Adam Smith is considered to be the father of economics. Before him, economics was studied as either a branch of politics called political economy or as an area of philosophy. Economics was born as a distinct discipline with the publication of Smith's Wealth of Nations in 1776. It was a remarkable book setting forth expositions of basic economic ideas, which hold up very well today, along with a mind-boggling amount of factual data.
Among the most important and enduring contributions to economic thought was Smith's explanation of the beneficial workings of the free market. He explained market equilibrium as "the quantity of every commodity brought to market naturally suits itself to the effectual demand. It is in the interest of all those who employ their land, labour, or stock (capital) in bringing any commodity to market, that the quantity never should exceed the effectual demand; and it is in the interest of all other people that it should never fall short of that demand."
A major thrust of The Wealth of Nations was that market prices and quantities should be permitted to adjust to their equilibrium levels without any interference from the government. Smith was arguing in opposition to the system of mercantilism under which the government exercised a great deal of control over economic life. The government regulated production and trade with the objective of bringing gold and silver into the coffers of the state.
Smith contended that a nation's real wealth would be maximized by allowing individuals to make economic decisions based on the forces of the marketplace, unhindered by government regulations. He maintained that in pursuing their own self-interest, people would be guided by an invisible hand to maximize their personal contribution to the economy as a whole. Smith's views had been greatly influenced by the three years he spent in France associating with the French physiocrats. The physiocrats promoted a policy of laissez-faire, which called for the government to keep its hands off trade and allow prices to seek their natural level.
Because of his laissez-faire doctrine, Adam Smith is greatly admired by economic conservatives today. But Smith was anything but conservative in his day. He was, in fact, someone that today we might call a consumer advocate, protesting the special interests backed by the government which profited at the expense of the general public.
| ADAM SMITH |
The Scottish economist and moral philosopher Adam Smith
(1723-1790) believed that in a laissez-faire economic system the impulse of self-interest
would work to promote the overall general welfare of the public.
"IT IS NOT FROM THE BENEVOLENCE OF THE BUTCHER, THE BREWER, OR THE BAKER THAT WE EXPECT OUR DINNER, BUT FROM THEIR REGARD TO THEIR OWN SELF-INTEREST"
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Principle Ideas Advanced | ||
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I. NATURE
B. REASON: THE 'IMPARTIAL SPECTATOR'
II. THE FREE
MARKET III. THE SOCIAL CONTRACT IV. CAPITALISM |
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