Compare And Contrast Adam Smith And Neo Classical Economics

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Adam Smith emphasized the importance of capital in the development of the nation’s economy. He recognized three forms of capital-
• As an instrument of production.
• As a fund maintaining the workmen.
• As a source of revenue.
He classified capital into three portions-
i. Used for immediate consumption. (stock of food, clothing) ii. The fixed capital which receives profit without being circulated. (machines, buildings) iii. The capital which receives revenue only by being circulated. (money, materials) 6) ROLE OF MONEY-
According to Adam Smith, money is an instrument for measurement of value and for the circulation of wealth. A true wealth of nation consists “not only in its gold and silver only, but in its lands, houses, and
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The founders of classical political economy were the famous economists like Adam Smith, David Ricardo and John Stuart Mill. Neo classical economics was founded by scholars and authors like Carl Menger, William Stanley Jevons and Leon Walrus.
Adam smith defined political economy as a “branch of the science of a statesman or legislator concerned with the two fold objective of providing a plentiful revenue or subsistence for the people and supplying the state or commonwealth with a revenue sufficient for the public service.”
Neoclassical theory suggests, “Consumers often perceive as good as having a greater value beyond its production cost, which would affect both price and demand. The theory also states that economic decisions are sometimes made based on margins or the perceived likelihood that an economic choice will turn out to be profitable or beneficial in the future.
We can distinguish classical economy and neo classical economics on the parameters like utility, value, profit, equilibrium and
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As far as classical economy is concerned, the value of a good is equivalent to the cost required for producing it. In the neoclassical perspective, the value of a good becomes a function of the demand for it and the supply of it as it directly depends i.e. as the supply and demands changes the value will also change. Therefore, in classical economics, value is treated as an inherent property which affects situation of the market; in neoclassical economics.” In classical economics, value is treated as cost; in neoclassical economics, value is considered as a
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