Adam Smith Description Economic Relations between People, Businesses and Nations - Essay Example

Adam Smith Economic Relations between People, Businesses and Nations Adam Smith is a philosopher from Scotland who is believed to have been the founder of political economy. One of his works that helped him in achieving this success was “The Wealth of Nations.” His philosophies are believed to have led to a deeper understanding ofeconomy. His works are also believed to be the foundation on which the modern economies are built on. This might explain the reason as to why Adam Smith is commonly referred to as the father of modern economics. This paper aims at discussing the extent to which Adam Smith describe economic relations between people, businesses and nations as they actually are within capitalism and to what extent does he describe how they should or ought to be. Through his works such as the theory of moral sentiments, Smith asserts that capitalism is made successful by individualism. He explains that through individualism people are able to contribute to the collective economic wellbeing of nations. According to Adam, in capitalism, people always engage in economic activities for their own selfish gains. In the process of seeking their own selfish gains, they benefit the national economy. For instance, in the manufacturing right from seeking of raw materials, to selling the end products in retail shop, everyone who is involved in such a process for their own economic gain. However, the manner in which the process is interconnected ensures that these individual efforts lead to the economic growth of the country (Smith and Bullock 123). Adam Smith also gives an explanation to the difference that is always seen in wages. His explanation is believed to be the basis of the modern notion of human capital. He argues that labour wages could not have been equal due to a number of reasons. The first reason that he gives to the difference in wages is the hardship of acquisition processes of the skills and knowledge that are required to undertake various economic tasks. It is not always same learning all skills, as some turn out to be harder to master than others. If wages were made standard then people would shy away from those careers whose skill acquisition processes are known to be hard. In order to motivate people to take such careers, their wages are always made higher. The other type of careers that has high wages to increase motivation towards such careers are those that involve allot of risk taking. Adam’s work also paved way to the development of free market economies. Adam highly opposed mercantilism despite the fact that most of the economists of that time believed that it is of benefit to national economic growth. He argued that through free trade, countries would be able to get market for the products that they had in surplus. Apart from the market for surplus products they will also be able to get foreign goods in a cheaper price than the local prices. This would be specifically beneficial in getting product whose production locally is uneconomical. His philosophies paved way for the advocates for free market who came after him. According to Adam Smith market force was has the responsibility for ensuring that production of goods and services was done right. This is because producers of products and services aim at earning profit through their various activities. Without government intervention, well-being of the public would improve as a result of competition organizing products to match public wants. This forms the basis to free market economy. The competition amongst products and service producers would mean they will charge the lowest possible pricing. This means that the profit earned by the producers would be inversely proportional to the level of competition in the market (Force 89). This will mean that the consumers will definitely be the beneficiaries of high market competition. However, Adam smith was a strong believer in the governments’ involvement in the countries’ economy in various ways. Apart from the policies, he also pointed out that government should also involve in the development of infrastructures such as roads to make it conducive for economic activities to take place with their territories. As a result of the involvement of government in the process, the economic environment will be highly conducive for all those who are involved in economic activities. In accordance to Smiths economic theory, the pricing of products and services will automatically get to their expected levels if the public get the proper freedom. Commodities that are more stressing to make or get or provide or employees capable of performing challenging duties will be rare. Competition for them by the public will naturally increase their prices to fair levels. Smith refers to this guide as the invisible hand. This way, producers will not have to fear producing products and services of this type. The public will not have to worry about not being able to access these goods and services(Rae 112). This is the line of thought exhibited by Smith. One clearly escalating opinion in national wealth was that wealth is not in silver or gold but in the productive ability of all citizens, each wanting to gain economically from their own labors. Adam Smith believed that the actual wealth of a nation comes from the labor of all the people and that the flow of products and services was the main aim and end of economic existence. This implies that the economic growth and development of a country primarily depends on the effort that the citizens in that country put in producing goods and services. Adam Smith also asserts that if the competition is made high people in the possession of resources will make use of them in the most profitable ways. The resources that are talked about in this case include labour, capital, and land. This profit will not have been earned if the competition. The best way to benefit from a certain resource ismaking the best out of the resource. Failure to do so will mean that a competitor will do exactly that and earn more income. As a result of such economic environments, every player is always forced to give their best as a result of the fear that their competitors might do even better and get all the income at their expense. Adam Smith believes that there are two necessities that are fundamental for the application of this theory to be possible. The market requires to be free from government manipulation. The market also had to exhibit competition. This means that the market will be free in relation to entry and in terms of government manipulation and control. This implies that there will be a wide variety of products and services available in the market resulting to better pricing. This is likely to highly discourage the existence monopoly market situations. Apart from better pricing, the ideas by Adam Smith can also ensure that the goods and services that are availed in the market are of high quality. This is because all the producers will be trying their best to outshine their competitors in terms of the quality of goods and services that they avail to the market. Adam Smith’s contribution to the understanding of economy can never be ignored. His theories are being applied in a number of modern economic notions. The modern understanding of national economy and capitalism is also based on his theory: the wealth of nations. It is clearly evident that his theories clearly explain the nature in which people and nations interact economically. Through these theories someone can have the positive perspective of economic individualism. Work Cited Force, Pierre.Self-interest Before Adam Smith: A Genealogy of Economic Science. Cambridge: Cambridge University Press, 2003. Internet resource. Rae, John. Life of Adam Smith. Auckland: Floating Press, 1895. Internet resource. Smith, Adam, and Charles J. Bullock.Wealth of Nations. New York: Cosimo Classics, 2007. Print. Read More