Our understanding of economics, specifically classical liberal economics, is predicated on an environment where the perpetual increase in consumption of resources is possible.
Within such an environment (which did exist in many ways until roughly the present, in my opinion), the growth-based structure of capitalism and the free-market created world where overall wealth could continually increase. There are arguments to be made about inequity in distribution, but the fundamental notion of 'increasing the size of the pie' worked.
However, it's my opinion that we are now entering (or are about to enter) an economic environment where we can no longer continually increase our consumption of resources without incurring costs that outweigh the value of the additional resources consumed.
In this second type of environment, I think that many of the fundamental assumptions underlying classical economics no longer hold...
That is not even true. The early "classical liberal" writers starting with Adam Smith all the way through Malthus and Ricardo to John Stuart Mill worried a great deal about "the end state of capitalism" in which the rate of profit decayed, rents increased, and the wages of labour were reduced to subsistence level. The only way out that classical economics could imagine was the creation of new economic sectors. So it's not that classical economics is predicated on that environment: the creators of classical economics did not believe they lived in such an environment, since they saw a problem. "It's the statue, man, The Statue."
you are the media you consume.
In fact, as a rule, the greats knew perfectly well the limits of what they were doing. It's the second class idiots that followed on that extrapolated beyond the limits of the theory to get nonsensical results. The originators were often addressing a particular problem: zero-sum thinking being a key one.
Think also of an analogy with the "heat death of the universe". That was a late 19th-century obsession that I don't think necessarily follows from modern understanding. But that is not to say that the thermodynamics of Boltzmann was wrong: it's the rest of his physics and cosmology that was incomplete. Similarly, I don't think a lot of what the classical economists were saying about the way an economy works was wrong. They just imagined a limited number of possible social/political/economic organisations consistent with liberalism, and except for J S Mill I think none of them saw much hope. In addition, their writings (especially those of Smith and Ricardo) were descriptive, not prescriptive. J S Mill was concerned with ethics and so he read completely differently. "It's the statue, man, The Statue."
