Adam Smith: Views on Economics Mercantilist
Adam Smith
Adam Smith looked at economics differently than the mercantilist. The old view of economics, mercantilism, believed that wealth was measured in terms of the amount of gold and silver the nation stocked, importing goods from other countries would negatively impact the wealth of a country, trade only benefited the seller and not the buyer, and nations could only become richer by making other countries poorer. Adam Smith believed the opposite by thinking that the wealth of a nation is based on production and commerce not the amount of gold and silver, free exchange increases productivity, both parties benefit during a free exchange and imports can be just as valuable as exports to a nation. According to “Making Adam Smith” in the Wealth of Nations Smith attacked Britain’s commercial policy because it “misdirected the nation's energies, weakened its colonies and plunged it into deep rivalries with its neighbors” because they believed wealth came from the gold and silver it hoarded (2010). Smith also believed that a company would progress and grow by allowing a free market because it would increase competition in the marketplace.
Due to this change in economic theory Adam Smith is believed to be the founder of classical economics. He also believed that there is an invisible hand present that guides people to produce the correct amount of their goods. Gorman gives a good example of this theory. His example is that a butcher, a baker, and a candlestick maker individually go about their business producing the amount of meat, bread, and candlesticks he judges to be correct. Then each buys the amount of meat, bread, and candlesticks that his household needs. All of this happens without their consulting one another or without someone telling them how much to produce (Gorman, 2003). Therefore this situation shows a free market economy in action and how the invisible hand guides. Smith believed the government should have a laissez faire attitude toward the
Adam Smith looked at economics differently than the mercantilist. The old view of economics, mercantilism, believed that wealth was measured in terms of the amount of gold and silver the nation stocked, importing goods from other countries would negatively impact the wealth of a country, trade only benefited the seller and not the buyer, and nations could only become richer by making other countries poorer. Adam Smith believed the opposite by thinking that the wealth of a nation is based on production and commerce not the amount of gold and silver, free exchange increases productivity, both parties benefit during a free exchange and imports can be just as valuable as exports to a nation. According to “Making Adam Smith” in the Wealth of Nations Smith attacked Britain’s commercial policy because it “misdirected the nation's energies, weakened its colonies and plunged it into deep rivalries with its neighbors” because they believed wealth came from the gold and silver it hoarded (2010). Smith also believed that a company would progress and grow by allowing a free market because it would increase competition in the marketplace.
Due to this change in economic theory Adam Smith is believed to be the founder of classical economics. He also believed that there is an invisible hand present that guides people to produce the correct amount of their goods. Gorman gives a good example of this theory. His example is that a butcher, a baker, and a candlestick maker individually go about their business producing the amount of meat, bread, and candlesticks he judges to be correct. Then each buys the amount of meat, bread, and candlesticks that his household needs. All of this happens without their consulting one another or without someone telling them how much to produce (Gorman, 2003). Therefore this situation shows a free market economy in action and how the invisible hand guides. Smith believed the government should have a laissez faire attitude toward the
References: Gorman, T. (2003). The complete idiot 's guide to economics. Alpha Publishing. Laissez Faire. 2012. In Merriam-Webster.com. Retrieved July 31, 2012, from http://www.merriam-webster.com/dictionary/laissez-faire Making Adam Smith. (2010). Retrieved July 31, 2012, from http://www.economist.com/node/16740415