Supply-side economics descends directly from Smith’s saving-drives-investment theory

Evidence

For Smith, the act of saving drives investment, not consumption. Why? Because the wealth of the nation is its total income. Take what is used for the reproduction of labor (wages) out of this income, and what is left is profit. Profits are then reinvested in the economy via merchants’ savings, which are lent out to the productive members of society (other merchants) to invest. Today we call this supply-side economics. Investment both drives consumption and makes consumption possible—not the other way around. Because of this “the greater part of it [income] will naturally be destined for the employment of industry.” Underlying this worldview is a particularly Scottish psychology that is worth unpacking because it suggests why the idea of austerity has such moral force, even today. — Mark Blyth, Austerity, 296

Categorization

• XREF: Links Smith’s methodology directly to modern supply-side economics and its austerity policy descendants — a key thread for Mattei. — connects to: Smith grounded capitalism in a natural human disposition to save rather than spend — Mark Blyth, Austerity: The History of a Dangerous…, 298; Alesina’s econometrics framed expenditure cuts as growth-promoting and the new policy norm — Mark Blyth, Austerity: The History of a Dangerous…, 462; The equation of private saving with public interest still shapes today’s economics textbooks — Clara E. Mattei, The Capital Order: How Economists…, 1140 (+5 more)
• DEFINE: Identifies supply-side economics’ treatment of profit, wages, and saving as originating in Smith’s Wealth of Nations.

Broader Connections

• Smith grounded capitalism in a natural human disposition to save rather than spend #corroborates (0.90) — Mark Blyth, Austerity, 298
• Alesina’s econometrics framed expenditure cuts as growth-promoting and the new policy norm #expands (0.80) — Mark Blyth, Austerity, 462
• Adam Smith’s homo economicus was culturally specific, not a natural universal type #qualifies (0.78) — Jessica Whyte, The Morals of the Market, 86
• The equation of private saving with public interest still shapes today’s economics textbooks #expands (0.75) — Clara E. Mattei, The Capital Order, 1140
• Nineteenth-century nationalism and capitalism’s own success forced a more interventionist state than Smith imagined. #qualifies (0.75) — Mark Blyth, Austerity, 310
• An accumulation-centred view measures economic change by profit location. #expands (0.72) — Greta R. Krippner, The Financialization of the American…, 23
• Adam Smith’s economic man arises from language, reason, and interdependence, not naked self-interest. #qualifies (0.72) — Wendy Brown, Undoing the Demos, 185
• For Smith, corporations are legal state-created bodies distinct from entrepreneurs #qualifies (0.70) — Grant Bollmer, Katherine Guinness, The Influencer Factory, 377