The Classical School : Forerunners
Scientfic Revolution (3 Major)
Newton popularized the already existingidea that the universe is governed by natural laws
Newton system was static view of the universe
Scientist relied heavily on experimental evidence
Industrial Revolution (Major Tenets)
Self-Interested Economic Behaviour
Harmony of Interests
Minimal Governement Involvement
Economic Laws
Free competitive market would guide production,exchange and distribution
Self adjusting and tending toward full employment
Self -Interest where producers and merchants provided goods and services to make profits,workers for wage and consumers purchase products to satisfy their wants.
By pursuing their own individual interest, people served the best interest of society
Focus on explicit economic theories,law of comparative advantage, law of diminishing returns.
Sir Dudley North
Trade is mutual advantage
Wealth should not be measured by a country stock of precious metals
Disagreed with the merchantilist concept that war and conquest enrich a country
Richard Cantillon
Reduce economics to a few elementary principles
Cocept of equlibrium across markets
Emphasis on monetary concerns
Land is Source of Wealth
Availability on labor depends on availability of land,therefore can't be considered an independent source of nation wealth
Without adequate land,labor force will either starve to death or be forced to migrate,Therefore, a nation property depend only on its endowment of land
Cantillon was aware that a country total production depend on both land and labor
Macroeconomic Theory
Describing how the output of each sector ends up distributed among the three social classes as their consumption
Cantillon analysis amount to circular flow of income medal that almost every economics textbook
Cantillon constructed a macroeconomic theory by imagining an economy with two sectors : agriculture & manufacturing
Monetary Theory
In Cantillon monetary theory,purchasing power of money does not change when quantity of money changes
Money consists of gold and silver coins. This is called commodity money
Since gold is commodity like any other commodity,its value is measured by the amount of land embodied in the production of a unit of gold
As long as the way gold is produced does not change,its value in terms of land cannot change and therefore its purchasing power cannot change.