Question

Claim that Adam Smith's theory of the marketplace outdated. Provide 3 reasons and examples to support this claim

Answer 1

Answer: Adam Smith is regarded as the father of modern Economy.In his famous book "The Wealth Of Nations" he had given the concept of Invisible hand which means government must not interfere in market economy and it should be allowed to govern by demand and supply .These two forces by him regareded as invisible hands for efficient functioning of economy.He supported the laissez-faire policy and minimal intervention of government in market.He said government has functions like maintaing law and order, providing some public services like road and transport facilities apart from this it should unnecessarily interfere in constraining or facilitating business environment.His ideas also included the concept of GDP.

Initially his theory was attracted a lot of interest by economists and countries as it focuses mainly on liberalizing market conditions hence boost businesses which ultimately benefit the economy hence the country.

But as the time passed , may cons become visible like:

1.His theory believed that when a person work to satisfy his interest, others will do the same hence by this interests of everyone will be filled.

But after liberalisation it has been seen that economic growth occurred in coutries but that 8s not INCLUSIVE in nature.Foe example according to Oxfam report world's richest 1% acquires wealth of 58% .Inequalities are rising ,rich becoming more richer whereas poor becoming mire poor.

Hence such growth is neither inclusive nor sustainable.

2.He propounded limited government but today concept of Welfare government is well accepted even in capitalist countries as well.

As to uplift the condition of poor there is need of government interference in various sectors like education,health etc.

Example : Obama care and various such policies in other coutries as well.

3.Concept of GDP :as GDP is considered as an imp parameter for countries economic growth but it had various drawbacks as it doesn't show the level of development, do not include the effect of externalities like loss of environment due to economic growth etc.

Concept of HUMAN DEVELOPMENT INDEX and other such indexes shows the true nature of development in countries which is sustainable and inclusive in nature.

Hope it helps!

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