During the Scottish enlightenment, the birth of classical economics marked the revolutionary attempt to identify the underlying principles on how society interacts based on the platform of market economy and dynamics of economic growth…
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It is always a challenge for the society to explain how the society behaves despite of the complex relationship between commonality of human experience and distinctness of every human being. In this era, several great minds rise up to address the challenge. One of them is the famously known “Father of Modern Economics” – Adam Smith. Adam Smith has convincingly laid the foundation on how market economy behaves based on the optimum benefits that the society requires. Advancing the interest of any class is not the heart of his idea, but the promotion and management of wealth of an entire nation. The radical principle that he consistently upholds boils down to a free market economy where everyone has the chance to participate without strict government interventions. His approach in creating new economic policy was definitely democratic and novel at his time. But is it still relevant in our world today? The world economy is definitely changing through time. The key factors that encompass the study of economics keep changing with circumstances. However, it is important for us to look back and appreciate the pillars where our world economy stands today. This paper aims to examine the extent of its Adam Smith’s philosophy on the economy. Furthermore, it will also try to present the relevance of “Smithian Theory” on the prevailing economic plans and policies that govern our economy today. The Economic Theories of Adam Smith Arguably, the most renowned work of Adam Smith is the writing of the book entitled, “An Inquiry into the Nature and Causes of the Wealth of Nations” or famously known as “The Wealth of Nations”. On a perspective of economic affairs, individuals in society have the tendency to act on self-interest (Smith, 2005). This drives the production of goods and services as what society dictates. The mechanism on self interest is presented as the “invisible hand” that thrives in the concept of laissez-faire (free market) government which is the key doctrine of classical political economics. In his book, he attempted to decry the impact of mercantile interests that reigns on the government and large corporations at that time (Tame, 1998). The free-market ideology is finally introduced which limits the influence of government to impose regulations on products. Essentially, the free or open market allows everyone to function without government intervention with the opportunity for the market to produce goods that will be optimal for economic growth and society as a whole. The minimalist role of government paves the way for capitalism. Private players have the ability to produce in a society on its own accord. Of course, it follows that an invisible hand of pricing mechanism coordinates supply and demand in the market which will satisfy the best interest of the society. Aligned in this concept, the basic role of the government is to implement reasonable taxes to maintain peace and justice within the market (Scott, 2006). To delve further into Smith’s book, significant pointers can be considered on the dynamics of labor market, accumulation of wealth as well corporate globalization with focus on productivity development (Smith, 2005). The Significance and Impacts of Smith’s Theory The world is already well-versed with the free market economy that most countries are involved at present. This type of economy that rest in the heart of Adam Smith’s principles has recognizably expanded individual choices through mutually beneficial exchange – market freedom (Zupan, 2011). The laissez-faire principle ultimately promotes economic freedom as well as the state’s freedom of expression. One of its greatest advantages is giving the people
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