Question

1. Explain the stages of history in Adam Smith’s writings. Why was he optimistic about capitalism? What are the economic drivers behind the dynamic of capitalism in Smith’s theory? What is Smith’s view on class conflicts in capitalism? And explain the logic of labor theory of value in Smith’s analysis.

Answer 1

Adam Smith is considered as the father of "Modern Economics". He was an 18 th century economist. Smith proposed the idea of fe invisible hand in the free market which are regulated by competition, supply and demand and self interest.

Stages in Adam Smiths writing (Four Stage Theory)

Adam smiths first book is "The Theory of Moral sentiments ". It describes about the natural principles that govern morality and the ways in which human beings know them. His very famous book is "An inquiry into Nature and causes of the wealth of the Nations."

4 stages that are passed by human beings

1. Hunter Stage
2. Age of shepherd
3. Age of agriculture
4. Age of commerce

Capitalism

Smith does not mention the word Capitalism in his books but he shows optimism in capitalism. It can be identified firstly from his four stage theory where he believed that the humanity is moving towards the fourth stage that is the commercial stage. During that classical period time societies were rare and temperoray but the commercial societies became inevitable and permanent nature. Smith always believsmd taht the commercial societies will overcome its major threats in order to become permanent. So we can say that Smith is optimistic about capitalism

ECONOMY  ECONOMICS

Adam Smith and "The Wealth of Nations"

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By JOY BLENMAN

Updated Feb 6, 2020

TABLE OF CONTENTS

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• Smith's Primary Thesis

• The Invisible Hand

• Government Response

• The Elements of Prosperity

• Overthrow of Mercantilism

• What Wasn't in Wealth of Nations

• The Bottom Line

What was the most important document published in 1776? Most Americans would probably say The Declaration of Independence. But many would argue that Adam Smith's "The Wealth of Nations" had a bigger and more global impact.

On March 9, 1776, "An Inquiry into the Nature and Causes of the Wealth of Nations"—commonly referred to simply as "The Wealth of Nations"—was first published.1 Smith, a Scottish moral philosopher by trade, wrote the book to describe the industrialized capitalist system that was upending the mercantilist system. Mercantilism held that wealth was fixed and finite, and that the only way to prosper was to hoard gold and tariff products from abroad. According to this theory, nations should sell their goods to other countries while buying nothing in return. Predictably, countries fell into rounds of retaliatory tariffs that choked off international trade.

KEY TAKEAWAYS

• The central thesis of Smith's "The Wealth of Nations" is that our individual need to fulfill self-interest results in societal benefit, in what is known as his "invisible hand".
• This, combined with the division of labor in an economy, results in a web of mutual interdepencies that promotes stability and prosperity through the market mechanism.
• Smith rejects 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 (e.g. education).

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Adam Smith: The Father of Economics

Economic drivers behind capitalism

By provoking freedom to everyone for produce and exchange goods ie, the freetrade it leads to domestic and foreign competition, the natural self-interest in people will promote greater prosperity.

Through Economic choices human can promite their public interest. The free market is also known as the invisble hand It is the market emerged from an increasing division of labour, withbinthe production processes and the society it will create mutual interdependence, social welfare through individual profit motives.

Class conflict and Adam smith

The classical period consist of 3main classes

1.workers -They have no capital accumulation.

2.Nobility -They donot accumulate capital

3.Calitalist- They are the drivers of the economy

working classes were incapable of accumulation of capital. They think that increase in wage cause increase in birth rate and increase in supply of workers it leads to loweing wages. In long run workers are expected to earn only subsistence wages.

In order to meet the interests of society look after the interests of the capitalists (entrepreneurs). He believed that they needed three things, freedom, free competition and a monarchy that didn’t interfere with them.

Labour theory of value

It is the theory of value that the economic value of a goods and service sare determined by the total amount of socially necessary lqbour required to produce it. It is generalised as more including inputs and it turns into "cost of production theory of value". The logic behind LTV is the value of outputs as being determined by the value of the inputs that went into producing them. Smith writes in his book that "The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labor which it enables him to purchase or command. Labor, therefore, is the real measure of the exchangeable value of all commodities."