Adam Smith's Approval on The Wealth of Nation - Assignment Example

1 Adam Smith: Wealth of Nations Q Plato talked about the concept of the division of labor in his book The Republic and referred to it as one of the natural inequities of humanity. It is a procedure which the state uses, according to Plato, to supply its needs to survive and to prevent dissension which occurs when one sector tries to do the natural task of another. Q 2 No, it applies only to men. Dogs do not barter – it is not within their ability because Adam Smith claimed that man, and no other species, has the propensity to barter and trade. This propensity gave birth to the division of labor. Q 3. Self-interest in the context of the book means that an individual applies his talent to a certain craft or job so he can exchange his produce with other goods which he will need for himself. A person is motivated to apply himself to work, which others can benefit from, not for the sake of others but for his own self. Self-interest entails wisdom and intelligence whereas selfish and egotistical motives refer to vanities and mindless instincts. Smith had self-interest in mind when he stated the aforecited passage. Q 4. This statement simply means that all men need the same basic things to survive, food, shelter and clothing. This aspect of a man’s life makes a genius an equal to the street porter because a genius ( like the philosopher) and the average-intellect person (street porter), both need food to live and, need clothes to wear for protection and shelter to protect himself from the elements. Q 5. Adam Smith is expounding the cost of production (or labor) value theory which was a departure from the value theories he inherited from previous economic theorists who relied 2 on the theory that the value of a thing, is dependent upon its usefulness. Smith, in introducing this new theory, pointed out that water is very useful but without value while diamonds are valuable but are useless. Q 6 It is unfair and wrong to demand rent on top of the land rent because it – a non-labor income – already grants the tenant the right to use the land in accordance to the agreement between him and the land owner. Smith advocated that land rents must be taken from the surplus profits of the produce of the land and therefore the rate of which is dependent upon other variables like quality of the produce, the law of supply and demand, their marketability and the like. Q 7 The law of supply and demand, that is – the price of goods goes up because the demand exceeds the supply. When somebody important dies, the family, the relatives and the supporters of the deceased will be wearing black to show mourning and thus there is a heightened demand for the black cloth. This will have the effect of raising the price of the black cloth. Q 8 They will probably conspire to keep the prices of goods up while reducing the quality of the goods that they produce. In the United States, the federal government enforces several anti-trust laws, foremost among which is the Sherman Anti-Trust Act which prohibits and penalizes any economic conspiracy geared towards any kind of monopoly or manipulation of prices or conspiracies in restraint of trade and commerce. Q 9 A good illustration of this passage is the issue of illegal immigrants who are in the United States primarily to work. They became illegal immigrants in the first place, because it 3 was either impossible or difficult for them to enter the US as workers because of the strict imposition of the very protective immigration laws of the country. Q 10 It is not what a person has that makes him rich but what it is he can afford to buy that is the true measure of his wealth. The point is that economic disparities are a reality and very much so in capitalist society, where a person who earns a higher wage can easily afford himself the luxury of comfort in contrast to the low-earning worker who cannot. Q 11 In connection with John Rawls Difference Principle, society has a component called the least advantaged people, which cannot be served by the normal economic processes. For society, as a whole, to be prosperous and happy, there is a need for an extra-economic measure which government should take. According to Rawls there should be an arrangement of social and economic inequalities to benefit this sector of society. Adam Smith’s aforecited passage reads like Rawls’ Difference Principle, which is a utilitarian theory. Since utilitarianism is against capitalism then this suggested that Smith is not much of a capitalist. Q 12 Yes, studies conducted by Perloff and Fetzer in 1986, Weinstein in 1980 and Taylor in 1989 indicated that a widespread unrealistic optimism characterizes normal human thought and only depressed people tend to see things as they really are. Q 13 John Locke would probably say that Smith is trying to borrow from his own idea in his Second Treatise of Civil Government which states: “A person’s labor is without any question his own property.” 4 Q 14 Any conspiracy in restraint of trade and commerce or for the purpose of monopoly or any other economic combination or contract for the said purposes is punishable by law under the Anti-Trust Laws of the United States. Q 15 Capitalism exists not to meet human needs but to meet the drive to generate value and the maximization of surplus profits. Advertising budgets and marketing departments are therefore important in a capitalist society because they are created for the purpose of engendering surplus profits for companies. These surplus profits are what will be used to buy the trappings of wealth of wealthy individuals. Advertising and marketing create needs and impel people to buy even when in reality there is no necessity to buy. Q 16 An example would be people who have more cars in their garages than the total number of people in their household; having more than two houses for family use; buying a yacht when one does not enjoy sailing. Q 17 The sales of the tobacco industry in the United States have been declining because of the government’s drive against the hazards of smoking. The US tobacco industry made a move to enter the huge tobacco market (the largest in the world) of China which accounts for about 1.75 trillion of about 5 trillion cigarettes sold annually in the world. However, the US tobacco industry’s effort is being thwarted by the Chinese government, through the state owned China National Tobacco Corporation, itself which has a monopoly on the country’s tobacco industry and which virtually prohibits the entry of foreign manufactured cigarettes into its market. Q 18-19 The capital being referred to here is the circulating capital meaning physical capital and operating expenses. No, the passage does not advocate laziness. The 5 accumulation of capital, as a result of parsimony, means an increase in the circulating capital which implies that labor must also increase or expand to accommodate or use the accumulated circulating capital. Q 20 The different sets of people referred to by this passage are the laborers, manufacturers, and artificers. Q 21 The frugality of a person will result in the increase of capital stock that will spill over to the workers and guarantee their earning not only in the present but in subsequent years, thus the maintenance and perpetuation of the industry. Smith believed that the independent growing accumulation of capital by the people will redound to the benefit of the nation which will as a result experience opulence. Obviously, Smith believed that it is the obligation of the citizens to see to it that their country eventually grows richer. Q 22 The point in this passage is the pernicious effect of prodigality on the industry and on the nation that his predecessors have so carefully protected to maintain and perpetuate. The effect consisted of diminishing, in the long run, of the production of the nation thus necessitating expending money for the importation of goods from abroad to replenish the insufficient stock domestically. The prodigal becomes the instrument of the nation’s decline. Q 23 What is being described in this passage is self-interest and it is quite true that man is always motivated to further his situation except perhaps for extremely lazy people. The proof of this is the progress that man has attained from the cave dwelling, club-bearing that he was in the beginning of time. 6 Q 24 The word ‘humiliating’ best describes the feelings of an innocent person who because of circumstances went bankrupt. Q 25 The theory of history of Adam Smith as can be gleaned from reading the relevant passage should be that self-interest is the core of progress not only of his own but as time passes and this self-interest if channeled and harnessed will also mean progress of the common good and the nation in general. Q 26 An example would be highly protectionist countries like Kenya, Nigeria and Ethiopia which have very stringent laws on the entry of foreign goods to the local markets and at the same time are profligate in the use of their countries’ resources. Q 27 In this passage, Smith is protecting consumerism and the establishment of retail stores or shops that others would like to curtail either by limiting their number or taxing them to force some of them to shutdown. It is not the ale-houses, for example, that should be blamed for drunkenness but it is the inability of some to moderate their drinking habits that is the problem. Q 28 .It is buying that keeps the economy going because money is thereby circulated and it drives the production of more goods. The act of buying is an expression of the acquisitiveness of man. Q 29 It is easy to understand why this passage is one of Smith’s famous ones. It sounded like a spiritual passage at first glance which is quite odd considering that the subject is economics and it is odder still that an economist will bring into his economic equation the subject of God. However, Smith must be referring here to the natural laws of economics rather than the hand of God. 7 Q 30 In these passages, Smith connects the idea of the first passage to the next. The first passage is how the state should conduct its business (like the prudence observed at home), but then the crafty businessmen (2nd passage) instead got their way and thus, the sneaky conduct is now the general conduct of business in the country. The government should have heeded more to the lowly family practice rather than businessmen whose only concern is to profit. Q 32 Since there is no other acceptable way by which the state can impose itself on its businessmen but only through its laws, then laws must be passed which can effectively regulate the conduct of business and businessmen and prevent from engaging in monopolies and other activities which are beneficial only to them and injurious to then public. Q 33 No, if there is truth to the claim of Smith that individual self-interest is the core of national progress then there is no reason to refer to this capitalist spirit negatively. It is individualism that redounds to the public good and is its redeeming value. Q 34 No, colonialism is for the primary purpose of exploitation of another man’s natural resources. Q 35. This is no longer true today. This passage referred to the time when the governments regulated and grant monopolies to trading companies to engage in trade overseas which has no application today. Smith’s particular interest that time was the East India Company 8 which was granted charter initially by Queen Elizabeth and in its trading with India, not only honored its debts but interfered with the functions of government. 8 Q 36 Smith is advocating in this passage economic freedom free from excessive taxation and stringent regulations laws that tend to induce monopolies. As much as possible allow free trade which protect consumers from high prices and only restrict production when it injures the consumers. Q 37 Smith refers to a system of minimal interference by the government on its citizens so long as the latter do not violate the laws. The state should, on the other hand, attend to other matters of governance that will benefit the country. The third duty refers to the task of the government to build institutions for the benefit of the public like education and social welfare. In this sense, Smith is a pure capitalist because capitalists thrive only under the freest condition and because he also advocated social institutions, then he is a moral capitalist. Q 38. Globalization and the advent of the free trade systems are making this scenario fast fading. The only country who cannot take advantage of these are those who persist in their protectionism and the only people who cannot keep up with this trend are those who did not capitalize in getting a good education.. Q 40. No, Locke believed that government exists for the protection of all and not only for the preservation of property but of the person and his liberty. Thus, a poor man who has no property can still be protected with respect to his own person and liberty. To some extent Locke’s proposition is true especially in democratic societies. Q 41 Marx said “What characterizes the division of labor in the automatic workshop is that labor has there completely lost its specialized character. ..The automatic workshop wipes out specialists and craft-idiocy.” Craft-idiocy does not anymore exist today because of the advent of automation which saves them time and money. Read More