought for economics developed shortly after the birth of western capitalism. Classical economic theory helped countries to migrate from monarchic rule to capitalistic democracies with self-regulation. Adam Smith’s 1776 release of the "Wealth of Nations" highlights some of the most prominent developments in classical economics. Classical economic theories explain value, price, supply, demand, and distribution. Classical economics was eventually replaced with more updated ideas, such as Keynesian economics, which called for more government intervention.  Classical Economics: Is a school of thought that advocates for private ownership of business, empowered individuals, and a labour-based theory of value. Labour Theory of Value: Is a concept in which an item derives its worth from consumers from the resources that it took to make the item.  Understanding Classical Econ: Self-regulating democracies and capitalistic market developments form the basis for classical economics. Before the rise of classical economics, most national economies followed a top-down, command-and-control, monarchic government policy system. Many of the most famous classical thinkers, including Smith and Turgot, developed their theories as alternatives to the protectionist and in ationary policies of mercantilist Europe. Classical economics became closely associated with economic, and later political, freedom. fl The Rise of Classical Econ: Classical economic theory was developed shortly after the birth of western capitalism and the Industrial Revolution. Classical economists provided the best early attempts at explaining capitalism's inner workings. The earliest classical economists developed theories of value, price, supply, demand, and distribution. Nearly all rejected government interference with market exchanges, preferring a looser market strategy known as "laissez-faire."  The Decline of Classical Econ: The classical economics of Adam Smith had drastically evolved and changed by the 1880s and 1890s, but its core remained intact. By that time, the writings of German philosopher Karl Marx had emerged to challenge the policy prescriptions of the classical school. However, Marxian economics made very few lasting contributions to economic theory. A more thorough challenge to classical theory emerged in the 1930s and 1940s through the writings of British mathematician John Maynard Keynes. Keynesian economics advocated for a more controlling role for central governments in economic affairs, which made Keynes popular with British and American politicians.  Real-World Example: Adam Smith’s 1776 release of the "Wealth of Nations" highlights some of the most prominent developments in classical economics. His revelations centred around free trade and a concept called the "invisible hand" which served as the theory for the beginning stages of domestic and international supply and demand. This theory, the dual and competing forces of demand-side and sell-side, moves the market to price and production equilibrium. Smith’s studies helped promote domestic trade and led to more ef cient and rational pricing in the product markets based on supply and demand. fi