Great Economical Thinkers: Adam Smith

Great Economical Thinkers: Adam Smith

Adam Smith [7] (1723 – 1790) was a Scottish moral philosopher, pioneer of political economy, and key figure in the Scottish Enlightenment is our guide to perhaps the most pressing dilemma of our time: how to make a capitalistic economy more humane, and more meaningful. His concern was beyond the economic, he wanted to understand the money system, because his underlying ambition was to make nations and people happy. He is considered the founder of modern economic liberalism. He was the champion of the free-market economy: it is the demand of the market itself and not the state that should have a final say. Everything hung on whether somebody decides to buy something or not. In London 1759, Smith published his work “The Theory of Moral Sentiments”. He focused on the question of why man is interested in the fortunes of others, replacing the feeling of a moral sense with a principle of sympathy. The economic philosophy of the day was mercantilism: an economic model characterized by government intervention. There where government operated factories as well as heavily regulated trade. The French government allow for the import of raw material to ensure that goods would only be produced in their own country. In England, even if there was a bit more freedom, there also mini import duties and restrictions that Smith became more and more critical of. For him it was obvious that economic prosperity can be realised through one’s own interests and competition. A baker makes bread and a brewer makes beer but they don’t do it out of their own generosity. The division of labour was also important to him because it made one more productive. The bigger the market, the more room for specialization in certain areas further increasing productivity that would lower the prices as competition went up. He considered the expansion of markets absolutely essential and critized the intervention of guilds and the governments alike. For his it was certain that an unregulated free-market would provide sustainable wealth for the whole nation. England was changing rapidly, with private citizens re-directing rivers, building channels, along with fast transportation of goods. In 1776 he published his master price: An Inquiry into the Nature and Causes of the Wealth of Nations. He also addressed the division of labour, people’s propensity to borrow and trade and provided a theory based on the economic cycle that would provide for the everlasting “Wealth of the Nations”. “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinners, but from their regard to their own interest”. The butcher produces goods for money instead of giving them away. With the money earned they can spend it at the bakers’ who in turn spends it at the pub, and so on. It is one’s own self-interest that indirectly promotes a well-functioning economy. The metaphor the “invisible hand” that channels the self-interest of the individual into a sociably desirable end is of essential important for the classical laissez-faire economics. Adam Smith was a revolutionary in his time. Friedrich Hayek and Milton Friedman took on his concepts, and developed them further, strengthening liberal economic theory. In the period of 1970 – 1990s, extreme right-wing governments in the form of dictatorships were supported by the US government all across Latinamerica through puppet, unconstitutional governments. This came about to secure the western hemisphere as a response to the Soviet Bloc, to control Central and Eastern Europe. We will discuss all about that later, but first, one of my favourite economists of all times. He is thought of as the father of communism, but in fact, he never proposed any sort of communistic system. Such is so, that he ended his days in England, the most liberal country in Europe. None other than the infamous Karl Marx!!!

https://en.wikipedia.org/wiki/Adam_Smith