Front Page Titles (by Subject) The Classical Model of Political Economy - Literature of Liberty, July/September 1979, vol. 2, No. 3
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The Classical Model of Political Economy - Leonard P. Liggio, Literature of Liberty, July/September 1979, vol. 2, No. 3 
Literature of Liberty: A Review of Contemporary Liberal Thought was published first by the Cato Institute (1978-1979) and later by the Institute for Humane Studies (1980-1982) under the editorial direction of Leonard P. Liggio.
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The Classical Model of Political Economy
“The Classical Economic Model and the Nature of Property in the Eighteenth and Nineteenth Centuries.” Tulsa Law Journal 13, no. 3 (1978): 406–507.
An important contribution of economics to the idea of freedom has been the development of the so-called “classical economic model.” Although some writers, such as Mark Blaug, have denied the existence of a comprehensive classical model held by all nineteenth century economists, the general outlines of the theory are clear. The classical model assumes the existence of society in which most resources are privately owned. Individuals bargain with each other, and the principal motivation each participant is self-interest. Out of these economic interactions, an ordered society will emerge.
As is already apparent, the notion of freedom is crucial to this model. The major theorists in this classical tradition, such as Locke, Smith, and Mill, stressed that the preservation of liberty was an indispensable social precondition. For example, in On Liberty (1859), Mill argues that the function of society is to promote individual autonomy. Each person must be encouraged to assume responsibility for his own life, rather than become dependent on the customs favored by public opinion.
The exponents of the classical model viewed freedom as part of the law of nature. They believed that there were laws of the social world in some ways like the laws discovered by the physical sciences. These natural laws, far from being inconsistent with human freedom, demanded it as their precondition. If each person in society freely acted to promote his own interest, an “invisible hand,” as Adam Smith claimed in the Wealth of Nations and Theory of Moral Sentiments, would operate to transform private good into the general welfare of society.
David Ricardo developed the theme of nature even beyond Smith's exposition. In his economic theory, Ricardo allowed virtually no role for the entrepreneur. Economic law acted in an almost mechanical fashion; the correct working out of the economic processes that Ricardo postulated did not depend on particular entrepreneurial decisions.
The view of human nature professed by the proponents of laissez-faire emphasized self-interest. Perhaps the most striking example of one version of this theory was presented by Thomas Hobbes. In Hobbes's Leviathan (1651), men were not only self-interested but also mutually antagonistic, By contrast, John Locke's view of human nature was substantially more optimistic and harmonious, but he also saw man as egoistically motivated. The Scottish Enlightenment thinker, Frances Hutcheson, however, affirmed a social instinct of human benevolence, a natural feeling of personal sympathy for others. Adam Smith also subscribed to this position and believed in a natural harmony of interests.
The supporters of the classical model maintained that prices were determined by the market forces. For example, Adam Smith argued that products tended to gravitate around a “natural price,” which was determined by the costs of production. This could not be determined unless the market were allowed to function freely; furthermore, in the short run, supply and demand might cause prices to differ from the natural price.
Wages, under the classical model, were similarly determined by the market. Many followers of the classical model, beginning with John Locke, assumed that wages would tend toward the level of bare subsistence, owing to pressures of population. Smith, Turgot, and Ricardo, among others, each held versions of this “iron law of wages.”
The legacy of the Enlightenment, as expressed in the classical model, may be seen as a modification of the Greek doctrine of natural law. In the classical model, private property was recognized as an individual right This private and individual perspective of rights contrasted with the ancient Greek stress upon the ends of society as a whole.