Question

Explain major contributions of Adam Smith and how they changed Economic thinking.

Answer 1

Adam Smith had given 4 contributions to the economy and they brought change in economic thinking.The contributions are -

1) His first contribution says that it is not possible to calculate probabilities perfectly with the use of individual number answers. Probabilities were undefined and vague. The numerical principals of probability cannot be used for taking decision in the actual world. He doesn't believe in decisions taken on the basis of numerical lotteries.

2) Second contribution says that he was the first person to clearly realise taking decisions in the actual world are very unknown, as against the decisions being relied on numercial idea of risk , which is established on familiar probabilities and results which will result in anticipated worth and anticipated utility computations.

3) Third contribution says that he was the first person to realise that for the time , the probabilities will be more than 0 , retaliatory duties may cause a country which has applied a duty on the other country to revoke that decision.There was a space for the group of plans in disputes of one nation to with other regarding duties including war , negotiations , threats etc

4) Fourth contribution shows that the main risk to economic success arises from prodigals, projectors and risk takers, who succeeded to get loans from banks to grip their debt position. This resulted in wastage of deposits of bank leading economy to recession.

These major contributions of Adam Smith gave a new route to economic thinking. People began to think in reality rather than on basis of probabilities or assumption.Except these major contributions , Adam Smith gave many more contributions. People start to believe in economic interests and get motivated by that. It brought a good change in the economic perspective of people leading to better economic results.