Did Classical Economic Theory Ever Die?

Did Classical Economic Theory Ever Die?

Mill's recantation of the wages-fund doctrine and the subsequent confusion that it caused in the ranks of the classical orthodoxy is but one factor among a host of other possible explanations for the decline of classical economics. The rise of marginalism is often cited as a causal factor of this decline, as is the fast-swelling ranks during the nineteenth century of historicist and .socialist critics of economic orthodoxy. Great policy debates, such as those over free trade, the rent issue, and trade unions,also played a role in the questioning of classical theory, especially in England and America. Unquestionably, all these developments played a role in the decline of classical economics as an ongoing paradigm.

Economists in the last third of the nineteenth century appeared to be asking questions that the classical theoretical system could not answer satisfactorily, if at all. The policy conclusions of classical theory simply were not acceptable to the majority of social scientists. Individual (microeconomic) behavior be­came the issue of the day, and economic analysis advanced in a new direction.

Can classical economics, then, have died in any meaningful sense? Though it is often easier to view intellectual history in terms of sharp breaks with past ideas, such a view would do a serious disservice to the classical economists and to their theoretical structure. Old theories do not die, and unlike old sol­diers, they do not even fade away. For instance, Alfred Marshall, the great neoclassical contributor to microeconomics, was very adamant in his admira­tion for, and use of, Ricardo's theory of cost in formulating partial-equilibrium analysis. Moreover, contemporary economists, in struggling with the problems of economic development in underdeveloped nations, have returned on occa­sion to the simple analytics of classical dynamics. In other words, not only did classical ideas work themselves into neoclassical economics, but the whole construction is still being used.

Achievements of the Classical School

As economic analysis, classical economics was cogent and logically correct. While its assumptions encompassed many broad and challengeable generaliza­tions, its sweeping logic was elegant. Perhaps no one described better the tran­sition from the classical to the neoclassical era in theory than Alfred Marshall. He noted:
The change may, perhaps, be regarded as a passing onward from that early stage in the development of scientific method, in which the operations of Nature are represented as conventionally simplified for the purpose of enabling them to be described in short and easy sentences, to that higher stage in which they are studied more carefully, and represented more nearly as they are, even at the expense of some loss of simplicity and defmiteness, and even apparent lucidity (Principles of Economics, p. 766).

Few episodes in the history of economic thought match the achievements of the classical economists in discovering and formulating the operations of an entire economic system. In addition, they established the method upon which modern economic reasoning is based. Although the assumptions of classical economics were in fact simplistic, the goal of the classical economists was nothing less than global analysis of entire economies. One might legitimately wonder whether such large ends would or could be sought by contemporary economists. "Progress" and the quest for technical accuracy have probably robbed us of the wiE, but the classical theoretical structure remains as an in­spiration for such an attempt.