Classical Political Economy Approach
Classical political economy approach is said to have started with the Physiocrats (a school of economic thought in France led by Quesnay and Mirabeau) who advocated liberty of production and non-interference of state in the economic activity (primarily agricultural), a policy of laissez-faire. However, Adam Smith, Robert Malthus and David Ricardo advocated the policy of laissez–faire as a firm political economic doctrine of free market. Smith holds an individual as a self-interested, rational actor with propensity to trade and do business. This view has been termed as a view of ‘economic man’ by his critics. The concept of economic man assumes that everyone acts only in self-interest and in a capitalist system only selfish consideration prevails. How would then any welfare be possible? Smith would answer that self-regulating demand and supply would provide general stability and prosperity. It follows that in an environment of self-interested individuals, competition becomes a self-regulating mechanism in the market. Competition along with resultant demand and supply becomes an ‘invisible hand’, which regulates the market. With this assurance, Smith and supporters of the classical political economy approach argue for non-interference by the state or external agency in the affairs of the market. They advocate a condition of laissez–faire.
Smith explained and argued for freedom of an economic man and liberty for commerce and industry. His conclusions that laissez faire capitalism has the capacity to generate enormous productive forces; is self-regulating because of the presence of competition and demand–supply factor; and market should be left to the ‘invisible hand’, and provide an important theoretical ground for operation of capitalist economy along with limited government. The free market, in which voluntary exchanges between rationally self-interested individuals are considered desirable, is considered the basis of optimal and efficient resource allocation in the society. Further, it is also treated as morally or ethically desirable, as it allows every individual to follow his or her own conception of good without external intervention for redistribution or allocation of resources. In the twentieth century, F. A. Hayek (The Road to Serfdom) and Milton Friedman (Capitalism and Freedom) have argued for economic freedom and against any planned or state regulated redistribution of resources as inimical to individual liberty.
Classical political economy approach considers rational individuals in the free market condition with minimal state interference as the basis of efficient and morally desirable resource-allocation. By implication, it rejects any intervention of the state for reallocation or redistribution of resources, which need to be achieved through market operation. The classical political economy approach is not in favour of welfare and planned economic intervention of the state.
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