The Market and the Classical Theory of Prices

Abstract

During the last decades, a tentative revival of the classical theory of prices has been observed. It originated from diverse sources. The broad social outlook, the theoretical coherence and the political impetus of the classical authors had never lost its fascination for economists but some distinctive traits of their analysis had been obscured by attempts to minimise the fundamental difference between the classical approach, based on the surplus principle, and the neoclassical one, based on the idea that supply and demand for factors of production, as governed by subjective preferences, regulate an equilibrium at full employment. Keynes had used the neoclassical theory of value and generalised the equilibrium concept to encompass labour unemployment. This led, in the age of growth theory, to a reconsideration of the classical processes of accumulation, as revived by Harrod and the followers of Keynes in Cambridge, who considered classical paths of accumulation where the growth of capacity did not automatically adjust through the supply and demand mechanism to the growth of the labour supply and productivity.

First published in Kurt Dopfer and Karl F. Raible (eds), The Evolution of Economic Systems (London: Macmillan, 1990) (Festschrift für O. Šik) pp. 141–53.