Who was Adam Smith - Essay Example

of the Adam Smith is an economist and a of a number of prominent books, such as The Nature and Causes of the Wealth of Nations written in 1776. He theorized a system, which fixed essential principles of economics and its operations (Smith (a), n. d.).  His book explicates the relation of supply and demand and the ideation of division of labour forces in the industrial period, which accorded him such distinction that catapulted him to the Board of Customs in Scotland. This historic distinction later became an anthropological and historical interest for those who would visit Edinburgh (Smith (b), n. d.). Smith was born in Scotland and got education in Glasgow. He also spent his academic life in Oxford and gained extensive knowledge on literature there. He became the tutor of the Duke of Buccleuc in 1752 and travelled with him a lot around France and Switzerland. This experience gave Smith an opportunity to get acquainted with Voltaire, Jean-Jacques Rousseau, Francois Quesnay, and Anne-Robert-Jacques Turgot--his contemporaries (Smith (a), n. d.).  He spent his earning paid by the Duke to write The Wealth of Nations, which was published in 1776, the year when the American Declaration of Independence was inked (Smith (a), n. d.).  In 1778, he was appointed as the Commissioner to the Custom and this experience sharpened his understanding on trading. He fought against smuggling with much enthusiasm, according to historical accounts. He had remained single during his entire life and died in Edinburgh on July 19, 1790 (Smith (a), n. d.). He was a ruthless advocate of individualism and his interests ranged from natural theology, ethics, jurisprudence, and economics, which may explain the cause why he wrote the Theory of Moral Sentiments (Smith (a), n. d.). He denied self-love as a principle which could never be virtuous. He thought that sympathy and self-interest are complementary. He once expressed that t is not from the benevolence of the butcher, the brewer, or the baker, that a worker can expect from dinner, but from their regard to their own interest (Smith (a), n. d.). Smith was a staunch advocate on labour and explicated that labour is the means by which an individual earn income in a competitive market; he must produce something others value to earn (Smith (a), n. d.). He published the book on the Wealth of Nations to reveal the nature and cause of a nation’s prosperity from the increasing division of labour to systematize its production (Smith (a), n. d.). He professed that individual would invest resource e.g. land and labour, to earn the highest possible return of investment but such must yield to the equal rate of return (Smith (b), n. d.). For other economist, this was the core of Smith’s proposition of economic theory. Smith advocated equality of returns to explain the differences of salaries based on the knowledge, skills, expertise and skills of workers (Smith (a), n. d.). Those difficult jobs to do would be bit higher in compensation – and this explicated the notion of human capital. Hence, the differences of the nature of work are compensated differently (Smith (a), n. d.). The Wealth of Nations likewise discussed the high cost of British imperialism and substantially—about the relation of supply and demand (Smith (a), n. d.). He observed that economic inequities are caused by monopoly that burdened consumers of the whole expense of maintaining and defending that empire (Smith (a), n. d.). Smith opposed mercantilism because it artificially maintained a trade surplus on the erroneous belief that doing so increases wealth (Smith (a), n. d.). Although trade opened up new markets for surplus goods offer access to commodities from abroad at a lower cost but comparative advantage of the products from the outside will weaken the price of the goods from within ((Smith (a), n. d.). Akin to most modern believers in free markets, Smith believed that the government should enforce contracts, grant patents and copyrights to motivate inventions and new ideas (Smith (a), n. d.). He argued that government should provide public works and social services (Smith (a), n. d.). However, he wanted users of such public works to pay in proportion to their use (Smith (a), n. d.). Smith contribution is considered as the beginning and end of economic science. He became the father of economy (Smith (a), n. d.). Under classic standard theory of growth, he posit that capitalist can choose to do some specializations in the process of production and division of labour to upscale market targets (Colander, 2001; Wolff, 1987) driven by laws of supply and demand. Supply creates its own demand since people endeavour to work and produce goods because they needed some other goods (Colander, 2001, p. 182) or that they demanded products of commensurate values. Specialization in manufacturing became Smith’s economic thrust in target market to accumulate more investment capital and to reinvigorate employment (Colander, 2001). Such however, necessitate policies supportive of savings and investment population control; increased level of education amongst human capital; establishments of institutions that are promoting technological innovation; exercise of patents on property rights; strengthening of financial institutions; conduct of more research and studies; and policies that engenders openness to trade (Galor, 2007). Smith ideas remained alive in the development of economic liberalization and in advancing market’s comparative advantage for exponential growth. The neoclassical model theorist preferred to view openness and strategic growth by determining the relations of labour over time, capital invested, output produced and the return of investment. These factors were considered as five sources of growth (Prescott, 1986; Arrow, Karlin & Suppes, 1959; Colander, 2001). Capital investment is used to finance market developments and infrastructural capitals that are utilized to increase and hasten production (Prescott, 1986). The uses of these are dependent on social and human capital. The latter, being the force behind production, include knowledge, experiences and skills while social capital refers to governmental institutions, legal system and the fabric of social cohesion (Prescott, 1986). Meanwhile, resources are natural reserves which can be a subject of economic activity. In some developing nations, resource extractions are done by mining ores, minerals, fuels, and oils (Prescott, 1986). Other resources include those that are maximized in agro-industrial development. Human capital, as skilled labour forces, is also amongst the resources of a nation as its labour capital (Hickman, 1987; Hickman & Coen, 1976). The growth-compatible institutions were perceived as essential to capacitate and motivate peoples to devote their time and efforts for positive economic development to leverage and enjoy targeted outcome (Hickman, 1987). Such support corporate’s purpose in business transactions and mercantile operations that are designed for profits. Technological development became indispensable for market’s supply and demand relations too, and has become an instrument for human resources in advancing their production (Wolff, 1987). On the other hand, it also rendered other workers unnecessary in the production process as technology replaced manual processing (Wolff, 1987). With the influx of information technology and knowledge management became essential in operations, in tracking sales of goods, and in business relations (Wolff, 1987). It has also become effective in trading relation. Smith thoughts remained operational in this century but require labour to cope with technological advancement to keep him at pace on the trends of production. References Arrow, K., Karlin, S., & Suppes, P. (1959). Investment and technical progress in mathematical methods in the social sciences. Stanford University Press, UK. Colander, D. (2011). Macroeconomics, University of Phoenix (4rth Ed., Special Ed.). McGrawl-Hill Irwin Companies, Inc., New York, New York. Hickman, B. (1987). Real wages, aggregate demand, and unemployment.  European Economic Review, UK. Hickman, B. & R. Coen, (1976). An annual growth model of the U.S. economy. North-Holland. Prescott, E., (1986). Theory ahead of business cycle measurement. Working Paper, Federal Reserve Bank of Minneapolis, US. Smith, A. (a) (n.d.). The theory of moral sentiments. Clarendon Press, Oxford University, New York, New York. Smith, A. (b) (n.d.). An inquiry into the nature and causes of the wealth of nations. University of Chicago Press, Chicago, US. Wolff, E. (1987). Capital formation and long-term productivity growth. Working Paper, C. V. Starr Center for Applied Economics, New York University. Read More