Question

Can you please answer:

What were the specific views of Adam Smith in reference to the role of government in a country's economic affairs? How do his views support or disagree with the concept of strategic trade theory?

Answer 1

Answer: In his book "An Inquiry into the Nature and Causes of the Wealth of Nations" , Adam Smith clearly talked about the concept of "Invisible Hand" to which he supported free market economy.

He supported the policy of "Laissez-Fair" which means minimum governments intervention in economic sphere or state should not impose restriction on freedom of individual or firms.

He soecified three functions of government and economic growth of nation government should not exit this sphere:

1.Maintaing law wnd order , enforcement of contracts etc

2.Natuonal defence

3.Provision of certain type of public goods like transportation, infrastructure etc.

Part2: Strategic trade theory or policy means the in order to raise national income governments can help,but if it ebsured that the first advantage gainer firms in this industry are domestic rather than foreign.

This theory associated with concept of welfare function of goverment.

Adam Smiths believes in the laissez fair principle and don't support the concept of welfare function of goverment.According to his invisible hand concept, market regulate it self by free competion, supply and demand a d self interest.

And when everyone will be protecting its interests then everyones interests will be protected altogether and hence market will run effectively.

Hope it helpe!