Classical theory of Adam Smith

Classical theory of Adam Smith

Adam Smith wrote a book in 1776 entitled “An enquiry into the nature and causes of wealth of nation”. He said economic development will be ... 1:49 AM

Adam Smith wrote a book in 1776 entitled “An enquiry into the nature and causes of wealth of nation”. He said economic development will be done if Gold is employed into production because human beings are selfish in nature and are concerned with multiplication of wealth. The working of economy should not interfere in market and ultimately wealth of nation is achieved. This means that economy operates at equilibrium point and there are no savings in the economy. Therefore, income = expenditure However, if savings is done then there are chances of equilibrium. Thus, to balance it, a new sector is introduced Major assumption of Classical theory 1) The main idea of classical thought is economy always operates at equilibrium point. 2) Another assumption is there is always full employment. J. B. SAY said, “Supply creates its own demand” it is known as SAY’s law. It means that whatever is produced that will be sold out because there is always price flexibility in labour, goods and service in the market