Question

consider these words of Adam Smith:

"Some general, and even systematical, idea of the perfection of policy and law, may no doubt be necessary for directing the views of the statesman. But to insist upon establishing, and upon establishing all at once, and in spite of all opposition, every thing which that idea may seem to require, must often be the highest degree of arrogance. It is to erect his own judgment into the supreme standard of right and wrong. It is to fancy himself the only wise and worthy man in the commonwealth, and that his fellow-citizens should accommodate themselves to him and not he to them."

Now consider the following questions:

• What is Smith's point - the point he is making in his quote? (For example, what sort of thing is he criticizing?)
• Do you agree with Smith's point? Why or why not?

Answer 1

Smith laid emphasis on the following three duties to be performed by a state:

a, Protection against foreign countries

b. Administration of law and justice

c. Establishments and maintenance of public works.

Smith was a strong supporter of free trade. He bitterly criticized protectionism. According to him free trade extends market, the surplus products of one country are exported to another.

Smith was a firm believer in the natural order and an ardent advocate of liberty. He thought that there is a "natural order" appointed by a wise providence in which self interest will supply the necessary drive to make the machine go and will also act as to produce equilibrium between contending forces.

The different motives of human action were so carefully balanced that the benefit of one could not conflict with the good of all. It was his belief in the natural balance which lead Adam Smith to make his celebrated statement that in pursuing his own advantage each individual was " led by an invisible hand to promote an end which was no part of his intention", ie, the good of all and society.

Adam Smith by his unique analysis firmly established the structure of the science of economics, defined the scope of the subject and gave finishing touches to the physiocratic ideas of natural order. One of his main contribution to the science of economics ia the treatment of taxation. His canons of taxation has been incorporated without any alteration by later economists in their theories. Smith is criticized for the following short comings:

a. Smith was essentially a meterialistic thinker that shows an absence of idealism. He developed excessive individualism restricting the sphere of state activities.

b. His theories of rent, wages and profit are unsatisfactory and inconsistent. The treatment of distribution , as a whole is inferior to that of production.

c. Smith laid emphasis on division of labor and made it the basis of all economic activities, yet it was not his original contribution. He elaborated the points originally made by Xenophon and Petty.