How Did Adam Smith Contribute To Capitalism

Adam Smith is an extraordinary man who contributed to the rise of capitalism during the economy revolution. Smith was a pioneer in the industrial revolution that allowed for the expansion of factories as well as economy expansion. We understood rapidly that Smith believed strongly in the idea that individuals need to pursuit their own interest in order to help the economy. “Wealth accumulation under a system of free entrepreneurship is only possible if each individual pursues their own interest.” Per Dr. Diaz class notes. It was thanks to Smith contributions that capitalist system thrived as many individuals pursuit their best interest in an economy revolution. “To his explanation was the increasing competition among capitalists that he expected t accompany economic expansion.” Per Barber Ch.1. As the economy grew more competition grew that made it easier for businessmen to compete bringing the economy to equilibrium.

Smith argued that mercantilists monopolistic polices were wrong, that the economy could reach competition markets leading
prices to a natural price. Natural price is defined as convergence price or the price equilibrium. Smith believed in the intervention of the government was necessary to stop monopolies. Government protection was necessary to strengthen the infant industries, national defense, roads, education, justice administration, and keeping vital record.

In order to increase wealth Smith believed in a cycle that allowed producers to produce more goods and services.
The wealth of nation depends on productivity of labor and proportion of laborers that are productively employed. Labor was considered to be productive and service was unproductive labor. “Smith’s interpretation of the division of labour was not confined to job specialization. It also referred to the division of the labour force between those employed in useful labour and those not so employed.” According to Barber Ch.1. For example, an hour of skilled labor might be worth twice as much as an hour of unskilled labor. Wages depended on multiple factors such as the individual’s agreeableness or disagreeableness to work, their geographical situation, expected duration, knowledge, and alternative employment. Smith believed that just like goods, wages would be affected by the natural rate and reach actual
wages.

The only way to increase wealth was only with productive labor. That brings us to the question of how to measure wealth? Value was defined by the use and exchange. According to Smith the real value of everything is the store labor. For example, diamonds and water both have value but diamonds are useless. Toil and trouble concept derive which meant that the real value was determine from the trouble of acquiring it. For example, a beaver vs. a deer if it’s harder to catch a deer than a beaver then the value for the deer is twice as much due to the toil and trouble of acquiring it. “The real price of everything… is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it and who wants to dispose of it, or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people.” Per B1, ch5, pg.31 extracted from Dr. Diaz notes. Value equaled natural wages plus natural profit plus natural rent.