PART I
PHYSICAL LEVEL

CHAPTER I
THE CLASSICAL VIEW OF THE ECONOMIC PROBLEM

THERE seems to be a fundamental inconsistency in the currently accepted opinions concerning the classical economists. We have been brought up on the belief that their main concern is to show that the equilibrium process of the free market will lead to a more efficient allocation of resources among different industries than State interference.1 On the other hand, we have been frequently told that the classical analysis is vitiated by the labour theory which conceives the economic problem as the struggle of man against nature in producing material wealth. It has been said that the classical economists confuse the "economic problem" consisting in the choice between alternative methods of using given resources to maximise the satisfaction of given wants with the "technical problem" of physical productivity; and that consequently they are guilty of a "materialist bias" (cf. Robbins, Nature and Significance of Economic Science, Chaps. I-III).

It will be seen that these two opinions, held implicitly and simultaneously by many economists, are inconsistent with each other. The first credits the classical economists with an essentially correct, if rather rough, solution of the problem of allocating scarce resources which, according to the second, they understand only imperfectly.

This inconsistency is fundamental, for the two opinions attribute to the classical economists two entirely different outlooks on the nature of the central economic problem.

When we say that the central problem of the classical economists is to allocate resources efficiently among different industries, we imply (i) that they start from the assumption of a given quantity of resources and (ii) that they are mainly concerned with the maximisation of consumers' wants as expressed by their market demands

____________________
1
For recent examples of this belief see A. P. Lerner, Economics of Control, p. 67; T. d. Scitovsky, "A Note on Welfare Propositions in Economics", Review of Economic Studies, Nov 1941, pp. 77-8.

-1-

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