The “National Market”

Adam Smith and the school of

classical economics
 The Evolution of Political
Economy
A. Pre-Modern Theorists
 
Mang-ze (China), Aristotle, Plato (Greece), Ibn-
Khaldûn (Arabia), Thomas Aquinas (Europe)

B. The Mercantilists (17th-18th centuries)

 
William Petty (England), Pierre Boisguillebert
(France)
 The Evolution of Political
Economy (continued)
C. The Classical Liberals (18th-19th centuries)
 
Adam Smith (Scotland), David Ricardo (Scotland), Thomas
Malthus (England), Jeremy Bentham (England)

D. The Utopian Socialists (19th century)

 
Robert Owen (Wales), Count Claude Henri de Saint-Simon
(France), John Stuart Mill (England), Pierre Proudhon
(France)
 The Evolution of Political
Economy (continued)
E. Karl Marx and Fredrick Engels (19th century)
 
F. The Neo-Classicists (19th-20th centuries)
 
Eduard Hildebrandt (Germany), Karl Menger
(Austria), William Jevons (England), Leon
Walras (Switzerland)
 The Evolution of Political
Economy (continued)
G. John Maynard Keynes (20th century)
 
H. The Post-Keynsians (late 20th century)
 
I. Neo-Marxists (late 20th century)
 
J. Neo-Liberalism (late 20th century)
 The Classical Liberals - Adam Smith
Inquiry Into The Nature And Causes Of The
Wealth of Nations (1776)
Core contribution:
An economy that is made up of individuals each
pursuing his or her own self-interest may work for
the good of all. Within the framework of the rule of
law, economic transactions will be voluntary for
either the seller or the buyer. Since transactions are
voluntary, none will take place that will not benefit
both parties. A trade that benefits both and does
not harm anyone else will be socially beneficial.
The more trades there are, the more that society
will benefit. The free market economy leads to an
‘optimal’ or ‘efficient’ allocation of resources.
 Core contribution (continued)
Government intervention is unnecessary because
an individual who, “intends only his own gain is
led as if by an invisible hand to provide an end
which was no part of his intention. Nor is it
always the worse for society that was not part of
it. By pursuing his own interests, he frequently
promotes that of the society more effectually
than when he really intends to promote it. I have
never known much good done by those who
affectuated to trade for the public good.”
 The Role of Government:
The sovereign has only three duties to attend to:
three duties of great importance, indeed, but
plain and intelligible to common understandings:
first, the duty of protecting the society from the
violence and invasion of independent societies;
secondly, the duty of protecting, as far as
possible, every member of society from the
injustice and oppression of every other member
of it, or the duty of establishing an exact
administration of justice; and, thirdly, the duty
or erecting and maintaining certain public works
and certain public institutions, which can never
be for the interest of any individual or small
number of individuals, though it may frequently
do much more than repay it to a great society.”
 Historical Approaches to State
Intervention in
Economic Management
Pro-Market Anti-Market

Adam Smith, David Karl Marx

Ricardo

Classical Liberals Marxists

 Modern Approaches to State
Intervention in
Economic Management
Neo-Liberalism Collectivism

1. Monetarism 1. Keynesianism
2. Supply-Side 2. State Planning