Contributions of Economic Thoughts - Essay Example

Contributions of Economic Thoughts by the Forerunners of the ical to ical Economics ical economics is seen as the first school of economic thought. Some of its contributors are David Ricardo, Adam Smith, Thomas Malthus, and Jean-Baptiste just to name a few. The term classical economy refers to Ricardian economics as coined by Karl Marx. Classical economists proposed that free markets control themselves when free of intrusion. They assume adjustable prices of both wages and goods. Most of these contributions have been borrowed from the critics of the mercantilists.

Mercantilism contributed to the idea of a positive balance of trade by setting up policies like maximizing the use of domestic resources, limiting wages, and export subsidies, all aimed at accumulating monetary reserves (Brue & Randy 42). David Hume disagreed with mercantilism on their trade restrictions by stressing that trade restrictions are restrictions of innovation, and so these opened avenues for uniform market competition. Physiocrats stressed the importance of agriculture in the economy; they proposed that agriculture is a vital organ in the development of any economy.

He suggested an economic environment free of government restrictions when it comes to transactions between two private parties; the only regulations he proposed are those that protect property rights. Since individuals have a natural right to freedom, it should be understood that nature is a self-regulating system and harmonious so human control should never be factored in. Adam Smith proposed the idea of artificial stimulation of manufacturing and trade; he made it clear that the real wealth of a country not only consists of gold and silver, but also in its houses, lands, and consumable goods of all different kinds (Brue & Randy 45).

He fueled foreign trade by recognizing that it could explore the overseas markets and largely promote the development of production capabilities of the nation and consequently lead to a rise in real wealth owned by a country. He also contributed to the idea of a free market by proposing to the government to reduce and abandon control over foreign trade, and he suggested the implementation of free trade policies. David Ricardo shed light on the importance of agriculture, by analyzing the importance of diminishing returns.

He postulated that a utility is mandatory for exchange values, but does not determine it. He promoted extreme industrial specialization by proposing that a nation should put more effort into industries in which it is more internationally competitive. Ricardo suggested a trade with other countries to obtain goods not produced nationally. Ricardo’s critics contributed to the idea of uncertainty, by factoring in realities like natural disasters which are completely out of human control, they should be taken into consideration since they can disrupt production (Brue & Randy 56).

Hence, it is evident that specialization is most likely to cripple a country that depends on imports from foreign. Therefore, a country should diversify its economy. Malthus criticized Ricardo by suggesting that all savings are equivalent, and rent constitutes a major source of saving for the future. In conclusion, the critics have contributed to free and fair trade and also regulated the government's control of trade by insisting on the need of providing a free natural environment for trade.

There is a need for every country to diversify its economy in order to pave the way for uncertainty.