Adam Smith and Macroeconomics

Abstract

Adam Smith’s economic system followed his philosophical convictions. The policy conclusions came before the analysis. To support his policy of Free Trade, or rather, the ‘system of liberty’, Adam Smith gradually built up his economic system , from the Lectures on Jurisprudence to the Wealth of Nations. In the process, he had to exorcise the impact of unemployment. This paper shows how Smith was enabled to come to such a conclusion. Smith argued that employment was set by technology and prior capital accumulation. Even if Government wished to do so, it could not increase aggregate employment. Much of the paper concerns the various ways in which Smith made such an argument plausible. It also shows how Smith is related to the general equilibrium models of today.