Adam Smith and Macroeconomics

40 Pages Posted: 12 Feb 2021

See all articles by Salim Rashid

Salim Rashid

University of Illinois at Urbana-Champaign - Department of Economics

Date Written: November 23, 2020


Adam Smith’s economic system followed his philosophical convictions. The policy conclusions came before the analysis. To support his policy of Free Trade, or rather, the ‘system of liberty’, Adam Smith gradually built up his economic system , from the Lectures on Jurisprudence to the Wealth of Nations. In the process, he had to exorcise the impact of unemployment. This paper shows how Smith was enabled to come to such a conclusion. Smith argued that employment was set by technology and prior capital accumulation. Even if Government wished to do so, it could not increase aggregate employment. Much of the paper concerns the various ways in which Smith made such an argument plausible. It also shows how Smith is related to the general equilibrium models of today.

Keywords: unemployment, fixed proportions, growth, invisible hand

JEL Classification: B12,B22,E24,

Suggested Citation

Rashid, Salim, Adam Smith and Macroeconomics (November 23, 2020). Available at SSRN: or

Salim Rashid (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

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