Should We Bother Reading the Classical Economists?

The Classical Economists, Adam Smith (1723-1790), Thomas Robert Malthus (1766-1834), David Ricardo (1772-1823) and Karl Marx (1818-1883), collectively wrote in the 18th and 19th Centuries. All their works are currently in the public domain and available on line (see below). Neoclassical Economics supposedly made their works obsolete and you hear little about them if you take a course in ECON 101. Still, there is a sinking feeling in the Economics profession that We Need Better Economic Models. What might the Classics have to offer? Briefly:

• The Steady State Economy Modern economics assumes that growth can continue forever without limit. The Classics, on the other hand assumed that eventually growth would reach a steady state. For Marx, this was the Communist Society, which he described only general terms. There is evidence that current economies (here) are reaching a steady state and that it will not be the utopia envisioned by Marx.
• Economic Depressions and Business Cycles In Modern economics, cycles and long-waves are not supposed to happen. The market is supposed to adjust any imbalances in supply and demand and regulate the economy. The Classics assumed that booms, busts, panics, bubbles and manias could all happen and required explanation. For example, Malthus and Ricardo were concerned about effective demand, prefigured Keynes and did not assume markets handled all economic problems automatically.
• Historical Determinism Modern economics has no role for History. Models are timeless and general, much as universal physical forces. The Classics, particularly Malthus and Marx, understood that different models were required for different periods. Premodern societies are best described by the  Malthusian Stagnation Model rather than the Neoclassical Growth Model. Marx thought that the Asiatic Model of Production was different from the Capitalist Model.
  
  

Modern Economics based on overdetermined, stable equation systems doesn't have a role for cycles, depressions, pre-modern models of production and History. Systems Theory, on the other hand, can easily handle cycles, instability, growth and steady states.  Not that every problem is solved by recovering the past. Both the Classics and the Moderns jumped too quickly from their (mental) models to policy recommendations.  Real SocioEconomic systems are far too complicated to be controlled by simple feed forward systems. The best we can do is analyze natural experiments as they are conducted in History and see if our systems models can capture what happened. 

The bigger problem here is that Economics has been co-opted by Neoliberalism and Market Fundamentalism. What you get in ECON 101 is an attempt to describe the Economic System and an attempt to proscribe policy measures to tell politicians how to run the Economy. These attempts are largely a failure and have little historical justification or empirical support--at least the little that is offered in ECON 101. And, this is what the average student gets, if anything, as an introduction to Economics.

The Classical writers had very few mathematical, statistical or historical tools at their command for understanding the Economic System. They struggled with definitional issues and wrote in a verbose style we no longer find very straightforward. If we trained students to be Classical economists, we would just end up generating an avalanche of speculative, qualitative writing that never gets tested. In other words, we wouldn't get Science.

My recommendation is that we use the new tools available to us, primarily Systems Theory, to moved on from both the Classical Economists and current Neoclassical Economics. Critics will argue that this has already been tried an failed, in Sociology by Talcott Parsons (1902-1979) and in Economics by Kenneth Boulding (1910-1993). The critics are wrong but having an argument won't solve anything.

Let me just make these assertions: Economics went wrong by insisting that everything has to be derived from individual, rational behavior, i.e., Homo Economicus. Systems theory argues that the the Economy is not just an aggregation of individual, rational behaviors. The system has both aggregate growth and aggregate feedback processes. We understand the variables involved in Growth (the Neoclassical Growth Model) but we have little understanding of the macro-feedback process and how the Economic System is controlled beyond the Aggregate Demand and Supply model (AD-AS model) which is incomplete. Just consider the simple Impact Model with markets for aggregate production (Q), energy (PE), and CO2 (PC, price of carbon--a market which is very incomplete).

What controls Global Temperature (T)? What controls Population Growth (N)? There are other Human Feedback Loops in the complete TechnoSocial system that we barely understand. The Subprime Mortgage Crisis (2007-2010), the COVID-19 Pandemic (2019-2023) and the resulting economic shocks and fumbled government response made clear that markets didn't help control inflation and we really didn't understand the effect of many supply chain delays and disruptions caused by exogenous shocks. And, the expanded Impact Model above is not a system because there are no feedback loops (just self-loops).

Classic References

These works are available on line:

• Adam Smith Wealth of Nations
• Malthus An Essay on the Principal of Population
• Malthus Principles of Political Economy
• Ricardo Collected Works
• Marx Collected Works
• JS Mill Collected Works

Excellent Secondary Works

These secondary sources are worth tracking down and reading:

• Higgins Economic Development
• Saeed Limits to Growth Concepts in Classical Economics
• Baumol Economic Dynamics
• Boulding The Malthusian Model as a General System
• Galor From Malthusian Stagnation to Demographic Transition
• Dong Human-Nature Feedback Loops