Classical vs Neoclassical Economics:

When I first chose to read this book, I was under the assumption that it was heavily overrated and contained out-dated information, considering Adam Smith was alive during the 1700s. However, I was glad to be proved wrong as I started reading the book. Or so I thought. Recently, I found a fact about Adam Smith which made me question what I have read in his books. He is a classical economics, arguably the most famous one. But the world we live in today believes neoclassical theory on economics to be the most relevant theory. But then why does what Adam Smith says seem to make sense? 

That is mainly because neoclassical economics is based on classical economics but has one stark difference that separates it from its predecessor. Marginalism. Marginalism is the insight that people make economic decisions over specific units or increments of units, rather than making categorical, all-or-nothing decisions. Furthermore, neoclassical economics emphasises supply and demand as the primary forces that drive the production, price, and consumption of commodities and services. Classical economics believes that the value of a commodity or service is determined by its manufacturing cost. The production element, which includes labour, capital, land, and entrepreneurship, determines the cost of production. 

Both have their strengths and weaknesses, as all scientific and mathematical models have, but it is interesting to see how complex and developed the field of economics is and all the nuances it has. Whichever model you assimilate with is your own choice to make but for me, Smith’s stances of economics don’t make the book any less credible but instead encourage me to open my mind to heuristics in the book and use multiple perspectives when reading it.