Wealth of Nations - Assignment Example

Wealth of Nations Introduction Adam Smith is among the key figures in Scottish Enlightment. He is a Scottish moral philosopher and the founder of political economy. His profound classical work in an inquiry into the nature and the cause of wealth of a nation, advanced in 1776 and the theory of moral sentiments that was advance in the year 1759 attributed whole to his fame. Smith is also cited as the father of economics and his ideology and approach is employed in modern economics today thus rendering him an influential economic thinker of all times. Smith’s work on the Wealth of Nations has resulted in fundamental disagreements and debates between classical and neoclassical economists. iThe argument is however based on the fact that neoclassical economists claims or rather emphasize smith’s “invisible hand” while classical economists on the other hand think that smith clearly stipulates his programme for promoting the “Wealth of Nations” in the first sentence of his work. Smith uses the phrase “the invisible hand” in both theories under different context and each having a different meaning. Therefore, different interpretations of the phrase can be regarded as the source of conflicting ideas between classical and neoclassical economists. Moreover, various economists have advance theories that are in line with smith’s theory of wealth of a nation or contradicting theories thus economic policies are more of a battle field between neoclassical economists and classical economist who concurred with smith’s theory of an inquiry into the nature and the cause of wealth of a nation. Processes that lead to Wealth of Nations Adam Smith’s work, “Wealth of Nations” is regarded as the perfecto of the theory of moral sentiments since it targets the problems of how people express their self-interests and their morality. He argued that a pin factory that employs division of labor is likely to produce thousands of pins more than a pin factory that each individual worker attempts to produce his or her own pin. Therefore he advocated for specialization and division of labor in production for efficiency. Adam Smith also emphasized on the importance of flexibility during transition from one phase of life to the other by developing institutions that are fit for that phase; and this therefore illustrates self-interest and morality in the society. Smith described people’s economic behavior as individuals who are guided by an “invisible hand”. He argued that production of high priced products in relation to production cost would induce individual production of this product thus increased production which would in turn result in reduced prices. The production of these low priced products would eventually make manufactures to earn enhanced wages. iiSmith therefore saw division of labor and trade as a limitless possibility for expansion of the society’s wealth. Sir William Petty who lived in 1923-87 was a classical economist who happened to be Sir James Steuart’s predecessor, created a philosophical background that influenced Adam smith’s theories in free trade. iiiThe economist’s perception on market and resource control on the countryside was pointed at mandating the government to restrict the act of self-provision so as to provide market and human resource for companies. Classical economics was meant to provide a formula that would trigger a general increase in the overall accumulation process. In addition, it was to guide the wealthy in efficient use of technology in wealth production. Other than serving these functions, classical economics strives to achieve it inherent goal of eliminating inequalities and injustices in business environment within a country’s boundaries. Basing on and drawing references from Sir James Steuart’S work, Adam Smith wrote his work on capitalism that was aimed at promoting free trade. The vivid description of trade activities in the 18th century between countryside and cities 600 years prior to the introduction of smith’s ideology and 230 years after the introduction of the ideology, the world economy wholly depended on smith’s theory to conduct and govern trade in individual countries. Neo-mercantilist trade overlooked various aspects on smith’s theory that directly contradicted the laws that they adhered to, which is the neo-liberal trade philosophy. Free trade promoted mercantilist that was advocated by Adam Smith. Moreover, Adam Smith posed a form of understanding into the economic arena that was not very unique from what his fellow predecessors in classical economics had advanced. He stated that a small quantity of manufactured products is an equivalent to the value required to purchase a large quantity of rude products. Therefore a country that is manufacturing oriented is able to purchase a great deal of rude produce offered by their trade partners, beyond the borders. On the contrary, a state that has low manufacturing power is forced to purchase products from other countries thus it spend a great deal of its rude products to purchase a small quantity of manufactured products from their trading partners. This logic can be broken down into the sense that a country export most of its accommodation and subsist of a very small quantities and imports subsistence products and accommodation in larger amounts, this country is therefore said to be a manufacturing country. On the other hand, a country would spend a great deal of its subsistence products and accommodation to import a small amount of subsist and accommodation thus it is compromised in the international trade market. ivTherefore, one country is guaranteed the ultimate advantage of importing a great deal of subsistence products that its own productivity cannot attain thus the inhabitants of such a country enjoy a larger product quantity. On the other hand, a country whose citizens export a great deal of manufactured product at the exchange of a smaller number of subsistence products, the inhabitants of that country enjoy a small number of manufactured products from their trade partners. However, most countries tend to produce below their rude product requirement for confortable sustainability of its citizens, thus exportation of these products in exchange for manufactured products would be sending abroad a better part of the people’s subsistence, and thus such a country is likely to be impoverished. On the contrary, countries that are manufacturing oriented just export a small amount of their inhabitants’ effort in exchange for a great deal on subsistence products. Surplus products are exported therefore such as country is likely to experience a high per capita income. Manufacturing industries from Europe produced products that were new to America and vice versa thus the two continents developed an interdependent trade that guaranteed each continent adequate supply of these unique products. The resultant form of trade that was advantageous to both partners in the olden days, set injustice an inequality to the partners in the present day. These exchange activities became destructive and ruinous to most countries that were unfortunate. John C. Miller, the founder of the American Revolution argued that Britain’s navigation act was mercantilism that was later translated into state laws. vBritain was on the verge of defeat by Napoleon and his continental system and yet the Britain economy was operating under mercantilism. Britain was in full enforcement of the following protectionist maxims such as: 1. Favor the importation power more that importation of products. 2. The state enforced laws that promoted and protected its importation power which is a characteristic of mercantilism. 3. The state strictly imported raw materials and manufactured products and on the other hand exported finished product or rather manufactured goods only. 4. Surplus in the productive power of Britain was to be directed strictly to colonization, and to subjection of barbarous nations. 5. Britain was focused on reservation to the mother country from colonies. The government preferentially ensured that the country exported manufactured products in exchange for raw material from their colonies thus this enhanced its productive or rather manufacturing power 6. Britain aimed at taking part in international navigation so as to enhance trade between the colonies and the mother country. 7. The Britain governments aimed at developing a naval supremacy then use it to extend foreign commerce thus expanding her colonial possession. 8. The government also aimed at granting free trade to its colonies as far as the benefits outweigh the losses from this policy. However despite this merchants strategies employed by the Britain government, they still were on the verge of losing a battle against Napoleon. This turn of events brought about questionability to Smith’s doctrine of free trade that advocated for exportation of expensive manufacture products and importation of cheap rude product from countries that are unable to sustain themselves. Friedrich List gives the people an insight on how neoclassical economist interpreted Adam Smith’s doctrine. viHe agrees with the fact that productivity is the cornerstone of a wealthy nation but he goes forth and suggests that all nations would be better off if they produce their own finished products and subsistence to sustain it population. Napoleon on the other hand understands that any country that depends on the other for manufacturing of finished products would be dominated by the other thus creating inequality. Adam Smith defines wealth as goods and services that are consumed by the entire society. Therefore, government tends to provide these goods in required magnitudes so as to enhance sustainability and self-dependence. Economics has moved on in many aspects by modifying the ancient economic policies to sooth the current needs of a state. Governments and organizations that are pointed at attaining economic sustainability have often turned to this page for lessons and reference before making critical decisions. viiModern capitalism was developed basing on smith’s work therefore it is not far-fetched from the ideologies advocated by smith in his work. Therefore, smith deserves the credit of being referred to as the father of economics. Smith was writing his work at a time when production was regarded as an essential tool for accumulation of treasure. However, this idea changed with time since smith’s doctrine was advanced and thus the sole necessity of production was now perceived as being for the purpose of consumers. viiiPhilosophers such as ORourke argue that Smith’s biggest failure was the fact that he never foresaw industrial revolution. Therefore, Smith’s doctrine cannot be applied in its totality in the current economic era, but used as a background from which economic issues are solved. Conclusion In conclusion, Smith’s doctrine on capitalism had its blind spots but modern capitalism tends to rely on this doctrine more than other economic work. This doctrine acts as a guide for formulation of economic policies by various nations. However various other works have altered the governments’ role on formulation and enforcement of economic policies. Such theories include the Keynesian idea of the 20th century. However, Smith and his theories continue to occupy an important part in the minds that formulates economic policies. Incorporation of smith’s doctrine in formulation of economic policies can guarantee a country expansion in wealth since its productivity would be enhance by division of labor and specialization and on the other hand its revenue would be boosted through international trade. Read More