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use of the term is different. While the essence of classical thought emerged more than two centuries ago, many of the ideas and implications have since been developed and refined. What makes the ideas classical is not the era they came from but their very nature. They are classical because they are so basic and so fundamental that they are timeless.

      Liberty and freedom form the basis for classical principles

      Classical thought stems from a belief in the rights of mankind to liberty and freedom. The 17th century English philosopher John Locke traced these rights to their Judeo-Christian roots. Locke argued that God gave each man and woman equal rights to liberty and freedom.¹ Since these rights come directly from God, no person or government can take them away.

      Locke’s view ran counter to the tide of history. Throughout history people with wealth and power have tried to dictate how others should live. The Founders of the United States rejected this concept. They studied Locke’s arguments and agreed that individuals had God-given rights to liberty and freedom.

      First and foremost, liberty implies freedom from an oppressive authority. But true freedom involves something more. It means that individuals are free to pursue their own self interests, so long as doing so does not harm others. The Founders took the concepts of liberty and freedom and used them as the foundation for what became the greatest and wealthiest nation on earth—the United States of America.

      Early classical economists and those who followed their path began with the premise that all individuals have an inherent right to liberty and freedom. They studied history in an effort to understand how people responded to particular circumstances. They observed human nature and how people tended to behave.

      Both human nature and man’s inherent right to liberty and freedom form the basis for classical economic principles. Since neither of these precepts change over time, ideas based on them are universal. They apply to all people at all times.

      The primary objective is to raise living standards

      The primary objective of the early classical economists was to help improve living standards for the vast majority of people. Adam Smith, the most prominent classical economist, was particularly concerned with the well-being of workers and the poor.

      Smith’s theories and prescriptions concerned economic growth. He knew that in order to raise living standards it was necessary to identify and promote policies that would best generate and sustain economic growth.

      As with other classical economists, Smith abhorred waste and inefficiency. He did so out of concern that waste and inefficiency would undermine the living conditions of the working class and the poor.

      Early advocates of classical thought saw free markets as an extension of individual freedom. They did not assume that markets were, or ever would be, perfectly free. Rather, they concluded that the more freedom people had to respond to market forces, the more efficient the economy would tend to be. And, the more efficient an economy became, the more its workers and the poor would tend to share in the benefits.

      As a group, the early classical economists recognized that government was essential to any civilized society. However, they tended to distrust government, as well as powerful individuals and other established groups.

      The distrust of the establishment stemmed from the classical view of human nature. These economists believed that people tend to act instinctively to further their self-interests. While the pursuit of self-interests would tend to contribute to the general welfare of all, there were exceptions. Established groups could use their money and influence to promote their self-interests at the expense of others.

      So long as the government’s power and influence were limited, established interests were less likely to be able to influence its policies. However, the more powerful the government became, the more these groups could be expected to spend their time, energy and resources to promote self-serving policies. Such favoritism would be at the expense of those with less political clout, namely the middle class and the poor.

      In spite of the potential to raise living standards, many view a society based on self-interest as one driven by selfish behavior. They assume that individuals pursuing their own interests will have little concern or compassion for others and that those in need would suffer. Early classical economists believed that the opposite was true. The more wealth individuals produced, the more resources would be available to help the poor.

      Nothing could change the innate desire of individuals to provide first and foremost for their personal needs and those of their immediate family. However, once those needs were met, individuals had a moral obligation to help the poor and others who were less fortunate. In a free society, this moral obligation resides with each individual, not with some oppressive authority.

      Early classical economists responded to this moral obligation. They often took positions based on principles. Many argued for policies they believed would benefit society, even when such policies were not consistent with their own financial interests. They gave generously and anonymously to friends and those in need.²

      The belief that all men and women have God-given rights to liberty and freedom has important implications. These implications involve certain principles and policies. It is inevitable that the principles and policies that flow from God-given rights must be those that provide the greatest material well-being for the greatest number of people. God wouldn’t have it any other way.

      Basic Prinicples

      History is the discovering of the constant and universal principles of human nature. —David Hume

      

      Dramatic changes occurred in the latter part of the 18th century. The feudal system and agricultural economy gave way to the industrial revolution.

      Prior to the industrial revolution understanding the economy was fairly easy. A workforce consisting of farmers and craftsmen was fairly easy to understand. Each person had a specific, easily understandable job. Most produced a finished product. Anything that was produced over and above what the worker needed was exchanged for finished products produced by others.

      In the 17th century something new emerged. Machines replaced manual labor. Workers became less inclined to produce finished products. They instead became specialists, producing some part of a product.

      Unlike the simplicity and order of the feudal system, the emerging system was chaotic. The pace of business increased dramatically. Then, as now, great changes led to great confusion.

      Who should make key economic decisions?

      In the feudal system, many decisions about production and distribution were made by a central authority. In the system emerging out of the industrial revolution, no one appeared to be in control. It was unclear just who would decide issues that were essential to fulfilling the needs of society.

       What should be produced? How much of it? Who would produce it and how would it be produced? What would things be worth and how much should workers be paid?

      There was confusion over how these crucial tasks could conceivably be accomplished without the aid of some central authority. People wondered how it would be possible to serve the nation’s interests without someone in charge of such critical decisions. Logic seemed to suggest that the end result would be chaos.

      Adam Smith carefully studied the emerging system. He noted the lack of a central authority. He recognized the seemingly chaotic interplay of forces at work and reached a startling conclusion.

      Within this seemingly chaotic system were the keys to creating the greatest amount of wealth for the greatest number of people. Individuals, freely going about their normal business and free to pursue their self-interests, would tend to promote the interests of society far more effectively than when guided by any central authority.

      The keys to

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