Question

What does Adam Smith consider to be the main cause of the wealth of nations? Why does this factor have such a powerful impact on wealth?

Answer 1

Main Causes of the Wealth of Nations: -

Adam Smith is seen as one of the key pioneers of modern-day economics. He was Scottish in origin and his book the Wealth of the Nations significantly changed the way countries govern people and has largely extended over the years to the success of many capitalist countries across the globe.

Adam Smith through his work highlighted that it is individual self-interests of people that creates wealth in any economy. He says that wealth is nothing but a product of human satisfaction.

He believed that restricted economies in which the government controls how resources are utilized for satisfaction of needs and wants should never exist. Instead the government should focus only on administration and law and order.

Wealth he says can only be created if human wants and needs are fulfilled to the fullest, and countries prefer to be open in nature than closed. He says closed economies do not work for the satisfaction of human needs, but rather constrict themselves into believing that it is better to hold on to gold reserves as they are finite. He says that wealth is not finite but is measured in terms of the higher number of people that receive satisfaction.

Why the powerful impact?

Adam Smith states that the only way to create wealth is to satisfy the needs and wants of people in the best possible manner. The society should work towards maximizing its interests and that is how we create wealth. He believed that the society benefits from our self-interest and called this the invisible hand.

Most capitalist economies are designed using Adam Smith’s theory and we increasingly see the powerful impact it has had on modern day economics. When people work towards fulfilling their needs and wants instead of the government selecting the same for them, the resultant is that resources are used in a better manner.

Further opening up trade helps an economy further get those products which they desire and sell those which others desire. This makes it increasingly helpful for any economy to grow in an increased manner as compared to any other method.

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