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Classical vs. neoclassical economic thought inhistorical perspective: the interpretation of processes of economic growth and development

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Classical economics was oriented towards the advancement of the common interest as defined by the political institutions of the state, whereas neoclassicism is defined in a social and political vacuum. Furthermore, the former related realistically to an excess supply of labour, while the latter assumes full employment. These differences have significant implications for income distribution, accumulation, growth and development. Classical economists advocated free trade to increase domestic productivity and employment at stable or growing real wages. Contemporary globalization recreates the classical surplus labour economy to reduce domestic wage levels through moving domestic production from high to low wage areas around the globe. Free trade becomes necessary so that the goods produced abroad can be imported into capital exporting countries. However, without a corresponding growth of exportables, the trade balance must be adversely affected. Furthermore, adverse changes in income distribution diminish domestic demand for goods. The policy of globalization must become self-defeating.

Keywords: Neoclassical; accumulation; classical; competition; economic growth; economic thought; effective demand; fundamental assumptions; globalization; income distribution; institutions; monopoly; neoliberalism; political economics; poverty; state; subsistence; surplus labour; unemployment

Document Type: Research Article

Affiliations: Dept. of Economics and Graduate Programme for Social and Political Thought (emeritus), York University, Toronto, Canada.

Publication date: 2000-03-01

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