Classical economics

Classical economics (also known as liberal economics) asserts that markets function best with minimal government interference. It was developed in the late 18th and early 19th century by Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Robert Malthus, and John Stuart Mill. Many writers found Adam Smith's idea of free markets more convincing than the idea, widely accepted at the time, of protectionism.

Adam Smith's The Wealth of Nations in 1776 is usually considered to mark the beginning of classical economics. The fundamental message in Smith's influential book was that the wealth of nations was based not on gold but on trade: That when two parties freely agree to exchange things of value, because both see a profit in the exchange, total wealth increases. Classical economics originally differed from modern libertarian economics in seeing a role for the state in providing for the common good. Smith acknowledged that there were areas where the market is not the best way to serve the common good, and he took it as a given that the greater proportion of the costs supporting the common good should be borne by those best able to afford them.

Classical economists observe that markets generally regulate themselves, when free of coercion. Adam Smith referred to this as a metaphorical "invisible hand," which refers to the notion that private incentives are aligned with society welfare maximization under certain competitive conditions. Smith warned repeatedly of the dangers of monopoly, and stressed the importance of competition.

There is some debate about what is covered by the term "classical economics", particularly when dealing with the period from 1830–75, and how classical economics relates to Neoclassical economics.

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