The Invisible Hand

The marginalist revolution transformed the principles of price determination in competitive markets. Nevertheless, the systematization that accompanied neo-classical theory, especially Walras’ general equilibrium formulation, confirmed Classical economists’ belief, most powerfully articulated by Smith, that impediments to free trade should be removed. So, while the transition from the Classical to the Neo-classical was in some respects abrupt and even oppositional, it was seamless in another. Remarkably, modern support for Smith’s Invisible Hand does not rely on his cost of production theory of value.