Question

Please compare the bases of Classical School with the bases of Historical School. Please explain the reasons of differences between these two schools

Answer 1

Classical school of economics is that thought that flourishes in the Britain from late 18th century to the beginning of 19th century. Thinkers like Adam Smith, David Ricardo etc were prominent during these times. Historical school of economics was an approach to academic economics and public administration that emerged in 19th century in Germany. The following are the main features of these two schools

Classical school of economics

· They propagated a market economic theory that is largely self regulated ie; governed by natural laws of supply and demand.

· They were pragmatic liberals in the sense that they advocated for the freedom of market but at the same time said that the state has a role to play in it.

· They believed in competitive market systems and strictly opposed a monopoly market.

· They advocated free international trade and opposed protectionism.

· The theory of value and monetary theory are contributions of classical school of thought.

Historical school of Economics

· They believed that economies are culture specific and could not be generalized over times.

· They rejected the universal validity of economic theorems.

· Instead of logic and mathematics, they believed that economies are result of history

· They believed that economic motives and policies were results of social order.

· On historical analysis, they put forward that all the economies of the world would have to pass though certain stages in the economy depending on the social structure the countries are following in the present.

· They rejected the mathematical modelling of economic theories and believed that study of historical, social, political and cultural aspects of a nation would reveal the economic structure of the nation.

Comparison of Classical and Historical schools

· The Classical school believed in the free market economies and theory of supply and demand that formed the basis for regulation and formation of a market structure whereas the historical school believed that historical, social, cultural and political factors influenced the formation of an economic structure of a nation.

· The Classical school formulated theories based on mathematical models whereas it was not present in Historical school.

· The Classical school believed in Universal validity of their models, but the Historical school didn’t believe in universality of the economies.

                                         From the above analysis and comparison, we can see many reasons for the differences in approaches of both the schools of thought. One of the major reason being that both emerged in different nations and the structural and thoughts of the nation influenced the thinkers of the nation to put forward different theories of economics. Since the Classical school was introduced at first, there were arising needs for different concepts around the world which lead to the development of historical school. Although both represents different theories on the formulation of economies, it is analysed that the Classical school had a more base in that it had mathematical modelling to explain each of its thoughts.