The Possibility of Failure in Wealth of Nations - Essay Example

The possibility of failure in “Wealth of nations” Introduction: Adam Smith’s book “Wealth of Nations” seeks to explore the causes and the nature ofa country’s prosperity and the natural principles that guided the accumulation and allocation of wealth within its society. The economic principles that are mooted in his book have become the mainstay of current political and economic systems existing in the world today. Most of these principles are based upon the concept of certain economic actions arising naturally out of man’s desire to prevent failure through achieving the best terms for himself. Since Adam Smith has based his theories about opulence on the general principle that man is not by nature a benevolent creature but is rather motivated by self interest to seek the best benefits for himself, it also follows that viewed from the other side of the coin, such actions to promote himself and improve his own welfare arise out of a reluctance to fail. The extent of man’s industriousness and motivation are dependent upon the depths to which he expects to fall if he fails. Major arguments in “The Wealth of Nations” Smith’s views were offered in the context of mercantilism where a protectionist policy on trade and a free market was preferred, under the mistaken notion that wealth could be preserved within the boundaries of rich nations only by preventing free trade. Smith contested the prevalent views that stated “England would soon be ruined by trade with foreign countries” and that “in almost all our commercial dealings with other nations, we are losers”, leading to the assumption that England would be drained of her wealth through such trade and this would lead to poverty.(Smith, 1775: I:18) Therefore the policy of protectionism was mooted by those who were afraid of failure and loss of the wealth and riches they had accrued. Smith on the contrary believed that money was not consumable and that the consumption of goods was the greatest source of wealth and also the source of man’s industry which led to additional wealth. Therefore, his views rebutted the belief that indulging in a free trade of goods would produce failure in that it would lead to a loss of wealth. He argued that inspite of the arguments that had been advanced by political writers for decades that “in a few years we would be reduced to an absolute state of poverty” , the realities of a system of free trade and exchange between nations actually demonstrated that rather than the feared loss of money actually coming through, “we find ourselves far richer than before.” (Smith, 1776, I:19). Therefore Smith’s arguments and laying out of economic principles arose as a result of trying to address the fears of failure and losses that were prevalent among Governments during his time, that propelled them to impose strict systems of controls on trade and restrict individual economic activity within the state itself. Smith sought to allay those fears of failure that were projected to arise in an atmosphere of free trade and the removal of individual restrictions, by offering a doctrine of laissez faire in exchange – a system that was calculated to ensure that the greatest economic gains could be achieved through capitalizing on man’s fear of failure, so that he would strive for the best that he could do to advance his own self interests and in the process also advance the wealth of the nation he belonged to. One of the most important arguments offered by Smith in his book is that of self interest being the motivating factor that when combined with the free market and free trade leads to economic well being and economic prosperity of a nation. He argues that man is never motivated by pure benevolence and there is no gain that accrues out of purely benevolent acts, it offers no motivation for the individual to strive for the improvement of his economic position. He offered a historical perspective of commerce and the reasons why the opulence of nations had not advanced rapidly. For example, large tracts of land were owned by single persons as a result of which there were slaves whose lives were completely under their masters’ control, therefore they had no incentive to work. In a similar manner, tenants also had no real incentive to improve their lands, just as subsidies offered by Government removed the incentive for industry. Smith therefore proposed that individual autonomy was to be urged and Governments were to promote free trade and free enterprise in a free market system in order to induce individuals to put forth their best efforts since they would be most highly motivated when they could advance their own self interests. The prevention of such a laissze faire system was based in the fear of failure of the economic system, whereas it was achieving a stagnating effect on the economic system. The provision of subsidies and large scale controls by Governments produced stagnation. However, it may be noted that the success that Smith proposed as a result of the laissez faire economic system is also based in individual fear of failure. When the stakes are higher the fear of loss is also higher and therefore this is likely to motivate individuals much more than the motivation of pure benevolence or the protection offered by Government subsidies. Thus, the laissez faire system is based upon the system of failure. It is an economic system where the gains can be every high but corresponding losses can also be high, therefore individuals work harder. Government institutions are therefore at liberty to introduce a system where there are no safety nets because it is the lack of such nets that will impel individuals to work harder, thereby contributing to the economic progress of the nation. Smith refers to the police as a branch of jurisprudence and views their purpose as being geared towards “the regulation of the inferior parts of Government, viz, cleanliness, security and cheapness or plenty.” (Smith 1976: I.11). He argues that the way to achieve economic prosperity is through the setting up of establishments to promote independency and allow people to trade freely. Giving people the opportunity to earn better wages automatically helps to prevent crime, because a person would not resort to this dangerous method of earning a living if there was a better paid, honest way of achieving the same objective. Another argument that he proffers is that the greatest economic wealth arises out of a division of labor. By dividing a task into its various components and allowing a man to handle only one component of it, he becomes an expert at the task and is able to achieve it much faster than he would have if he had done the entire task himself. This principle is again motivated by the concept of failure. A man saddled with an onerous task that involves several stages is more likely to fail at the composite task than he is if he is concentrating on only one aspect of the task. He illustrates this in book through the example of pins and states that ten workers can each produce 4800 pins per day if the task of manufacture of pins is divided into eighteen specialized tasks, however if one man is responsible for all aspects, then he may not even produce a pin a day (Smith 1976). Therefore, the net result of no labor division is failure. He states “the division of labor is the great cause of the increase of public opulence, which is always proportional to the industry of the people and not to the quantity of gold and silver as is foolishly imagined.” (Smith 1976: I.15). Since according to Smith, the opulence of a nation is dependent upon the degree of man’s industry, it is therefore in the interest of economic progress to increase industry. A man who is handling only one aspect of a particular task is likely to be more confident about his role in performing it successfully and less afraid of failure where as a man who has the onerous task of producing the entire pin is likely to be afraid of failure. Therefore the degree of efficiency that man achieves in his tasks and thereby the contribution he makes to the wealth of the nation will depend to a great extent on the fear of failure through losses, which will impel him to give his best. Conclusion: On the basis of the above, it may be concluded that Adam Smith’s theory of economic laissez faire and division of labor have arisen to refute the fears of failure that existed among Governments about money being drained out. Furthermore, his theory about increasing economic productivity is based upon individual fear of failure that arises due to the high stakes that are prevalent in a laissez faire economic system. Bibliography * Smith, Adam, 1776. An Inquiry into the nature and causes of the wealth of nations (eds) Edwin Cannan. Methuen. [online] available at: ww.econlib.org/library/Smith/smWN0.html Read More