Classical Economists: Smith, Malthus, Ricardo, and Marx

Introduction

During the long development of economic science, many doctrines appeared that very often explained economic processes and connections in different ways. This created the basis for the development of different economic systems. The crisis of one economic system demands thorough study of its qualitative and quantitative parameters in order to effectively apply this experience in the future. That is why time-proven theories and models of economic development are examined from different angles at different points in time. This essay discusses the relevance of the views of major economic thinkers and the criticism that may be levelled against them.

Adam Smith and the Foundations of Market Economics

Adam Smith himself would probably have been surprised to be called an economist in his own time: in the era of Enlightenment, intellectuals always had very wide scientific interests and encyclopaedic knowledge, with philosophy as their foundation. His research was made possible by the sociological, political, and economic changes occurring in Europe in the eighteenth century, which were connected with the development of market production and exchange relationships.

Some of Smith's ideas remain highly relevant today. His concept of the division of labour, for example, was one of the progressive forces behind the elimination of domestic boundaries, which led to an automatic increase in commodity markets and the ability to expand the volume of production. Today we see immense movements of production toward countries where it is more technically or economically efficient. Smith also developed the idea of economic freedom and laissez-faire, arguing that various restrictions obstruct the natural and most efficient flows of capital. The main economic principle now is to provide as much freedom to markets as possible, allowing natural market forces to bring them into equilibrium. Smith was the first to seek out the laws of production within the exchange of goods, price movements, and money circulation; to distinguish and even contrast use value and exchange value, cost and price. He considered labour the main substance of cost — a view that remains relevant today, when labour costs constitute the largest share of overall production costs. He also developed the concepts of fixed and operating capital, profit, wages, and rent.

One of Smith's most enduring ideas concerns the relationship between government and monopolies, and his commitment to the principles of laissez-faire in opposition to mercantilist policy. A central idea in An Inquiry into the Nature and Causes of the Wealth of Nations is the vision of a society in which a person pursuing their own interest will inevitably contribute to the well-being and interests of society as a whole. The relevance of Smith's ideas rests especially on his treatment of monopolistic power, governmental subsidies, and the problems of centralised economic planning. Smith argues that a country genuinely concerned with increasing its wealth must establish laws that provide conditions of maximum economic freedom for every individual and producer. It is personal interest that must motivate participation in exchange relations and thereby promote the overall progress of market relations.

Malthus, Ricardo, and Say: Population, Trade, and Markets

A bright and unique contribution to economic science was made by the English classical economist Thomas Malthus. His work Essay on the Principle of Population, published in 1798, made — and continues to make — a powerful impression on readers, and discussions about it persist to this day. The range of commentary spans from "genius foresight" to "antiscientific nonsense." His theory of the laws governing population change became so widely discussed because he was the first to challenge the prevalent thesis that society could be perfected through social reform. He argued that there is a fundamental contradiction between the reproductive instinct and the limited amount of land suitable for agriculture. Human instincts cause populations to multiply at a geometric rate, while the agricultural products necessary for survival can only be increased arithmetically. Accordingly, poverty arises because population grows faster than wealth accumulates. Any attempt to improve living conditions through social reform will be offset by population growth. Through economic processes, nature sets limits — moral restraint, illness, poverty, and elevated death rates — that regulate population growth. Today his theory finds new validation: China, for example, found it necessary to restrict population growth in order to avoid widespread poverty. Once considered nonsense, Malthus's theory now attracts the attention of a growing number of scientists.

David Ricardo (1772–1823) always stands alongside Adam Smith among the greatest economists. Having studied Smith's works thoroughly, Ricardo was able to take the next step and transform economics into a rigorous science. Having become one of the wealthiest men in England — his fortune amounted to approximately one million pounds, an enormous sum at that time — he devoted the last thirteen years of his life to scholarly research. Ricardo made contributions across many branches of economic science, but his most significant impact was on the theory of international trade. He wrote only a few pages on this subject, yet they contained so many ideas that several generations of economists have worked to develop them. It was Ricardo who identified the principal driver of international trade: the principle of comparative advantage. He predicted that trade based on this principle would be mutually profitable for all participants and would unite civilised nations into a peaceful society. Today, with the WTO, NAFTA, and other international organisations dedicated to promoting free trade having become integral parts of our global reality, these predictions have been borne out and continue to reshape the world. Free trade within regions is becoming increasingly important for raising national wealth and identifying the most efficient locations for the production of specific goods. Although globalisation generates considerable debate, it is inevitable, and the task is simply to make the best use of it.

J.B. Say is regarded as a follower of Smith who accepted the principles of free markets, price formation, free domestic and foreign trade, unrestricted entrepreneurial competition, and opposition to protectionism. He believed — and sought to demonstrate — that if humanity adopted these principles, there would be no overproduction, no underconsumption, and therefore no economic recessions. Say's enduring relevance lies in his identification of three main factors of production: labour, capital, and land. Given natural order, flexible prices and wages, and no external interference, there would be a mutually beneficial exchange of the labour products of all market participants. Say's Law opposes all external interference in the economy, holding that supply creates its own demand: the production of goods and services generates the income needed to purchase them. The importance of this law today is that almost all countries attempt to follow these principles, since flexible and free price formation in the market has proven to yield near-instantaneous responses to changes in economic conditions and to guarantee self-regulation.

Conclusion

Each of these thinkers contributed to the development of present economic theory, because each of these theories is used, developed, and explained more clearly over time. It is important to understand that the ability to study connections within an economy becomes far richer when different — and even contradictory — economic theories are taken into consideration.