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CLASSICAL ECONOMIC THEORY

Known also as ‘laissez faire’, the classical economic theory claims that leaving individuals to make free choices in a free market results in the best allocation of scarce resources within an economy and the optimal level of satisfaction for individuals - ‘the greatest happiness for the greatest number’.

Classical economic theory or classical economics is widely regarded as the first modern school of economic thought. The major classical economic theory developers include Adam Smith, David Ricardo, Thomas Malthus and John Stuart Mill. Sometimes the definition of classical economic theory or classical economics is expanded to include William Petty, Johann Heinrich von Thünen, and Karl Marx.

The publication of Adam Smith's The Wealth of Nations in 1776 is usually considered to mark the beginning of classical economic theory. The classical economic theory or classical economics school was active into the mid 19th century and was followed by neoclassical economics in Britain beginning around 1870.

In classical economic theory, profit was closely associated with the entrepreneur. But this entrepreneur as defined by classical economics doesn't exist now.

Classical economists developed a theory of value, or price, to investigate economic dynamics. Petty introduced a fundamental distinction between market price and natural price to facilitate the portrayal of regularities in prices. 

Capital Mobility and Unequal Profit Rates: A Classical Theory of Competition by Boundedly Rational Firms - Marc van Wegberg, University of Limburg, P.O. Box 616, 6200 MD Maastricht, The Netherlands Review of Radical Political Economics, Vol. 22, No. 2-3, 1-16 (1990)
A key concept in the classical economic theory is the long-run equilibrium based on a uniform rate of profit with associated prices of production. This equilibrium is the outcome of an adjustment process: differential profit rates induce capital mobility between markets, which continues until profit rates equalize. Nikaido's (1983) critique initiated a series of papers modeling this process. This paper contributes to the debate by employing an evolutionary-type model with (1) bounded rationality in decision-making, (2) imperfect labor mobility, and (3) structural change in the economy. It finds that the latter two conditions impede a tendency for profit rates to equalize.

Input-Output Analysis and Classical Economic Theory - Heinz D. Kurz, Christian Lager
Source: Economic Systems Research, Volume 12, Number 2, 1 June 2000, pp. 139-140(2).