Adam Smith Influence on Economic Theory
Why is the work of Adam Smith considered so crucial in the development of economic thought?
Adam Smith is widely regarded as the father of economics as a social science, and is perhaps best known for his work The Wealth of Nations. Throughout this work Smith states and informs towards his belief that society is not at its most productive when ruled over by rules and limitations with regards to trade, and that in order for markets to maximise prosperity, a free trade environment should be made accessible. In this essay I intend to asses the way in which many of Smiths theories taken directly form his works can be applied to past and current situations, first from an economic then social, and then a political point of view. I will also outline some of Smiths major theories on market determining factors, such as supply and demand, and the labour theory of value, with focus on how these theories can be applied to current day situations, demonstrating the strength of his works.
I believe it is first important to mention that Smith was raised in a market environment in which Mercantilism was regarded as the most positive policy with which to increase a countries wealth. This theory is based upon the idea that a countries assets are a measure of its prosperity as a nation, and so therefore was often implemented using such policies as high rates of exports, and low rates of imports. In order to ensure this low rate of imports tariffs were often imposed on goods entering the country.
Adam Smith was one of the first men to voice his opinions on this mercantile system, stating that the policies were flawed, and that assets and wealth were not good measures of a countries prosperity, and that in fact nations should strive to increase productivity using policies within a free market environment. One such suggested policy was that the division of labour, when used effectively, could maximise production without increasing the workforce. This division of labour theory
Adam Smith is widely regarded as the father of economics as a social science, and is perhaps best known for his work The Wealth of Nations. Throughout this work Smith states and informs towards his belief that society is not at its most productive when ruled over by rules and limitations with regards to trade, and that in order for markets to maximise prosperity, a free trade environment should be made accessible. In this essay I intend to asses the way in which many of Smiths theories taken directly form his works can be applied to past and current situations, first from an economic then social, and then a political point of view. I will also outline some of Smiths major theories on market determining factors, such as supply and demand, and the labour theory of value, with focus on how these theories can be applied to current day situations, demonstrating the strength of his works.
I believe it is first important to mention that Smith was raised in a market environment in which Mercantilism was regarded as the most positive policy with which to increase a countries wealth. This theory is based upon the idea that a countries assets are a measure of its prosperity as a nation, and so therefore was often implemented using such policies as high rates of exports, and low rates of imports. In order to ensure this low rate of imports tariffs were often imposed on goods entering the country.
Adam Smith was one of the first men to voice his opinions on this mercantile system, stating that the policies were flawed, and that assets and wealth were not good measures of a countries prosperity, and that in fact nations should strive to increase productivity using policies within a free market environment. One such suggested policy was that the division of labour, when used effectively, could maximise production without increasing the workforce. This division of labour theory
References: http://en.wikipedia.org/wiki/Mercantilism http://www.martinfrost.ws/htmlfiles/wealth_nations.html - Shopping trolley example of invisible hand http://en.wikipedia.org/wiki/Division_of_labour Bibliography http://en.wikipedia.org/wiki/Mercantilism http://www.martinfrost.ws/htmlfiles/wealth_nations.html - Shopping trolley example of invisible hand http://en.wikipedia.org/wiki/Division_of_labour Canterbury E R A History of Economic Thought, Penguin, London 1991 Dowd D Capitalism and Economics, Pluto, London 1995 Smith A The Wealth of Nations, Dswavid Campbell Publishers 1991