CONTENTS

List of figures viii List of tables ix Foreword xi 1 THE OVERDUE RECOVERY OF ADAM SMITH'S REPUTATION AS AN ECONOMIC THEORIST 1 Paul A. Samuelson, Nobel laureate 1970 Indeterminacy from too many 'residuals'? 3 How Smith withstands Marx's doubts 4 Smith as merely a supply and demand monger 5 A voiding over-concrete implicit inference 6 R tear do 's main beef 8 A dam Smith 's bloomer;| 10 2 SMITH'S USE OF DATA 15 Lawrence R. Klein, Nobel laureate 1980 3 THE GENERAL THEORY OF SURPLUSES AS A FORMALIZATION OF THE UNDERLYING THEORETICAL THOUGHT OF ADAM SMITH, HIS PREDECESSORS AND HIS CONTEMPORARIES 29 Maurice Allais, Nobel laureate 1988 Smith's underlying fundamental theoretical analysis in the general context of economic thought in the eighteenth century 30 The general theory ofswpluses and the model of an economy of markets 39 The model of an economy of markets versus the market economy model of the contemporary literature • 45 Overview 55 • v

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4 PUBLIC ECONOMIC POLICY: ADAM SMITH ON WHAT THE STATE AND OTHER PUBLIC INSTITUTIONS SHOULD AND SHOULD NOT DO 63 Richard Stone, Nobel laureare 1984 Introduction 63 Government expenditure 64 Government finance 6 9 The government accounts in 1776 76 Monopolies 77 Col onial policy 8 0 The progress of free trade 83 5 ON THE WEALTH OF NATIONS 86 Franco Modigliani, Nobel laureate 1985 Smith's view of the determinants of saving 86 The Keynesian paradigm 8 9 Th e new theo ries 91 Implications of the life cycle hypothesis for aggregate saving 92 The role of bequests and fiscal policies 94 Tests of saving theories 96 The life cycle hypothesis and the decline in saving: some empirical evidence 98 Conclusion 102

6 THE SUPPLY OF LABOUR AND THE EXTENT OF THE MARKET 104 James M. Buchanan, Nobel laureate 1986 Introduction 104 'Production' for own consumption as a non-tradeable good 105 Work and welfare 107 Generalized increasing returns 108 Characteristics of the work-supply externality 110 Internalization through a work ethic 112 Work as benevolent self-interest 114 7 THE INVISIBLE HAND IN MODERN MACROECONOMICS 117 James Tobin, Nobel laureate 1981 The invisible hand and the Keynesian dichotomy 117 The classical counter-revolution 119 Macroeconomics inThe Wealth of Nations 120

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The invisible hand and general equilibrium theory 122 Keynes's revolt against the premises of classical macroeconomics 125 Robinson Crusoe macroeconomics 126 8 ADAM SMITH AND HUMAN CAPITAL 130 Theodore W. Schultz, Nobel laureate 1979 Extensions of market capital 132 A nalytic leverage of human capital 135 Closing comment 139 9 THE PRESENT STATE OF ECONOMIC SCIENCE 141 Wassily Leontief, Nobel laureate 1973

10 ECONOMICS: RECENT PERFORMANCE AND FUTURE TRENDS 146 Jan Tinbergen, Nobel laureate 1969 Economics in the universe of all sciences 146 Developments in economic thought 148 Future developments in economic science 160 Appendix 166 Maurice Allais Index 198

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