Adam smith biography essay outline

Stewart, intro. Raphael, Adam Smith Oxford, , pp. See D. London, , pp. Download references. You can also search for this author in PubMed Google Scholar.

Adam smith biography essay outline

Ross, I. Adam Smith —90 : A Biographical Sketch. In: Mizuta, H. Palgrave Macmillan, London. Publisher Name : Palgrave Macmillan, London. Print ISBN : Online ISBN : Anyone you share the following link with will be able to read this content:. Sorry, a shareable link is not currently available for this article. However, he was not a libertarian no governmentt intervention.

Whilst supporting the efficiency of markets, he was also aware of the problems of monopolies and exploitation of consumers and the poor. Smith also argued for a progressive tax system to pay for public goods. In a way, Smith is very much a centrist economist. Some claim Smith as a champion of capitalism, but this claim is not so straightforward Smith was more nuanced as a thinker and willing to examine the evidence — not fixed on a certain ideology.

Other economists such as Marx, Stiglitz and Thomas Piketty criticise Smith for being too concentrated on free markets and treating labour as a commodity rather than human. Citation: Pettinger, Tejvan. Last updated 25 Feb The Essential Adam Smith. The Essential Adam Smith at Amazon. Great Thinkers — Influential and insightful thinkers, who have made significant contributions in fields of science, philosophy, literature and the humanities.

Philosophy and moral sentiments Around , he met the philosopher David Hume. Adam Smith and Economics After moral philosophy, Smith became more interested in the subject of political economy. Limitations of free markets Despite offering a justification for capitalist society and the workings of the market, Smith was also aware private business could end up exploiting consumers if they were not checked.

Death Adam Smith died in Edinburgh on 17 July after a painful illness. Nevertheless Smith did believe that natural benevolence is limited and that, whatever other motivations people feel, their desire to better their own conditions is always present. The genius of the Smithian market mechanism was that it could coordinate the disparate individual efforts of indefinitely many persons and derive an overall benefit for the good of society from them.

The conclusions of WN are therefore largely in favor of limiting political interference in markets. Each individual knows his own situation—including his goals and desires, as well as the opportunities available to him—better than anyone else does, and certainly better than any distant legislator. Hence Smith argues that individuals themselves should be allowed to decide how best to apply and sell their labor or goods, with whom to exchange and on what terms, and so on.

Smith is withering in his condemnation of meddling legislators who overestimate their ability to direct the lives of others, who legislatively substitute their own distant judgment for that of the individuals with actual local knowledge over whom they rule, and who then use the predictable failures of their decisions as excuses for yet more imprudent intervention.

Yet Smith is equally condemnatory of grasping merchants and businessmen who seek legal protections of their industries or prices. Keeping prices up and limiting competition certainly benefit the favored businessmen, but such policies just as certainly impose artificial costs on everyone else. Smith argues that the way to deal with such cronyism, however, is typically not to attempt to regulate or manage it after the fact, but rather to disallow legally enforced privileges in the first place.

Markets and open competition are, Smith thinks, better providers of social benefit than regulation by politically motivated legislators—who are, after all, often remunerated handsomely by the very merchants and businesses from whom they profess to protect the public. But Smith is no anti-government anarchist, nor even a modern-day libertarian.

This will entail a system of police and courts, which Smith argues must be effective and efficient if the market system is going to be able to work. The Wags Fund Theory was to be worked up by later classical economists. The Demand and Supply Theory of wages indicated the interdependence of resources and population, which was elaborated by Malthus.

Smith also foresaw the clash of interest involved in the problems of distribution. He talked of opposing interests of labour and capital, the tendency of wages and profits to move in opposite directions. His sympathies were with the workers and he advocated the necessity of keeping the share of labour in the national produce high. Early Socialist thinkers, who came after, had drawn abundant inspiration from his views on distribution.

He considers all productive institutions beneficent in character, but in his treatment of distribution, he was a pessimist. Gide and Rist, therefore, feel that Smith might well be considered as the fore-runner of Socialism, as socialist thought is primarily concerned with clash of interests in the distribution of wealth that smith clearly visualised.

From the classical standpoint, however, the problems of distribution were thoroughly dealt with by Ricardo, his immediate follower, Smith having given only a sketchy outline of the same. He does provide an internally consistent dynamic Model. Since he recognised the existence of three factors of production, namely labour, capital and land, his production function may be expressed as;.

The production function is subject to increasing returns to scale because he did not assume diminishing marginal productivity. In his opinion, with the passage of time, the size of market will expand and in turn result in internal and external economies which will reduce the capital production. The greater degree of division of labour was expected to realise the economies of scale in production.

According to him, division of labour did not depend merely on technological feasibility but on the extent of the market as well; whereas the size of the market depends on the availability of capital stock. Thus accumulation of capital is a precondition to increasing division of labour. The regulatory measures against trade have a tendency to restrict the size of the market and limit the division of labour.

He recognised the importance of technological development for improvement in productivity. In his theory, two factors, namely supply of land and the change in institutions are comparatively less important. The rent of land therefore considered as the price paid for the use of land, is naturally a monopoly price. He nowhere explicitly stated the supply of land.

Regarding institutions the change in them is determined exogenously. Institutional variable is quite important. He asserts that free trade and laissez-faire provides a highly congenial environment for economic growth. He regarded state interference not only superfluous but harmful to economic progress. Guided by self-interest, each individual was capable of promoting his own well-being and welfare of the whole society in the process.

As a matter of policy, therefore, Adam Smith advocated the removal of all restrictions on trade, choice of occupation and the use of property. The rate at which the population grows in a country largely determines the growth of the labour force. According to Adam Smith rate of population growth in the long run, depends on the fund available for human sustenance.

The size of the population is determined by prevailing wage rate. If actual wages exceed the subsistence wage, population will show a tendency to increase and vice- versa. The supply of labour is normally expected to be in equilibrium with the demand for labour. If the demand for labour records a continuous rise pushing wage rates upward, it induces working population to multiply faster, as a result of which supply also continually increases and vice-versa.

Smith has explained the demand for labour in the framework of wage fund doctrine. Since the supply of labour has a tendency to respond to the demand for it. In his opinion, high wage rates are consistent only with the growth of the economy. To him, growth is functionally Related to rate of Investment with a fixed capital stock a country is bound to suffer stagnation.

According to him, any increase in capital stock in a country generally leads to more than proportionate increase in the output on account of continuously growing division of labour. Adverse institutional developments nullify the gains of capital accumulation from the point of view of growth. According to Smith, the Rate of Investment as a crucial factor in economic growth, is determined by the Rate of Savings.

He did not visualize any possibility of leakages occurring - saving and investment although the two activities are not performed by the same set of people. Savings and Investment are determined by private profit. However, ability to save and investment is limited by income. Due to competition among the capitalists, Overtime when a country develops and its capital stock expands, the profit rate shows a tendency to fall.

In the first place, the growing stock of capital, results in larger demand for labour which pushes up the wage rate leaving a smaller surplus to the entrepreneurs, secondly a larger capital, stock required abundant opportunities for investment which may not always exist in an economy. Therefore, when capital stock expands in a sustained maimer, entrepreneurs will be able to employ it only at a lower marginal profit Ratio, that is why he postulated a downward sloping marginal efficiency of capital curve.

He postulated a negatively sloped supply curve of capital implying an indirect relation between Supply of Capital and Rate of Investment. Capital accumulation stops only when Rate of Investment falls to a rate of profit which is sufficient only to compensate for the Risk premium. According to Smith, farmers, producers and businessmen are the agents of progress and economic growth.

It was free trade, enterprise and competition that led farmers, producers, and businessman to expand the market which in turn made economic development possible. The functions of these three are inter-related. To Smith, development of agriculture leads to increase in construction works and commerce. When agricultural surplus arise as a result of economic development the demand for commercial services and manufactured articles rises.

This leads to commercial progress and the establishment of manufactured industries. On the other hand, these developments lead to increase in agricultural production when farmers use advanced production techniques. Thus, capital accumulation decreases, economic development takes place due to the emergence of the farmer, the producer and the businessman.

According to smith, the process of growth is cumulative. When there is prosperity as a result of progress in agriculture, manufacture of Industries and commerce, it leads to capital accumulation, Technical progress, increase in population expansion of markets, division of labour, and Rise in profits continuously. But this process is not endless.

It is the scarcity of natural resources that finally stops growth. According to Smith, in a development process of an economy both income level and capital stock rise. In addition, the rate of capital accumulation also shows a tendency to increase. Obviously this factor enhances the capital stock of an economy in succeeding periods by increased doses of investment.

Another factor of vital importance which contributes to the progress of an Economy is a successive decline in the incremental capital output ratio on account of the influence of capital on the productivity of labour. At this stage the stationary state sets in. In his opinion, an economy in the stationary state finds itself at the highest level of prosperity consistent with its natural resources and environment.

An under- developed country in contrast, reaches stagnation before it has reached the highest degree of opulence attainable with its resources. Smith has mentioned China by way of an example of an under -developed country. It assumes the existence of a rigid division of society - capitalists and labourers. But the middle class occupies and important place in Modern Society.

Thus, his theory neglects the role of the middle class which provides necessary conditions to economic development. This is, however, a one-sided base of savings because it did not occur to him that the major source of savings in an advance society was the income-receivers and not the capitalists and land lords. The laissez-faire policy of perfect competition is not to be found in any economy, rather a number of restrictions are imposed on the private sector and on internal and international trade in every part of the world.

Smith neglects the role of the entrepreneur in development. This is a serious defect in his theory. The entrepreneur is the focal point of development, as pointed out by Shumpeter. It is the entrepreneur who organises and brings about innovations, thereby leading to capital formation. Smith is of the view that the end result of capitalist economy is the stationary state.

It implies that there is change in such an economy but around a point of equilibrium. There is progress but it is steady, uniform and regular. Thus the assumption of the stationary state is unrealistic. Adam Smith was the first to define the Wealth of Nations. It was not the stock of gold or silver but it consisted of the vendible commodities and services which are of real use to the consumers.

Wealth, another very important idea of Adam Smith, could not be increased through a deliberately planned favourable balance of trade as the mercantilists thought or by following physiocratic notion of applying all energies on land; instead wealth of a nation can be increased only by increasing the productive powers of labour, for in the ultimate analysis labour is the cause of all wealth.

This brings us to two of his important factors which determine the rate of economic growth:. Smith has ascribed a crucial significance to the phenomenon of division of labour as a determinant of economic growth. Division of labour, whether occupational or territorial, creates internal and external economies, including an improvement in technology.

Technological improvement not only lowers cost of production but also increases the future productive capacity of an economy. Hence division of labour is looked upon as a major gear in the machine of economic development. From the Theory of Division of Labour, Smith locally moves to his famous law of market. The increased productive capacity of an economy can be sustained in the long run, only if there is an adequate effective demand for products.

Smith powerfully advocates free trade as a means of intensifying foreign demand. Smith also makes a strong case for a large population and for paying high real wages to labour. High real wages, associated with an increasing population, would surely stimulate domestic effective demand and encourage occupational division of labour within the domestic economy.