ECN 306 - History of Economic Thought: The Classical Economists

Flashcards on the Classical Economists and Adam Smith's Contributions

Classical School of Economics

A body of doctrines which existed in England over a century, starting after physiocracy, propounded by Adam Smith and his followers during the latter half of the 18th century.

Adam Smith

Regarded as the father and leader of British classical school.

David Ricardo

A classical economist remembered for the theory of comparative cost, rents and the law of diminishing returns.

Wealth of Nations (1776)

Adam Smith's publication that marked the birth of the classical school and shaped economic thinking.

Laissez Faire

The belief in minimal government intervention in the economy, advocated by classical economists.

Market Economy

Classical economists advocated this system based on perfect competition, where production, exchange, and distribution are guided by market forces.

Full Employment

Classical economists assumed this level would exist in the economy, which they considered self-adjusting.

Division of Labour

Adam Smith's concept referring to the specialization of tasks in production to increase efficiency.

Invisible Hand

Adam Smith's concept that individuals pursuing their self-interest unintentionally benefit society as a whole (Laissez Faire).

Theory of Value

Smith's identification of commodities having value in use (utility) and value in exchange (purchasing power).

Diamond-Water Paradox

Smith's example illustrating that commodities with high value-in-use (water) may have little value-in-exchange, and vice versa (diamonds).

Labour Theory of Value

The idea, developed from Smith's work, that the amount of labour put into a commodity determines its exchange value.

Natural Price

Smith's concept of the long-run price of a commodity, equal to its labour-command value determined by natural rates of wages, rent, and profit.

Market Price

Smith's concept of the actual or short-term price at which a commodity is sold, influenced by supply and demand.

Theory of Wages

Smith's criteria for wage determination, considering factors like job difficulty, skill requirements, and risks involved.

Theory of Profit and Interest

Smith's view of profit as compensation for business risks and interest as a payment for the use of borrowed capital.

Theory of Money

Smith's view of money as a facilitator of exchange that doesn't add to the total wealth of society.

Theory of Economic Growth

Smith's explanation focused on production function, supply of land, growth of labour force, capital accumulation, agents on growth and the growth process.

Factors of Production (Smith)

Labour, capital, and land.

Theory of Economic Development

Smith's ideas on improving industrial machines, encouraging division of labour, and ensuring capital accumulation grows faster than population.

Productive Labour (Smith)

Labour where value was created and stored in a saleable or exchangeable commodity.

Unproductive Labour (Smith)

Labour where mere offering of services was involved without storing of value into a commodity.