Introduction
The notion of a “classical political economy” was first used by Karl Marx in A Contribution to the Critique of Political Economy, where he related it to “the research carried on for over a century and a half...
beginning with William Petty in Britain and Boisguilbert in France, and ending with Ricardo in Britain and Sismondi in France” (1859 [1970]: 52). It was given a more precise meaning in Marx’s manuscript on Theories of Surplus Value (1861-63 [1988]: 358), and in vol. 1 of Capital, where he observed that “by classical Political Economy, I understand that economy which, since the time of W. Petty, has investigated the real relations of production in bourgeois society, in contradistinction to vulgar economy, which deals with appearances only” (1867 [1954]: 85 n.). Marx referred to David Ricardo as “the last great representative of classical economics” (1867 [1954]: 24) - a view that was endorsed also by Joseph A. Schumpeter (1912 [1954]: 62-7) - and from his discussion in Theories of Surplus Value it is clear that he associated such well-known figures as John Ramsay McCulloch and John Stuart Mill, often regarded as the British classical economists par excellence, with the decline of classical political economy.A different characterization of “classical economics” is frequently used in the secondary literature, and accordingly a different demarcation also of the “classical” period: the latter is associated with (roughly) 1776-1848, placing at the centre of classical economics Smith, Ricardo, and John Stuart Mill. This definition, introduced by authors such as Cannan (1893) and Bonar (1894), and employed more recently, for instance, by Blaug (1987 [2008]) and O’Brien (1975, 2004), is based on an understanding of “classical economics” as an early and rude type of supply and demand analysis, with the demand side still in its infancy.
However, this “Marshallian” interpretation of classical economic theory does not stand up to close scrutiny. As the reconstruction of the surplus approach to value and distribution, initiated by Piero Sraffa (1951, 1960), and then followed up in numerous contributions including, inter alia, Dobb (1972), Walsh and Gram (1980), Garegnani (1983, 1984, 1987), De Vivo (1984), Bharadwaj (1978), Aspromourgos (1996, 2009), and Kurz and Salvadori (1995), has clearly shown, there has been a distinctive alternative approach to the theory of value and distribution. Characteristic features of the classical approach are the determination of relative prices and income distribution from the following set of data: (1) the size and composition of the social product; (2) a given real wage rate; and (3) the available methods of production from which costminimizing producers can choose (see Kurz and Salvadori 1995: ch. 1).In this entry, classical political economy is understood accordingly as denoting the period from c.1660 to c.1825, and the major British representatives are William Petty, Richard Cantillon, James Steuart, Adam Smith, Robert Torrens, and David Ricardo. Because of its central importance for all economic theory, attention focuses exclusively on the theory of value and distribution. The idea is to reconstruct some major lines in the development of the surplus approach and to assess the contributions made by the British classical political economists. Since there are several, though partly intertwined, aspects involved in this development, it seems appropriate to state them here briefly in terms of four main strings that run through it.
The first string to be followed up consists in the changing conception of the surplus, which was first regarded, by Petty, Cantillon, and the French Physiocrats, to emerge from agricultural production alone and to be realized in income form only as rent. Profits were not yet identified as a separate and distinctive form of income and not related systematically to capital advances, and the workers’ wages were regarded as being confined to what is strictly necessary for subsistence.
With the emergence and rising importance of capital and profits, the latter came to be regarded as forming an important part of the “net income” of society. That the workers may also participate in the sharing out of the surplus was first acknowledged by James Steuart and then particularly emphasized by Adam Smith, though not so much as an empirical fact but as a desirable goal. In Ricardo, we then find the idea that a part of the surplus might also be obtained by the workers as wages, over and above their subsistence requirements, and could be saved or expended by them.A second important string is the development of the circular flow concept and its role in the analysis of distribution and prices. This concept was first introduced by Petty and then further refined by Cantillon, from whom it was passed on to Franςois Quesnay and the French Physiocrats. The circular nature of the social production process implies that the commodities produced in the different sectors must be regularly exchanged in order for each sector to obtain the necessary inputs needed in its own production. A major problem for the classical political economists was the determination of the exchange ratios in conditions of circular production relations. Following Cantillon’s lead, Quesnay had provided a clear conception of the circular flow, but the physiocratic analyses of prices and distribution were unsatisfactory. Smith and Ricardo, on the other hand, although they were aware of the circular nature of the social production process, had recourse to simplifying assumptions in their analyses of distribution and prices by which production circularity was effectively assumed away.
A third line of development (which is closely related to the second string) concerns the attempts of the classical political economists to find some “common measure of value”, such as “food”, “land” or “labour”, which could be measured in physical units and would allow them to determine relative prices and the distributive variables without circular reasoning, that is, without explaining prices in terms of prices.
The fourth line of development that is analysed in some detail below concerns the changing conceptualization of “natural” or “normal prices”. Here, the development was fairly linear and straightforward, leading from an early exposition by William Petty to an ever more sophisticated but basically unchanged conceptualization in Smith and Ricardo.(Apart from the theory of value and distribution, the British classical political economists have of course made many other important contributions in such diverse fields as international trade theory, monetary theory and policy, the theory of growth and technological change, the analysis of taxation and public debt, and so on. For summary accounts and assessments of those contributions the reader is referred to the entries on the major British classical political economists in this Handbook, as well as to those in Kurz and Salvadori (1998, 2015). For assessments of the contributions of less well- known British classical economists, see O’Brien (2004).)