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 Adam Smith, David Ricardo Classical Liberals Anti-Market Karl Marx Marxists

Modern Approaches to State Intervention in Economic Management Neo-Liberalism 1.Monetarism 2.Supply-Side Collectivism 1.Keynesianism 2.State Planning