51
description of what we now know
as capitalism. However, The Wealth
of Nations was far more than a
description of the economy as
a whole, or “macroeconomics.”
It also examined issues such as
the division of labor and its
contribution to growth, and what
factors were involved in giving
value to goods. The publication
of Smith’s work coincided with the
start of the Industrial Revolution
in Britain, a period of rapidly
accelerating economic growth and
prosperity aided by dynamic new
technology and innovation. Smith’s
ideas found a willing audience,
eager to understand how the
economy worked and how best to
take advantage of it. His work was
hugely influential, raising many of
the questions that needed to be
addressed in managing the
economy of an industrialized
society. In particular Smith
addressed the place of government
in a capitalist society, arguing for
a limited role for the state.Ending protectionism
British political economist
David Ricardo (p.84) was one of
the most influential of Smith’s
followers. A staunch advocate of
free trade, Ricardo put the final nail
in the coffin of protectionism when
he showed how all countries, even
those that were less productive,
could benefit from free trade. He
also cast a critical eye over the
ways that government spending
and borrowing affected the
economy. Another of Smith’s
followers was Thomas Malthus
(p.69), a British clergyman and
scholar famous today for hisgloomy predictions of the suffering
that would ensue from a population
growing faster than resources
could feed it. Many of Smith’s ideas
were also taken up by the French
physiocrat school, most notably
Anne-Robert-Jacques Turgot (p.65)
and François Quesnay (p.45), who
argued for a fair system of taxation,
and Jean-Baptiste Say (p.75), who
first described the relationship
between supply and demand in
a market economy.
Not everyone agreed with
Smith’s analysis, of course, and
in the 19th century there was soon
to be a strong reaction against the
notion of a completely free market
capitalist economy, but the
classical economists of the early
industrial period raised questions
that remain at the center of
economics today. ■THE AGE OF REASON
1789
1791
1795 1803 1819
1798 1817 1819
The storming
of the Bastille
prison in Paris
sparks off the
French Revolution.
Jeremy Bentham
sets out his theory of
utilitarianism; its goal
is “the greatest
happiness of the
greatest number.”Edmund Burke
criticizes state
involvement in the
regulation of wages
and prices.Jean-Baptiste Say
proposes Say’s law
of markets: there
can never be a deficiency
of demand or a glut of
goods in the economy.Jean Charles Léonard de
Sismondi describes
business cycles and the
difference between
long-term growth and
short-term ups and downs.Thomas Malthus
warns of the danger of
population outstripping
resources, and the
suffering that this
will bring.David Ricardo lays
the foundations for
19th-century classical
economics, advocating
free trade and the
specialization of labor.The US suffers its
first major financial
crisis, which follows
a period of
sustained growth.