Regularly referred to as the founder of the study of political economy, Adam smith is best known as the author of an inquiry into the nature and causes of the wealth of nations. The wealth of nations is perceived as the extensive and systematic examination of the economic forces in Europe that brought forth capitalism in the eighteenth century.
Smith’s essential goal in The Wealth of Nations was to define the ways and means of creating national riches and to layout the conditions for quick economic development. Smith underlined that the best measure of exchange will occur among nations that have surplus supplies of consumer goods, or the raw materials, which make the consumer goods (Lynn and Richard 33). He contended that the most ideal approach to maximize a nation’s capital accumulation is to increase profitability through the division of work where workers are assigned specific capacities in the assembling of a particular (Maneschi 55). It follows from Smith’s investigation that producers’ with the aim of making sure that they make maximum profits focus on the manufacture of goods that have the highest demand. In this way, Smith sees self-interest as the essential inspiration of economic agents in a capitalist society (Diamond 616-617). Smith’s however did not consider the fact that manufacturers or capitalisms may concentrate all their efforts in producing highly profitable goods and disregarding low-profitable essential products. As a result, there may be a shortage of essential products in a country (Smith and Alastair 66). Although contemporary capitalism is an effective and versatile system for creating wealth, however, it is not a steady or automatic one. Left to its own mechanism, for instance, it cannot solve the issues of poverty and imbalance in resource and wealth distribution (Coarse 309-325).
Smith reasoned that the government endeavors to disturb this natural mechanism in the form of confinements on free trade, through taxes and other forms of market interferences should be abolished (Fontela12). He advocated that all nations should by all means be made a free port, and that there should be no interruptions of any kind to foreign trade (Pack 2-4). He pointed out that tariffs and taxes just succeeded in making life more costly for the general population and stifle industry production and trade abroad. Smith argued that setting prohibitions on the importation of foreign goods that are produced by the home country creates a monopoly of the home market by lo al producers (Shaikh and Ertuğrul 52), therefore, these rules benefit producers of these products without necessarily adding value to the households of the home country (Smith and Raphael 45). This concept has been supported by some scholars, arguing that tariffs create dead weight losses where consumers pay more for a good that they could have paid less if free trade was allowed (O’Rourke 44). On the contrary, some scholars argue that government interruptions are necessary because nations do not necessarily have similar terms trade and have different costs of production. Therefore, these protections help in controlling disruptive activities such as dumping (Gancia and Fabrizio 570-601).
Similarly, Smith’s idea that it is only through the selfishness of capitalists that there are social goods is not be applicable in situations where people produce merit goods to cater for the needs of the country. For instance, when capitalists invent new technologies, they are normally motivated in solving certain problems in the society not considering the monetary benefits thereafter. In addition, social forces are unevenly dispersed in a nation. Accordingly, market trades are distorted by such power, to the degree that the powerless are exploited while the capitalists misuse their powers to make maximum returns out of their employees.
Smith describes labor as an invariable standard of value (Ashraf et al. 7-9). He espouses that laborers are paid at the real price of commodities. Adam Smith turns from the laborers view of labor to the employers view of labor; although equal quantities of labor are always of equal value to the worker, they may appear to be greater or sometimes of smaller value to the employer (Gino 22). Therefore, the assumptions made by Adam do not occur in reality, variations take place in the value of commodities. The real price of labor consists of the necessaries and conveniences of life (Buchanan 40-41).
Smith is not consistent in his use of economic terms such as “real value and nominal value.” He sometimes mixes “real value” with “nominal value.” He frequently confuses the quantity of labor realized in a commodity with the quantity of labor that the commodity will purchase in the market. Ricardo’s arguments on labor in relation to value are much more definite and consistent (Maneschi 761).
“The Wealth of Nations” led to the introduction of free-market economics; however, it is not without issues. It lacks appropriate clarifications for pricing or a theory of significant worth, and Smith neglected to see the significance of the entrepreneur in eliminating inefficiencies and making new markets.
This paper has critically discussed Adam smith “theory of nations, expounding on the different scholarly perceptions, these scholars either criticized the ideas of Adam or added more theoretical and practical economic concepts to make them relevant to the prevailing economic conditions. The economic system Smith created in the “wealth of nations” became the model for capitalist societies everywhere throughout the globe, and today Smith is positioned with Thomas Robert Malthus, David Ricardo, John Stuart Mill, and Karl Marx among the world’s greatest classical economists.
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