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Contribution of Adam Smith to the history of economic thought
Contribution of Adam Smith to the history of economic thought
Baldwin what i learned in writing
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Economic development according to Prof. Meier and Baldwin: “Economic development is a process whereby an economy’s real income increases over a long period of time.” It refers to the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards. The contributions of Adam Smith, David Ricardo and Karl Marx which are mentioned below, to the theory of economic development and growth are of great importance. ADAM SMITH THEORY OF DEVELOPMENT Adam Smith (1723-1790) defines economics as the science of wealth. He is known as THE FATHER OF ECONOMICS because he was the first who put all the economic ideas in a systematic way. It is only after him we study economics as a systematic …show more content…
According to Adam Smith there are three factors of production which include labour (L), capital (k) and land (N). Y (output) = f (K, L, N) In his theory of production function he takes into account land and labour in which he assumes that land is a fixed variable and as labour increases, the total output produced increases at a diminishing rate. DIVISION OF LABOUR: Division of labour is dividing the process of production into several components assigning each of them in the hands of a labourer or a set of labourers who are specialists in that particular process. Division of labour improves the efficiency of a labourer and thus lead to an increase in the production and widens the extent of market (trade) and thus lead to economic development. It also results in innovations. Also, time and the materials are put to the best and most efficient use. CAPITAL …show more content…
So did Adam Smith’s theory of development. A few of them are as follows: - This theory neglects the role of the middle class which provides the necessary impetus to economic development and concentrates more on the capitalists and the laborers. - Adam Smith neglected the role of entrepreneurs who bring about innovations and thus lead to capital formation. - Under Laissez faire, income is not fairly distributed. As a consequence, less important and less urgent goods are produced for the wealthy people while the poor lack basic goods like education, health, housing, good food and ordinary comforts. Under such a situation, the State is not in a position to control economic activity by means of planning and reduce inequalities of income and wealth. He thus ignores the role of the state. - His entire theory was based on unrealistic assumption of perfect competition which is not found in any economy. - According to Smith it was only the capitalists, landlords and the money lenders who saved (one sided saving base). In the modern society, the major source of saving is the income receivers and not the capitalists or the
As you can see, labor and trade are the key importance to modern wealth. Production and trade are not just needed but are essential for a country to survive. Smith makes it ideal for countries to interact and trade. Trade means you get more directs workers into jobs in which they have a comparative advantage, which means more
The rich tycoons of their society refused to share their money with the poor. Andrew Carnegie and Samuel Gompers both wrote their essays towards the wealthy with hopes to make a difference for the poor workers and unemployed. Rich tycoons would do anything to keep it for themselves, if it meant leaving it as inheritance
Adam Smith begins his analysis of the market society with a look at the division of labor. He elaborates on the idea that the division of labor is essential for the growth of a civilization. Smith explains how for example, the production of pins can be done more efficiently with the breaking down and deconstruction of
Even though Adam Smith lived in a different century then us, he fully understood how wealth can be accumulated. His concepts of capitalism and free market are still the root of many nations and still bring much wealth to these nations. With all these accomplishments, we can, with no doubt, say Adam Smith is the father of economics.
Let’s get started with Adam Smith and his second coming. Adam smith was one of the greatest economics minds that have ever existed, teaching us that our wealth is not just in gold and silver but in the products that we produce and commerce we engage in! Much like today we can understand the idea of Gross National Product and how we can better adjust our habits and ourselves. Smith unlike most economists of that age understood the value in hard work and social aspect behind our decisions.
These were an insufficiency of workers, a reversing of accumulation and the lack of nature. He saw that the depletion of finite resources and inability to create renewable ones could potentially put a strain on the growth of the economy and the productivity of society. According to Smith however, there were no imminent threats to economic growth as during the time that he wrote, there was still a great amount of fossil fuel to be utilised. On the other hand, both Malthus and Ricardo who wrote later than Smith saw that there was an issue with the use of finite resources. They also put emphasis on how scare land was, which they saw as the main restraint on economic growth. Their previous arguments regarding population are again valid here as they stated that if the population increased then the land for farming and food production would become increasingly infertile or unavailable due to demand. This puts a strain on economic growth as only the rich could afford to rent the land, leaving the poor to work for pay that only just exceeds subsistence level, meaning they have no spare money to buy products in order to stimulate the economy. Malthus then furthered this idea by arguing that the economy could enter a state of stagnation if there’s a lack of demand. If wages are less than the total cost of goods production then industry output will be too high, causing prices to
"Adam Smith." Adam Smith. Library of Economics and Liberty, 2008. Web. 4 Feb. 2011. .
In 1759, Adam Smith created the term “invisible hand” to describe how the self-interested behavior of people in a highly competitive market system can lead to the greater good for everyone involved. Businesses like to create new and improved products in order to increase their profits and become more successful. When they create new products, they also increase society’s well-being, and quality of life. Due to the companies’ self-interest, they use the least expensive resources to produce their new products. If they do not use the least expensive resources to create their products, and could take a cut in profits or possibly even go out of business (Brue and Flynn and McConnell, 41). Using scarce resources in an inexpensive way is in the interest of society as well because it allows those left over resources to make other products that society desires. The “invisible hand” allows firms and resource suppliers each maximize their profits which also maximizes society’s output and income.
Adam smith argues that the amount of labor used in production of a commodity determines its exchange value in a primitive society; however, this changes in an advanced society where the exchange value now includes the profit for the owner of capital.
product he creates. As a result labour is objectified, that is labour becomes the object of
...der a man who donates to a charity. On the one hand, economically he gains nothing from this action, and this action does not contribute to his private opulence, defined by Smith as “originally derived … [from] the uniform, constant and uninterrupted effort of every man to better his condition” (205). On the other hand, a more cynical individual might say that the giver gains some kind of metaphysical or subjective return from this action that contributes to his self-interest. Smith seems to have little faith in the natural goodness of Man, writing “it is in vain for [one man] to expect [help] from [other men’s] benevolence only” (22). This pessimistic viewpoint Smith holds might explain what leads him to see self-interest as the primary factor in the actions of humanity.
The division of labour described by Adam Smith in The Wealth of Nations is a product of individual self-interest. This is representative of Smith’s methodological, individualist interpretations of human nature. Adam Smith deduces that the division of labour is beneficial to the individual, as it is in one’s own interest to work less whilst still engaging in tasks that are to their own specialities. Highly specialized work is beneficial for nations to grow economically whilst allowing individuals to further pursue their own rational self-interest. To further explain the concepts that Smith proposes, I will first explain what rational self-interest is in regards to human nature and how the division of labour emerges from self-interest.
Smith stated in the Wealth of the Nation (1776), “Civil government, so far it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all.” (Patil) Shay’s Law implies supply creates its own demand and demand is not based on production or supply. Schenkel 2 The last assumption is that savings will equal the investment which will lead to equilibrium; however, Classical theorists are realist and know this will not always happen, thus, they believe the flexible interest rates will help with the equilibrium.
The concept of perfect market allocation of resources was in W. Baumol's (1988,631), view largly theroretical. Baumol believed that economic models relied upon the concept of the invisible hand first discussed by Adam Smith. In these models, the perfectly competetive economy was able to allocate resources efficiently, without the need for market intervention by outside agents, including governments. However, there were significant weaknesses in these models particuarly in the area of ensuring equity of acess, social objectives and in the provision of public goods.
The factors of production are the inputs in any production process. The completed goods are what result from the process, also often called raw and finished goods. The more factors of production are given as input the higher the number of completed goods will be, and of course the opposite is just as true. The typical factors of production are Land, Labor and capital goods. more recently Entrepeneurship has also been added as one of these factors. Understanding these is essential to understanding the two production functions which this WIKI article focuses on. (2)