Introduction to Adam Smith's Economic Thoughts.

 

Essense of Adam Smith...

Smith is frequently referred to as the father of economics. His famous book "An Inquiry into the Nature and Causes of the Wealth of Nations" (1776) is the most important work of him. His earlier book, "The Theory of Moral Sentiments" (1759), and the lectures he delivered at the University of Glasgow are two more significant sources of his theories. In his book “Wealth of Nations” he emphasized how the free market provides incentives for individuals to act in their own self-interest while producing what is necessary for society. According to Adam Smith market needs to function freely without the intervention of the government, hence buyers, sellers, and society will have mutual benefits. Moreover, he stated that competition and self-interest act as an “invisible hand” in the free market scenario. 

Further, Adam Smith commented on “Free International Trade”. He suggested the idea of “Absolute Advantage”, which holds that a nation should focus on manufacturing things in which it has a clear competitive edge in terms of production. In other words, a nation should concentrate on manufacturing the things it can do so most effectively, and then trade those items for those produced by other nations more effectively. According to his book, the division of labour was a vital component of productivity and economic success. Smith believed that overall efficiency and output could be significantly boosted by segmenting the manufacturing process into specialized activities and directing workers' attention to certain production elements. 

Adam Smith's value theory is a significant component of his economic philosophy. Smith was an advocate of the labour theory of value. This idea holds that the amount of labour necessary to produce an item or service determines its worth. In other words, a product's worth is inversely correlated with the labour required to produce it. Further, under his “Distribution Theory” he examined the distribution of the total national income among several production inputs, including land, labour, and capital, and he elaborated his theory by considering wage, rent, interest, and capital.

Throughout this blog we expect to share more on the economic thoughts of the father of economics; “Adam Smith”. Let’s go in the footsteps of Smith and explore more knowledge on economics.  

Written by G.A.S. Navodya

References: 

Berry, C. J. (2018). ADAM SMITH A Very Short Introduction. Madison Avenue, New York: Oxford University Press.

Roncaglia, A. (2017). A Brief History of Economic. New York: Cambridge University Press. doi:10.1017/9781316798416

Skinner), A. S. (1990). The Wealth of Nations Book I - III. . London: Penguin Group.

Skousen, M. (2007). The big three in economics: Adam Smith, Karl Marx, and John Maynard Keyne. New York: M.E. Sharpe. Inc.

Infographic created by: G.A. Shehani Navodya (using Canva)

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