Don Boudreaux pens a birthday post at Cafe Hayek about Adam Smith and John Maynard Keynes, who share the same birthday - today. In doing so, he gives the best respectful beatdown of the ideas of JMK that I've read.
Smith had no such delusion that economies grow simply because people demand more stuff. The abilities and drive of butchers, brewers, bakers, and other entrepreneurs to earn ever-better livings by ever-better satisfying consumers (as opposed to by securing monopoly privileges from government) is what makes economies grow. Competitively determined prices are important in guiding suppliers to meet consumer demands (and in guiding consumers on how to get the most satisfaction possible from their expenditures). Taxes, regulations, monopoly privileges, and (yes, even for Smith) inadequately supplied public goods obstruct the ability of markets to coordinate savings, investment, production, and consumption in ways that keep economies growing. Smith – and, to this day, Smithian economists – concentrate their attention on supply. The problem isn’t to get people to want to consume more of what they want; it’s to get people to produce more of what people want to consume.
John Maynard Keynes, more than any other person, diverted economics from its task of understanding how order emerges unplanned from the self-interested and knowledge-limited choices and actions of countless individuals. Far more than Marx, the consequence of Keynes on economics has been lamentable.