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Classical Theory of Employment
Classical Theory of Employment
Introduction
The term classical economist was first used by Karl Marx to describe
economic thought of Ricardo and his predecessors including Adam Smith.
But by classical economists Keynes meant the followers off David Ricardo
including J.S.Mills, Alfred Marshall, and A.C.Pigou. The term classical
economics, as used by Keynes, refers to the traditional or orthodox
principles of economics which had come to be accepted, by and large, by
the well-known English economists since the time of David Ricardo. They
were so widely accepted ad well established for over more than a century
that they were labelled as classical.
Classical Theory of Employment
In macro-economics, income and employment are interchangeable
terms since in the short run national income depends on the total volume
of employment or economic activity in the country.
That is why
employment theory can also be known as income theory.
The classical economist did not formulate any specific theory of
employment as such. They only laid down certain principles. The
classical theory assumes full employment without inflation. Given wageprice flexibility, there are automatic forces in the economic system that
tends to maintain full employment and produce output at that level. Thus
full employment is regarded as a normal situation and any change from
this level is something abnormal which automatically tends toward full
employment. The classical theory of output and employment is based on
the following assumption:
1.
2.
3.
4.
5.
Says Law
Says law is the foundation of the classical economics. Assumption of full
employment as normal condition is justified by classical economists by a
law known as Says law of Markets. It was this law on the basis of which
classical economists thought that general over-production and hence
general unemployment were impossible.