Adam Smith(1723 – 1790)


Picture_1.png

Adam smith was a Scottish social philosopher and political economist. Two centuries after his dead, Smith’s economic theories are still relevant to our society. Known primarily for a single work—An Inquiry into the Nature and Causes of the Wealth of Nations (1776), the first comprehensive system of political economy1. He argued in favor of an economic system based on individual self-interest that would be led, as if by an “invisible hand,” to achieve the greatest good for all, and posited the division of labour as the chief factor in economic growth. A reaction to the system of mercantilism then current, it stands as the beginning of classical economics1. Born in a Kirkcaldy, Scotland, Smith was raised by his mom Margaret Douglas. His dad also called Adam smith died before he was born. His mother encouraged him to pursue his scholarly ambitions2.

Why is he important?

Adam Smith was the founder of Economics as we know it today. His thoughts have shaped modern ideas about the market economy and the role of the state in relation to it. Smith laid the intellectual framework that explained the free market (which still holds true today) and laissez-faire. Both are connected with the underlying theme of economic growth. It also explains how the system can generate the continual accumulation of wealth. And since, according to Smith, this process is most successful when left to the play of natural forces, his analysis leads him to urge governments to let well alone.

Laissez-faire government believes commerce and trade should be permitted to operate free of controls of any kind; there should be no tariffs or other barriers. The direct translation from the French language is “leave alone to do”, which is self-explanatory.

He is most often recognized for the expression "the invisible hand," which he used to demonstrate how self-interest guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product. It simply encourages businesses to provide what consumers want and at the same time it discourages government involvement. He believed that the only responsibilities of the government should be to define property rights, set up honest courts, impose minor taxes and subsides to compensate for well defined and narrowly specified “market failures”. To underscore his laissez-faire convictions, Smith argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces.

Adam Smith explained that a monopoly charges any price that it chooses, robs consumers and makes countries less efficient and poorer. Competition, he said, means that businesses try to charge the lowest price possible, so consumers get maximum value for money. If they can buy more, they support more jobs in the economy and the country grows richer. Without the police stopping competition, he said, monopolies cannot survive for long. Around the world today, government monopolies and other bad practices are under major assault from Adam Smith's ideas.

Adam Smith believed that strong government was a great necessity, particularly to create and enforce laws and to ensure justice. He believed in a democratic partnership between government and the people, but knew that each should do what it does best - businessmen should not control the justice system, nor should government try to run businesses. Thus he was the real father of privatization and other 20th century reforms based on market economics under rule of law.




Interesting facts
Smith was considered to be an absent-minded professor. Historians argued that he was “eccentric but benevolent intellectual, comically absent-minded, with peculiar habits of speech and gait.”3 He was known to talk to himself and to having imaginary friends. This illness started when he was a chilled. He never married and lived with her mom almost his entire life. He died 6 years after his mom died.




Milton Friedman explain Adam smith's "invisible hand"





REFERENCES

  1. "Adam Smith (Scottish Philosopher) -- Britannica Online Encyclopedia." Encyclopedia - Britannica Online Encyclopedia. Web. 30 Nov. 2010. <http://www.britannica.com/EBchecked/topic/549630/Adam-Smith>
  2. "Adam Smith(1723-1790)." Blupete. Web. 30 Nov. 2010. <http://www.blupete.com/Literature/Biographies/Philosophy/Smith2.htm>.
  3. "Adam Smith - University of Oxford." Oxford Thinking | The Campaign for the University of Oxford - University of Oxford. Web. 30 Nov. 2010. <http://www.campaign.ox.ac.uk/campaign/oxford_thinkers/adam_smith.ht