Question

what was adam smiths explanation of what caused the wealth of nations to increase? essay points

Answer 1

According to Adam Smith, the increment in wealth of nations was the product of these key steps :

1) Invisible hand:

That our individual need to fulfill self-interest results in societal benefit, and this is known as "invisible hand". And for the development of economy of the nation, help of invisible hand is needed.

2) Division of labour combined with invisible hand:

Invisible hand combined with the division of labor in an economy, results in the integration in the economic activities that promotes stability and prosperity through the market mechanism.

3) Less government interference:

He is against government interference in market activities, and instead states governments should serve just 3 functions: protect national borders; enforce civil law; and engage in public works.

4) Solid Currency and Free-Market Economy:

By backing currency with hard metals, Adam Smith hoped to lessen the government's ability to depreciate currency by circulating more of it to pay for wars or other wasteful expenditures.

5) Assembly-line production method:

An assembly line is a production process that breaks the manufacture of a good into steps that are completed in a pre-defined sequence. Assembly lines are the most commonly used method in the mass production of products.

Adam smith used the example of the labor required to make a pin to explain the effectiveness of this method. If one person were to undertake the 18 steps required to complete the tasks, they could only make a handful of pins per week. However, if the 18 tasks were completed in assembly-line fashion by 10 individuals, production would jump to thousands of pins per week. According to him, the division of labor and resulting specialization produces prosperity.

6) Gold and silver are not the nation’s true measure of wealth:

Nations have to focus on providing tradable goods to progress.