Adam Smiths economic theories Research Paper Example | Topics and Well Written Essays - 1250 words

Adam Smiths economic theories - Research Paper Example Smith has emphasized that a historical perspective is necessary to study the science of man and society, and only with this study it is possible to establish an efficient social science system. He has said that in any society it is the collective contribution of all individuals that lead to economic stability since it is the individuals who produce and sell goods according to their requirements as a society. He has named the controlling factor of this mechanism as the invisible hand. The principle rule of classic economics is that non-intervention of the government in the marketplace will give freedom to everyone to contribute towards economic growth by creating the required goods for the greatest number of people. Adam Smith Adam Smith was an eighteenth century Scottish philosopher who is known as the father of modern economics. He was baptized on June 5, 1723. He is well known for his two books: The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). He studied moral philosophy from the University of Glasgow under the renowned philosopher Francis Hutcheson. In 1740, he entered the Balliol College, Oxford after being awarded the Snell Exhibition (Biographiq, 3-4). In his second book Wealth of Nations, Smith has given a coherent description of the history of development of industry and commerce in Europe, and has voiced his opinion against the doctrine of government intervention in trade and commerce. He has also explained that a sustainable economy is possible by people’s effort to fulfill their self-interests through competition. Smith’s economic philosophy contributed towards â€Å"creating the modern academic discipline of economics and provided one of the best-known intellectual rationales for free trade, capitalism, and libertarianism.† (Biographiq, 3-4) Economic theories The invisible hand theory Smith has focused on people’s contribution towards production, and has argu ed that it is the annual labour which is the principle source to meet the demands of the consumers regarding all necessaries and conveniences of life. The produce of the labour is generally consistent with the immediate produce of the labour, or the commodities or services that are purchased with the produce from other nations. Therefore, the produce from labour or what is purchased with the produce can be more or less in proportion to the demand in the consumer market of a nation. This means that the nation is economically developed when there is better supply of necessaries and conveniences or is economically worse when there is insufficient supply of the same. Smith has argued that this proportion is determined by two factors – 1) skill and dexterity of labour and proper application of the skills, 2) proportion of labour employed to that of labour not employed in useful work. Smith has emphasized only on these two factors irrespective of the soil and climate of the nation (Smith[1], 8). According to Smith, it is the market conditions that are responsible for the production of right kind of goods and services. This is because the objective of the producers and manufactures is to make profits by supplying goods and services to the market. If there is no intervention by the government in the matters of trade, then the business environment of the nation will be free from government restrictions. This will lead to well-being of the public with increased competition between producers and manufacturers to produce goods and services as and when required by the public. This is the general picture of a free market economy. With growing competition betwe