Adam Smith, with An Inquiry into the Nature and Causes of the Wealth of Nations
published in 1776 is unanimously hailed as the founder of economics as a social science and
also of economic liberalism or capitalism as it is called to contrast it with socialism, the
latter propagated by K. Marx at a later date.
The group of economists that followed A.Smith, including such notable names as
D.Ricardo, N.W.Senior, John Stuart Mill, culminating in Alfred Marshall (1890: Principles of
Economics) is called the Classical School or alternately the Manchester School to refer to
their place of origin. Their macroeconomic system is called the Classical System. Having
accepted the Malthusian law of population (T.Robert Malthus: 1798 Essays on the Principle
of Population) D. Ricardo had come up with a model in which growth eventually comes to a
halt, moving to that point, however, all along at full employment equilibrium.This was also in
line with the views of Adam Smith. Marshall had introduced the concept of elasticities and
used the partial method of analysis. In contrast, Leon Walras, in his Eléments d'Economie
Pure ou Theorie de La Richesse Sociale used the general equilibrium approach to prove that
the economy arrives automatically to full employment equilibrium, following Adam Smith
and the Classical School.
This book offers a summary of the basic views and conclusions of Adam Smith
concerning economic regime, as is also followed by the rest of the members of the Classical
School: In a milieu of perfect competition prevailing in all the markets or sectors of the
economy, including the labor market, full employment equilibrium will be achieved
automatically. This equilibrium will, therefore, also maximize the welfare of the workers
because the market wage rate, with no intrusions from the government or the unions, will
have ensured full employment. Hence, there is no need for interventionism, that is, for the
state to intervene prices, wages, channeling of investments and economic decisions in general.