Abstract
This chapter aims to outline the worldview, analytical principles and modern implications of Classical Political Economy (CPE). It presents CPE as a study of the key features of industrial economies, emphasizing its approach to aggregation and structural change. The first part of the chapter focusses on the analytical coordinates of the two main Classical Political Economists—Adam Smith and David Ricardo—in view of extracting their contribution to understanding industrial economies. The second part uses a modern theory inspired by the Classics to illustrate how CPE can be generalized to understand production, growth and distribution in modern industrial economies. The chapter concludes by highlighting that the legacy of CPE includes analytical tools to address problems of aggregation in society that go beyond the specific aims for which they were developed (i.e. assigning weights to different commodities within the net product).
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- 1.
There are divergent interpretations as to the extent to which Classical theories explicitly consider interdependencies. For example, whilst Sraffa (1960) interprets Ricardo’s theory in terms of interdependencies between industries, Hicks (1985) believes that Ricardo had in mind vertically integrated sectors, that is the set of all activities necessary for the production of final goods, irrespective of the industry in which they are performed. As I discuss later in this essay, it is possible to switch from one to the other of the above representations (Pasinetti 1973). Hence, I will only discuss whether the Classics adopted one or the other representation when doing so is directly relevant for the analysis at hand.
- 2.
Whilst these periods are typically referred to as “years”, they need not correspond to calendar years.
- 3.
See Landesmann (2018‚ this Handbook) for an analysis of structural change in CPE and its ramifications in economic theory.
- 4.
Although the interpretation of Smith’s distinction between productive and unproductive labour is a contentious one, for the purposes of this essay I will take the distinction to be that productive workers are those whose work reintegrates wage (capital advances) and generates a surplus: “There is one sort of labour which adds to the value of the subject upon which it is bestowed: there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour” (WN, p. 330).
- 5.
It must, however, be said that Smith, like many Enlightenment thinkers, is also interested in markets for their “civilizing” effects (see Hirschman 1982). And although it might be interesting to consider whether such effects should be interpreted as pertaining to the sphere of exchange alone, or more generally to the interaction between the sphere of exchange and that of production (especially the deepening of the division of labour), these issues are beyond the scope of this chapter and I shall not pursue them further.
- 6.
A different interpretive line attributes to Smith a treatment of value and distribution based on the “adding up” theory of natural price (Dobb 1973; see also Sraffa 1951, p. xxxv). Smith’s approach has been a matter of controversy since shortly after his formulation (e.g. Storch 1823 [1st edn. 1815]; Ziber 1871; see Scazzieri 1987). On the problem of value in CPE and its connection with the dynamics of production, see also Sinha (2018‚ this Handbook).
- 7.
Pasinetti (1981, p. 132) shows that, under certain conditions, a pure labour theory of value can be shown to hold even in a capital-using economy.
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Cardinale, I. (2018). Classical Political Economy. In: Cardinale, I., Scazzieri, R. (eds) The Palgrave Handbook of Political Economy. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-44254-3_6
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