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Adam Smith was a well-known Scottish political economist and philosopher.He is most famous for his influential book "An Inquiry into the Nature and Causes of the Wealth of Nations".Living an interesting life, publishing two remarkable books and having influential perspectives on economy then and now, Adam Smith is perhaps the procreator of economic thought.
Biography
Smith was born in a small village in Kirkcaldy, Fife, Scotland in 17 with the exact date being unknown.However, he was baptized on June 5, 17.His father, also named Adam, died about six months before his birth.Smith was raised by his mother and was the only child in the household.
Smith's mother devoted herself to him from the very beginning.He was in fragile health as a baby, needing his mother's comfort.She also encouraged his education at an early age.As a result, others looked at her as spoiling him.
When Smith was about three years old, he and his mother went to Strathenry to visit his uncle.He was playing in the courtyard until gypsies had come along and kidnapped him.His uncle had noticed him missing and upon learning that gypsies had passed through, he tracked them down and recovered Smith.
Smith attended the grammar school of Kirkaldy and then entered the University of Glasgow at the age of fourteen. He was sent to Balliol College in Oxford at the age of seventeen as a Snell exhibitioner.This was for the purpose of grooming himself for service in the Church of England.Gaining extensive knowledge of European literature, he left Balliol after seven years and returned to Scotland.
Adam was appointed Professor of Logic at Glasgow University in 1751 and then was made first chair of moral philosophy in 175.Ethics, rhetoric, jurisprudence and political economy served as the basis for his lectures.His lectures are embodied in "Theory of Moral Sentiments" published in 175, which discusses standards of ethical conduct that hold society together, with emphasis on the harmony of human motives and activities under a beneficent Providence.
Smith left the university in 1764 to tutor the young Duke of Buccleuch.From 1764 to 1766 they lived and traveled throughout France and Switzerland, where he came into contact with intellectual leaders and contemporaries such as Voltaire, Jean-Jacques Rousseau, Francois Quesnay and Anne-Robert- Jacques Turgot. He returned home to Kirkcaldy for ten years.
In 1776, Adam moved to London.He published "An Inquiry into the Nature and Causes of the Wealth of Nations, which examines in detail the consequences of economic freedom.It further covers concepts such as the role of self-interest, the division of labor, the function of markets, and the international implications of a laissez-faire economy.This is also the same year that the Declaration of Independence was signed.
Adam was appointed to a post of commissioner of customs in Edinburgh, Scotland in 1778.He never married.He died there two years later on July 17,170, after an illness.
Published Works
The Theory of Moral Sentiments
The Theory of Moral Sentiments was looked at as a work on ethics and human nature.Adam Smith's book sold out in weeks.After Adam Smith wrote this book, he was called upon to act as a political advisor.The writing of this book started Adam Smith's career.Although The Theory of Moral Sentiments started Smith's career, it did not make him famous.Smith became famous after his second book, The Wealth of Nations, was published.
In this book Adam Smith asked the most fundamental questions, why do we regard certain actions or intentions with approval in others? In Adam's time, opinion was divided.Some held that only the standard of right and wrong was the law who made it, and others thought that moral principles could be worked out.
I think that Adam Smith went in different directions; He believed that people are born with a moral sense.In addition, he believed that our conscience tells us what is right and wrong, not something given to us by someone in a high society or by rational analysis.Adam Smith thought that it was a natural feeling, which he called sympathy.Therefore, our nature senses of conscience and sympathy ensure that human beings can live together in a social organization.The Theory of Moral Sentiments is a new liberalism, in which social gathering is seen of the human action but not a human design.
The Wealth of the Nations
In 1776, Adam Smith published his greatest book called The Wealth of Nations.Actually, the full title is An Inquiry into the Nature and Causes of the Wealth of Nations.This book was published at a time when the power of free trade and competition as stimulants to innovation and progress was barely understood.During this time Governments were heavily involved in the economy.Governments would grant monopolies and give subsidiaries to protect their own merchants, farmers and manufacturers against "unfair" competition.Local merchants and artisans of one town were banned from traveling to other towns to find work.There were even local and national laws to bar the use of new, laborsaving machinery.Smith disputed against this restrictive, regulated system and showed convincingly how the principles of free trade, competition and choice would grow economic development.The Wealth of the Nations changed our understanding of the economic world.
The productivity of labor is what Smith was primarily interested in.This is the main topic of four of the five books into which this book is divided.Basically, the causes of the wealth of nations are mostly about the nations becoming wealthy due to the labor becoming more productive.Smith believes labor is more productive due to labor being more specialized, not because of improved machinery.
The plan of the book
Book 1 is concerned with "the causes of this improvement in the productive powers of nature, and the order, according to which its produce is naturally distributed among the different ranks and conditions of men in the society." It is important to notice that the division of labor is limited by the extent of the market.The more people there are involved in mutual exchange, the more specialized each can be.
Book is about the nature of capital stock.It entails the manner in which capital stock is gradually accumulated, and of the different quantities of labor, which it puts into motion, according to the different ways in which it is employed.Capital stock is connected with the division of labor in that the accumulation of stock is relevant because it will help further the division of labor.
Book is said to be something of a digression.The natural progress of wealth is from agriculture to manufacture or rather from country to town.However, this was not so in Europe.In Europe, labor productivity could not improve in rural areas until towns and long-distance trade had developed.Smith explains that towns progressed first due to political reasons. Book leads us in to Book 4 by connecting the importance of political factors in the development of the wealth of nations.
Book 4 pertains to the "theories of political economy." The two main theories that are introduced in this book are "mercantile" and "physiocrat". The mercantile theory was the theory that a nation's wealth is increased mostly by export industry.The physiocrat theory was the theory that a nation's wealth is increased mostly by agriculture.Smith suggests that a nation's wealth is increased by whatever industry is the most profitable and produces the greatest surplus.The point in Book 4 is that the government should not try to direct industry into export industry, agriculture, or any other direction.The government should allow the industry to go in whatever directions private individuals find profitable.
Book 5 finishes the book and is about the revenue of the commonwealth.The first four books dealt with the wealth of individuals of which the nation is composed, but Book 5 dealt with the wealth of the nation as a political entity.In this book were the necessary expenses of government, taxation, and public debt.Smith discusses the public support of education and religion.
Adam Smith has been called the father of modern economics.Through his writings in The Wealth of Nations, Smith developed a systematic discussion of concepts such as the division of labor, the origin and use of money, how prices and wages are determined, profits, income inequalities, how capital is accumulated and used, why different nations have achieved different levels of wealth, taxations, and political economy.Smith was the first to show how government interventions in natural markets create unproductive outcomes.The Wealth of Nations had an enormous impact on our understanding of the economic world.
Economic Theory
Adam Smith is known as the founder of modern economics. He wrote a book called The Wealth of Nations over 00 years ago, which may be one of the most important books ever written because it is a book that is still talked about today. The book was a study of what was known in Smith's day as the political economy but what we currently refer to as economics.
Adam Smith was a libertarian; he advocated maximizing individual rights and minimizing the role of the state. He believed in liberty, free will and freedom of choice. This was an important issue of his time because in Scotland during the seventeenth century people who worked in coal and salt mines were bound by birth to become a miner or salter as their father had been.
As a professor at Glasgow University, Smith was a friend with a man by the name of James Watt. Watt had spent time in London learning to make mathematical instruments but was not allowed to practice his trade because he was not an apprentice to the Corporation of Hammermen. However Glasgow allowed him to work at the university and perform experiments in his trade. It was during this time that James Watt developed what led to the first steam engine, a major discovery of the time. Had the college not stepped in and allowed Watt the freedom to work it is uncertain if the outcome would have been the same.
The market economy of the US operates by the voluntary exchange in a free market. The free trade has become know as laissez faire, or "let alone," "let men do as they please" policy where the people are allowed to be free in their economic pursuits and are not controlled by a central authority. Smith never used the term laissez-faire in his book he referred to the "simple secret of perfect liberty"
As a student of Glasgow University in England he witnessed first hand the infringement of free trade. The ships that came to port had very high taxes placed on their goods by the monarchy of the time.
Some people feel when Adam Smith referred to the "invisible hand" in his book that he was referring to God. He talks about the "invisible hand" that directs man's selfish instincts so that they serve a divine purpose.
Smith "invisible hand" is a metaphor that explains how each individual's pursuit of private gain can nevertheless add up to the good of society.
Led by an invisible hand to promote an end, which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
When Smith was young he learned an important lesson about labor from watching the workers at the local nail factory. He later wrote about his experience, describing how as team of workers each performing a specific task could make more nails faster than any one individually could make. This same story was used to answer the question, "What makes for the wealth of nations?"
Labor is important to the wealth of a nation
This wealth should be shared by the workers not to a King
The society cannot be wealthy and happy if most of the people are poor and miserable.
Major contributions of Adam Smith
Adam Smith is called the father of modern economics.
Although he lived over two cenago, his tenets of economic principles are still applicable in our world today. He recognized and described major concepts in economics. Smiths' book The Wealth of A1ation.s is noted to be the first serious attempt to study the nature of capital and the historical development of industry and commerce among European nations. According to Wallace
,
"Smith's Wealth of Nations represents the first serious attempt in the history of economic thought to divorce the study of political economy from the related fields of political science, ethics and jurisprudence. It embodies a penetrating analysis of the processes whereby economic wealth is produced and distributed and demonstrates the fundamental sources of all income, that is, the basic forms in which wealth is distributed, are rent, wages, and profits."
Adam Smith was part of a group of theorists who were concerned with
economic thought. Some of his ideals were the results of those interactions. According to Lappe
, Smith's work The Theory of Moral Sentiments, in which he outlined his philosophy of human nature, was the psychological foundation for the later work; The Wealth of Nations. She points out that the utilitarian principle; The greatest happiness for the greatest number of people is much of the basis of the Wealth of Nations.In essence, Adam Smith recognized and communicated the influence of the human psyche on the economic decision making process.The formalized much of the economic theorists world views.
Major concepts
Gross domestic product
From the 1400's to the 1700's, the major European trading nations used an economic system known as mercantilism.
This was a system where governmental policies were established to promote exports and to discourage imports for the purpose of accumulating gold and silver.
He saw the source of wealth not just as the accumulation of precious metals, but as the nation's production of
"necessaries, comforts and conveniences of life" or, as he put it, "the annual produce of the land and the labor of the people."
Adam held that measure of a nation's wealth is its gross domestic product, (GDP). Today that is one of the foundations of modern economic. Sievert and Dodge
give the definition of gross domestic product as "the dollar value of all final goods and services produced in a nation in a year with resources located in that nation". Gross domestic product is the measure used worldwide to determine the wealth of a nation.
Free trade or free enterprise
Mercantile system was used by countries two hundred years ago. This was a system that supported the concept that the wealth of a nation was measured by the amount of gold and silver it possessed. To possess that wealth countries practiced the mercantilism system. Sievert and Dodge
describe this system as a system "where the governmental policies were established to promote exports and discourage imports for the purpose of accumulating gold and silver." In essence imports would drain a countries gold and silver, leaving it poorer. Smith proposed that if the measure of wealth was the GDP wealth would not be lost but would be enhanced by commercial intercourse; Free trade.
Today, free trade is the policy of permitting the people of a country to buy and sell where they please without restrictions. Time has shown that free trade helps nations prosper. The United States has free trade agreements with many world countries. Economist Jeffery Shott
describes The North American Free Trade Agreement (NAFTA) as an example of free trade agreements. It is a pact that unites Canada, Mexico and the United States in a free-trade zone. Advocates of free trade agreements praise NAFTA as a giant step into the world economic community.
The Invisible Hand
Adam Smith described the concept of the invisible hand. This is the idea that
"there exists a guiding hand in industry that guides it in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in
this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."
Today, in a free market economy, that concept is still appropriate. That hand guides the decision making process that helps to benefit society. The thought is that sometimes it is more efficient and beneficial not to produce. The decision is grounded in the pursuit of
self interest. The choice is based on who owns the means of producing, and how the economy responds.
Laissez-faire
In Adam Smith's era, the economy, state and church were intertwined. Industry owed
its allegiance to the government. Indeed, the government granted or refused permission to industry the right to produce and market their product. Smith offered that there should be a complete separation of economy and state. This basis is based on private ownership of the means of production, which entails a completely uncontrolled and unregulated economy where land is privately owned. It is based on a doctrine of individual rights. This means that every person has the right to operate in industry without government interference, as long as he does not violate the rights of others.
In a free market economy the principle of laissez-faire is followed. The government should not and does not interfere in the free operation of the market place. It allow the market demands to be guided by the "invisible hand".
These are only a few of the major contributions that Adam Smith presented to the world in his work, The Wealth of Nations. An examination of them will explain why Adam Smith is called the father of modern economics. Although he lived over two centuries ago, his tenets of economic principles are sound and applicable in our world today.
Group Thought
One of the books referenced during research refers to the drawbacks of the free market as "Adam Smith's Mistake." The only point that the book could make is that society cannot be predicted. The author criticized Adam Smith for being too trusting and expecting everyone to be honest. It is said that the self-interest theory does not work because of cheating and stealing. We feel that dishonesty is just a part of society that must be dealt with but cannot allow it to invalidate the whole economic system.
Adam Smith had a major influence on economic policy in the late eight-teenth and early nine-teenth centuries, with much of that influence still carrying on today.He partly built his reputation with the "invisible hand" theory, which he explains how rational self-interest in a free market economy leads to economic well-being.
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