1776-1871
Founded by Adam Smith
Wrote "The Wealth of Nations" that proved mercantilism wrong
Understood spontaneous order (used the example of the "invisible hand")
4 major flaws:
1. historical prices: believed that the price of something was explained by the cost of everything that went into it--if this were true, it would be an infinite regression. You cannot explain prices by another price.
2. Labor theory of value: believed that labor made something more valuable (not necessarily true)
3. Believed that value is objective, that it is an inherent component of an object.
4. Did not understand the concept of the margin. (water-diamonds paradox) |