Adam Smith’s Problems and Ours

The paper contrasts what modern economists, reflecting the priorities of general equilibrium theory, expect to find in the Wealth of Nationswith Smith’s own much broader theoretical and policy concerns. A theory of growth in which increasing returns are pervasive conflicts not only with neo‐classical expectations but with the emphasis on diminishing returns to be found in Smith’s classical successors. Smith’s assumptions on rationality, technology, firms, ‘projectors’, and the incompleteness of markets do not square with post‐Walrasian criteria. In advancing practical solutions Smith also shows more concern for the problems of living in a second‐best world than is common in pure theories of the invisible hand and the thinking of some of his free‐market admirers.