The Classical economics school of thought believe that laissez faire is the best way to run an economy in terms or regulating the markets. They thought that perfect and free competition would exist and that any extra restrictions and interventions would end up changing the dynamic of the equilibrium theory. Their main belief was that in the long run prices would always adjust to the demand of the public and so the economy would find a natural equilibrium where aggregate demand was equal to aggregate supply. This belief is derived from the assumption that both prices and wages are flexible and therefore are able to adjust to these such changes in demand and supply of workers. These views were ...view middle of the document...
This would only be happening if there was something like a wage floor exerted upon the market, as the workers are being required to be paid W*. Something like this could be considered a minimum wage, which is something that we have currently in the UK at £6.50 per hour for over 21 year olds. This is soon however about to rise to £6.70 on October the 1st.
In order to start trying to apply this model to the climate of the economy in the 18th century we first need some background about the state of the labour market and any restrictions that were in place. The first thing that we are able to observe about the labour market in the 18th century is that there was no minimum wage, this means that the wage rate will be completely decided by the market forces of supply and demand for labour. Most likely this means that the wage would be much lower than it otherwise could’ve been if there was a minimum wage in place. The other thing to consider is that during the 18th century most of the jobs availiable, if not all of them were in the industrial sector as the industrial revolution as taking place. This meant that most of the workers had exactly the same skills all across the country, thus the companies had a large supply of labour. Because there were so many workers it meant that they each had very little bargaining power over the wages that they were being offered and were most likely forced into taking them.
Personally I believe that the 18th century economy shares very strong links with the classical view of economics and more precisely to do with wages and unemployment. With wages at this time being free to move about and adjust perfectly along with the guidance of the supply of and the demand for labour. Unfortunately for the workers at this time there were few jobs which paid any decent wage, therefore they all had the same skill set. This led to the large bargaining power of the companies to...