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Adam Smith's Theory - Research Paper Example

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According to Raphael (1985), Adam Smith is eminent for his theory Wealth of Nations which he developed as the foundation of economics. The theory has been in existence since 1776 and many are inspired by great insight of Adam Smith…
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Download file to see previous pages Born in 1723 and died in 1790, Smith left a legacy in his model Wealth of Nations that has been an influential contribution in economics. In brief, the theory identifies the basic principles that nation acquire wealth and function effectively when individuals use capital and proficiency at their own diplomacy. His model revealed the nature of country’s prosperity as many learn the principles of economics. Up-to-date, his arguments are used and cited in debates as many learn from his great insights. Nevertheless, some people disagree with his assumption as many view him as an activist of callous individualism. Regardless of the way he is viewed, his theory is paramount in the economics field. How the economy does stem from his theory and importantly economists assume that the theory is accurate in how the world’s economy operates. At this point, this paper seeks to analyze the theory and lay a discussion of its pros and cons. Wealth of Nations In his theory wealth of nation, Smith noted that wages and prices might reach optimal level when freedom of using capital and skills as per wish is imposed (Smith, In Cannan & Lerner, 1937). He taught by examples of new products, which he argued that, when invented prices are usually high until when others discover the profit potential, and join the field then prices go down. Indeed this can be outlined in today’s electronics where such scenarios take place. ...
According to O'Rourke and Smith (2007), the theory explored that there cannot be consumption if there is no production. To explain further, Smith’s theory affirmed cars do not just exist there is a process through which they are put together in production to manufacture cars. Similarly, capitalism works in this way in the sense that when a car is manufactured, those in need of a car search for it in the car factory and purchase as per their choice of the car. In the 21st Century, people do not just walk in the car factory and request to purchase the car but they are purchased by a dealership and later sold to clients. The main point that Smith wanted to highlight is that, one can break capitalism in two parts consumption and production. In this case, there cannot be consumption without production and vice versa. Applicability This law is applicable in today’s society in that one cannot purchase products at the market without being manufactured and supplied by a different party. Still, one cannot eat without preparing or acquiring food and cannot be in a house that has not been constructed. From his theory, Smith assumed that the market force ensured there is right invention of goods and services. The theorist based his idea on the aspect of free market economy whereby consumers have the free will to choose what they need. Smith perceived capitalism as the main aspect, which drives, and motivate the economy. He believed that it motivates companies and individuals to gain and accumulate profits. To support his argument, Smith developed two theories through a research on production in Europe during industrial revolution. The two theories are moral sentiments and wealth of nations, which ...Download file to see next pagesRead More
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