The Classical School of economics was developed about 1750 and lasted as the mainstream of economic thought until the late 1800’s. Adam Smith's Wealth of Nations, published in 1776 can be used as the formal beginning of Classical Economics but it actually it evolved over a period of time and was influenced by Mercantilist doctrines, Physiography, the enlightenment, classical liberalism and the early stages of the industrial revolution. Adam Smith [1723-1790] is recognized as the originator of Classical Economics. John Stuart Mill [1806-1873] is often regarded as the synthesizer of the school.
Classical economics as the predominant school of mainstream economics ends with the “Marginalist Revolution” and the rise of Neoclassical Economics in the late 1800’s. In the 1870's William Stanley Jevons' and Carl Menger's concept of marginal utility and Léon Walras' general equilibrium theory provided the foundations. Henry Sidgwick, F.Y. Edgeworth, Vilfredo Pareto and Alfred Marshall provided the tools for Neoclassical economics. Neoclassical economics is an extension of Classical economics but, the focus of the questions changed as well as the tools of analysis.
In spite of the dominance ofNeoclassical thought, Classical Economics has persisted and influences modern economics,particularly the "New Classical Economics." The belief in the efficacy of a “free market” is central to both classical and neoclassical ideology.
While Adam Smith would be regarded as the originator and leader of the school, David Ricardo [1772-1823] should be credited with establishing the form and methods of the school. The debates between Thomas Malthus [1766-1834] and David Ricardo about policy issues such as the "Corn Laws" and the "Poor Laws" contributed to the focus and form of the school. Smith was concerned about the nature of economic growth. Malthus, Ricardo and other classical economists were concerned about the question of “distribution.” One important debate among classical economists was whether there was or wasn’t a “surplus” or “glut.” Jean Baptiste Say [1767-1832] and Malthus were the two major protagonists in the question about the existence of a surplus and its effects on a market economy.
This theory is about the way markets and market economies work. The study was primarily concerned with the dynamics of economic growth. It stressed economic freedom and promoted ideas such as laissez-faire and free competition. The fundamental principle of the classical theory is that the economy is self-regulating. Classical economists maintain that the economy is always capable of achieving the natural level of real GDP or output, which is the level of real GDP that is obtained when the economy's resources are fully employed. While circumstances arise from time to time that cause the economy to fall below or to exceed the natural level of real GDP, self-adjustment mechanisms exist within the market system that work to bring the economy back to the natural level of real GDP. The classical doctrine—that the economy is always at or near the natural level of real GDP—is based on two firmly held beliefs: Say's Law and the belief that prices, wages, and interest rates are flexible.