Mirage and Reality: Reflections on the Neoclassical Interpretation of Adam Smith’s Intellectual Heritage

IOANNIS THEODOSSIOU

Abstract:

The main premise of the neoclassical theory is built on the idea that markets have inherent self- adjusting mechanisms and that everything that facilitates ‘free’ markets should be the ultimate aimof policy making. The neoclassical theory claims that the theoretical pedigree of this proposition can be found in Adam Smith. Contrary to this neoclassical claim, this review provides evidence that Smith has been very careful to draw the attention to the failures of the egoistic pursuit of profit and tohighlight the dangers of unhindered operation of a ‘free market’ system and reviews his conscious attempts to highlight that the private interest and the social interest are not always compatible.

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