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LESSON 4
ADAM SIMITH & JOHN
MAYNARD KEYNES
• Smith is best known for two classic works: The
Theory of Moral Sentiments (1759), and An
Inquiry into the Nature and Causes of the Wealth
of Nations (1776). The latter, usually abbreviated
as The Wealth of Nations, is considered
his magnum opus and the first modern work
of economics. Smith is cited as the father of
modern economics and is still among the most
influential thinkers in the field of economics
today.
• Smith laid the foundations of classical free
market economic theory. The Wealth of Nations was a
precursor to the modern academic discipline of
economics. In this and other works, he expounded
upon how rational self-interest and competition can
lead to economic prosperity. Smith was controversial
in his own day and his general approach and writing
style were often satirised by Tory writers in the
moralising tradition of William Hogarth and Jonathan
Swift.
• Men may live together in society with some
tolerable degree of security, though there is no
civil magistrate to protect them from the
injustice of those passions. But avarice and
ambition in the rich, in the poor the hatred of
labour and the love of present ease and
enjoyment, are the passions which prompt to
invade property, passions much more steady in
their operation, and much more universal in
their influence.
•Wherever there is great property there
is great inequality. For one very rich man
there must be at least five hundred poor,
and the affluence of the few supposes
the indigence of the many. The affluence
of the rich excites the indignation of the
poor, who are often both driven by want,
and prompted by envy, to invade his
possessions.
•It is the great multiplication of the
production of all the different arts,
in consequence of the division of
labour, which occasions, in a wellgoverned society, that universal
opulence which extends itself to the
lowest ranks of the people.
• Every workman has a great quantity of his own work
to dispose of beyond what he himself has occasion
for; and every other workman being exactly in the
same situation, he is enabled to exchange a great
quantity of his own goods for a great quantity, or,
what comes to the same thing, for the price of a
great quantity of theirs. He supplies them
abundantly with what they have occasion for, and
they accommodate him as amply with what he has
occasion for, and a general plenty diffuses itself
through all the different ranks of society.
• John Maynard Keynes was an English economist
whose ideas fundamentally changed the theory
and practice of modern macroeconomics and
the economic policies of governments. He built
on and greatly refined earlier work on the causes
of business cycles, and is widely considered to
be one of the most influential economists of the
20th century and the founder of modern
macroeconomics.
• In the 1930s, Keynes spearheaded a revolution in
economic thinking, challenging the ideas
of neoclassical economics that held that free
markets would, in the short to medium term,
automatically provide full employment, as long as
workers were flexible in their wage demands. He
instead argued that aggregate demanddetermined the
overall level of economic activity and that inadequate
aggregate demand could lead to prolonged periods of
high unemployment.