---
title: "History of economic thought"
chunk: 6/18
source: "https://en.wikipedia.org/wiki/History_of_economic_thought"
category: "reference"
tags: "science, encyclopedia"
date_saved: "2026-05-05T03:59:30.681827+00:00"
instance: "kb-cron"
---

=== Ferdinando Galiani and On Money ===
In 1751, Neapolitan philosopher Ferdinando Galiani published a nearly exhaustive treatise on money called Della Moneta (On Money), 25 years before Adam Smith's The Wealth of Nations, and therefore is seen as possibly the first truly modern economic analysis. In its five sections, Della Moneta covered all modern aspects of monetary theory, including the value and origin of money, its regulation, and inflation. This text remained cited by various economists for centuries, as wide-ranging a list as Karl Marx and Austrian economist Joseph Schumpeter.

=== Adam Smith and The Wealth of Nations ===

Adam Smith (1723–1790) is popularly seen as the father of modern political economy. His 1776 publication An Inquiry Into the Nature and Causes of the Wealth of Nations happened to coincide not only with the American Revolution, shortly before the Europe-wide upheavals of the French Revolution, but also the dawn of a new industrial revolution that allowed more wealth to be created on a larger scale than ever before.
Smith was a Scottish moral philosopher, whose first book was The Theory of Moral Sentiments (1759). He argued in it that people's ethical systems develop through personal relations with other individuals, that right and wrong are sensed through others' reactions to one's behaviour. This gained Smith more popularity than his next work, The Wealth of Nations, which the general public initially ignored. Yet Smith's political economic magnum opus was successful in circles that mattered.

=== Adam Smith's Invisible Hand ===

Smith argued for a "system of natural liberty" where individual effort was the producer of social good. Smith believed even the selfish within society were kept under restraint and worked for the good of all when acting in a competitive market. Prices are often unrepresentative of the true value of goods and services. Following John Locke, Smith thought true value of things derived from the amount of labour invested in them.

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniencies, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man's own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities. The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.
When the butchers, the brewers and the bakers acted under the restraint of an open market economy, their pursuit of self-interest, thought Smith, paradoxically drives the process to correct real life prices to their just values. His classic statement on competition goes as follows.

When the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay... cannot be supplied with the quantity which they want... Some of them will be willing to give more. A competition will begin among them, and the market price will rise... When the quantity brought to market exceeds the effectual demand, it cannot be all sold to those who are willing to pay the whole value of the rent, wages and profit, which must be paid to bring it thither... The market price will sink...

==== Limitations ====

Smith's vision of a free market economy, based on secure property, capital accumulation, widening markets and a division of labour contrasted with the mercantilist tendency to attempt to "regulate all evil human actions." Smith believed there were precisely three legitimate functions of government. The third function was...

...erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual or small number of individuals, to erect and maintain... Every system which endeavours... to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it... retards, instead of accelerating, the progress of the society toward real wealth and greatness.
In addition to the necessity of public leadership in certain sectors Smith argued, secondly, that cartels were undesirable because of their potential to limit production and quality of goods and services. Thirdly, Smith criticised government support of any kind of monopoly which always charges the highest price "which can be squeezed out of the buyers". The existence of monopoly and the potential for cartels, which would later form the core of competition law policy, could distort the benefits of free markets to the advantage of businesses at the expense of consumer sovereignty.

=== William Pitt the Younger ===
William Pitt the Younger (1759–1806), Tory Prime Minister in 1783–1801 based his tax proposals on Smith's ideas, and advocated free trade as a devout disciple of The Wealth of Nations. Smith was appointed a commissioner of customs and within twenty years Smith had a following of new generation writers who were intent on building the science of political economy.

=== Edmund Burke ===

Adam Smith expressed an affinity to the opinions of Irish MP Edmund Burke (1729–1797), known widely as a political philosopher: