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Adam Smith (1723-1790), was a Scottish philosopher and economist. He was born in a small village called kirkcaldy where his widowed mother raised him. At age fourteen, he joined the University of Glasgow after getting a scholarship. He later on entered Balliol College at Oxford, and graduated with a wide knowledge of European literature. He also began to develop contempt of English schools. He later on returned home and after delivery of well-received lectures, he was made the chair of logic (1751) and chair of philosophy (1952), at Glasgow University. He made a tour of the young duke of buccleuch for around two years after leaving the academia in 1764. He travelled through France and Switzerland where he met people like Voltaire, Jean Jacques Rousseau, Françoise Quesnay, and Anne Robert Jacques Turgot. Adam smith is known for his book 'The wealth of nations' published in 1776. He died in Edinburgh in 1790 (Morrow, 1923).
The Wealth of Nations, was published as a five-book series, and intends to show where wealth of countries lie. Smith saw the chief foundation of wealth as increasing division of labor. Using the example of pins, Smith illustrated how ten workers could produce 48,000 pins in a day if each of eighteen specialized functions was dedicated to particular workers. The average productivity is 4,800 pins per worker per day. With absence of the division of labor, a worker may not even produce a pin per day. How one can best apply their own labor or other resource is a main subject of the first book in series. Smith asserts that a person would invest with the expectation of a higher return. Other resources should also yield at the same rate. If such do not happen then reallocation of the resource would occur. An idea George Stigler called central proposition of economic theory.
Smith's ideas are proof to his extent of thoughts. School programs are being reform to address some of the aspect smith had addressed. These are the reform meant to improve the quality of education on the public sector and improve the public perceptions on these issues. Smith contributions are seen as the center of all the reforms. Smith's ideas have gone as far as affecting the administration of educational systems. During those days, it was not easy for a student to leave one institution and join another since he would not be accepted.
Smith's ideas are an examination of the science of economics and a policy guide for attaining the wealth of nations. Smith supposed that economic growth was greatly enhanced in an environment of free completion and liberal market, which operates in agreement the natural laws. Since Smith was the most efficient and broad study of economics up to the time, his economic ideas became the foundation for classical economics. In addition, since more of his thoughts have lasted much more than any other economist, many regard Adam Smith as the founder of economic science. "A regulation which obliges all those of the same trade in a particular town to enter their names and places of abode in a public register facilitates such assemblies.... A regulation which enables those of the same trade to tax themselves in order to provide for their poor, their sick, their widows and orphans...renders such assemblies necessary" (Bonar, 1926,pp. 145).
Earlier on, economics was viewed in a different way. A nation's wealth was seen in terms of the amounts of gold and silver the country had. Importing goods from another country was seen as damaging the economy of a country. This is because it meant reduction of the amounts of these resources in a country. Exporting goods on the other hand was viewed as being beneficial because these precious medals were brought to the county. The country would as much try to minimize the draining out of these resources using a number of controls. The argument is that "Without trade restrictions the obvious and simple system of natural liberty establishes itself of its own accord.
Every man...is left perfectly free to pursue his own interest in his own way... The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society (Bonar, 1926, pp. 145). These include controls such as taxes on imports, subsidies to exporters, and protection for domestic industries. There was also no free movement of labor because it was viewed as protecting existing producers. Same case with the devices, which could utilize labor. "There is no art which one government sooner learns of another than that of draining money from the pockets of the people" (Bonar, 1926, pp. 861).
Smith seeks to illustrate that this view of economy was not the best and he endeavored to establish a better one. He argued with the aim of showing that in a free exchange, both partners would benefit from the trade. This is because nobody would engage in trade if in the end he would loose. The buyer will benefit just as the seller will. Hence, imports are just as important as exports are. Since trade is of benefit to both partners, it will increase prosperity as agriculture or manufacture does. "The natural effort of every individual to better his own condition...is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations" (Bonar, 1926,pp. 540). A countries wealth is not the amount of gold and silver it has. Both buying and selling contributes to economy. His book changed the political views and provided a basis of building the current aspects of free trade and expansion of market. Smith realized that socializing freely in trade would naturally harmonize the process hence each concerned party will struggle to find way s of earning a living.
Smith argued that the social order should not necessarily be controlled by the political system but by the trends of trade as is the case today. Social order should be the natural product as a result of constructive competition in the market. His book also gave a survey of human social psychology. Smith also looks at social psychology to learn the basis of human morality. Human beings are naturally sympathetic to others. This enables them to appreciate how to reticent their behavior and maintain harmony. In addition, this is the foundation of our moral ideas and moral actions.
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Regulations on trade are counter-productive and do not work in the interest of trade. The view that gold and silver was wealth, and that countries should enhance exports and reduce imports in order to maximize this wealth is not the best for development but detrimental. Smith's approach was that a countries wealth is in truth the brook of produce and services that it forms. We can now maximize trade with free market. This can be achieved by setting free the countries productivity. Division of labor and accumulation of capital would enhance this. Production could be broken down and given to specialized people. Smith's argues that that a nation's future income depends on capital accumulation.
The extra that is invested in good creative processes, then higher wealth will be produced. However, if individuals are going to accumulate their capital, they have to be certain that it will be safe from burglary. The nations that do well must manage their capital well. The system also automatically regulate such that incase of scarcity, people can bay more for them hence producers can infest more in producing them. Incase of excess supply prices comes down will invest elsewhere. This process ensures that production is centered n the most essential needs. The government should have a limited interference on the competition and the free exchange of materials for the market to control itself.
Smith explains production and exchange in his book, and how they contribute to national income. He used an example off a pin factory, and showed how specialization can improve productivity very much. By specializing, a person can use their talents or skill and employ laborsaving mechanism to boost up production. They can then trade the high-quality products, distributing the gains of specialization to a high number of people. The rate at which the benefits spread depends on the area at which the market is spread. The bigger the market the higher the benefits and the smaller the market the larger the benefits. The size of the market should be controlled by open competition. Capital accumulation is also very important for economic progress. More should be saved as compared to those consumed. When more is saved compared to immediate consumption, this can be used in investing more and hence efficient production.
With growth of capital, wealth increases, people becomes better off. However, capital can be misplaced intentionally or accidentally, through theft, or careless spending. Governments are supposed to endeavor to let people to assemble up capital in the assurance that they will harvest its fruits, and ought to be responsive that taxation and spending will not eat into the countries capital. Nations should gain from specialization just as individuals do. Countries should specialize in what they can do best. They can then trade the products.
Restrictions on international trade certainly make both nations poorer. Smith criticizes the governments and their order. He believes that the market economy can deliver the benefits only when not interfered with, when material an properties are save, and the terms respected. "If justice is removed, the great, the immense fabric of human society, that fabric which to raise and support seems in this world if I may say so has the peculiar and darling care of Nature, must in a moment crumble into atoms" (Bonar, 1926,pp. 145). The upholding law in the process of handling trade is therefore essential. The government should therefore play its part in maintaining law and order as well as facilitating trade, for instance providing protection to the country. According to smith, the public should also e educated on the process and procedures of free market to facilitate it.
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Smith says that morality is naturally within the human social being. The surrounding environment affects people. They usually want to do things other people approve of and are affected when others are affected too. This shows that people are affected by others emotions. We get pleasure when people do things we agree with, and sorrow when we consider they are not. We do not feel other people's emotions as they do, and through empathy with other people, we know that anger, or grief, or other emotions are a distress. Therefore, we try to avoid our emotions bringing them such, and, in fact, aim to change them to the level where any disinterested person would empathize with us. Similarly, when we show apprehension for other people, we know that a neutral observer would commend, and we take delight from that.
Smith did not look at sympathy and self-interest as adversative, he viewed hem as complimenting each other. "Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only," he explained in The Wealth of Nations. Charity is a virtue but cannot only offer the fundamentals for living. Self-interest is the means that can compliment this limitation. Said Smith: "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest" somebody who earns money for his labor benefits (Smith, 1976). The society also benefits, this is because to earn money in a labor competitive market, he must have done something beneficial to the society. "By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention".
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