Adam Smith (1776): the start of modern economics.
Adam Smith, The Wealth of Nations (1776)
Self-interest helps everyone
Bakers bake to earn a living, and that feeds the town: the 'invisible hand'.
Specialisation
Splitting work into small tasks, as in his pin factory, raises output a lot.
Leave markets alone
Governments should do little beyond defence, justice and public works.
The points to remember
- Laissez faire: leave markets alone.
- The invisible hand: self-interest serves society.
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The 19th century added new tools, and a powerful critic.
The 19th century
| Idea | Who | What it says |
|---|---|---|
| Utility | Jeremy Bentham; later Jevons, Menger, Walras | People choose to get the most satisfaction |
| The margin | The 'marginal revolution' of the 1870s | Decisions are about one more unit: its extra benefit and extra cost |
| Say's law | Jean-Baptiste Say | Supply creates its own demand, so there is no lasting unemployment |
| Marx's critique | Karl Marx, Das Kapital (1867) | Capitalism exploits workers and lurches from crisis to crisis |
The points to remember
- Say's law: markets clear on their own.
- Marx: markets are unfair and unstable.
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A Paper 1 part (a) in this shape could appear, for 10 marks.
Explain how the Marxist critique differs from classical economic thought.
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