Adam Smith
Tarek Thomas
ECON 350 - D01 LUO
Marlow Chavarria
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Introduction
Adam Smith challenged the status quo as it pertained to social classes, economics,
and government. The affects of Smith’s theories can not be overstated and several of
his concepts are still utilized today. It is difficult to assess Smith’s opinion on how
unequal distribution may lead to social unrest, because of the views that Smith shared
in the past. Nevertheless, Smith was one of the most influential economists in history
and he definitely would have had an opinion.
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Adam Smith would respond in agreement with modern-day claims that unequal
distribution of wealth leads to social unrest. “Smith is an important figure in economics,
and can be said to have founded classical economics, even if many (or all) of his concepts
and theories can be found scattered through the works of numerous predecessors who left
no disciples and founded no enduring schools” (Sowell, 2006, p. 3). It is sensible based
on Smith’s theories and concepts that wealth and society are closely connected. However,
there are many outcomes that may come to fruition based on the collective thought
processes of the wealthy and poor of a nation.
The more money a person has does not necessarily equate to happiness according
to Smith. “Yet while believing that consumption of goods, as well as wealth and
greatness, all provide only frivolous utility, Smith believed that the productivity of market
economy is driven by this "deception"-the misguided belief that wealth brings happiness.
It is this deception which rouses and keeps in continual motion the industry of mankind”
(Ashraf, Camerer, Loewenstein, 2005, p. 131). A wealthy person has a motivation and
self-interest to continually strive for more wealth. Amassing more wealth and continually
working to best the competition does have some payoffs, but at the end of the day true
happiness may not be achievable for the wealthy. In contrast the poor man may have
more freedom with his time and less stress because of the limited role he plays in
producing products and services. At some point there is a trade off in the two classes. It
can be stated though the wealthy and the poor have two different perspectives on the
economy both classes can ultimately benefit. “In spite of a wealthy group’s natural
selfishness and rapacity, though they mean only their own convenience, though the sole
end which they propose from the labours of all the thousands whom they employ be the
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gratification of their own vain and insatiable desires, they divide with the poor the
produce of all their improvements” (Ashraf & Camerer & Loewenstein, 2005, p. 131).
Mercantilism was a theory Adam Smith did not agree with. “The practice of
mercantilism was the primary economic system of trade used from the 16th to 18th
century. Mercantilist theorists believed that the amount of wealth in the world was static.”
In addition, mercantilist theorist believed that a nation should increase their wealth by
exporting as much as possible to other nations while simultaneously limiting imports to
other nations. Several nations during the 16th to 18th century imposed government
regulations to increase their nation’s wealth and decrease other nation’s wealth.
Mercantilism was one of the most popular theories in 1776, during the time that Adam
Smith produced one of his most famous classical works “The Wealth of Nations.” In the
“Wealth of Nations”, Smith provided a contradictory theory of how nations could
maximize their economical situation.
Adam Smith believed that a country could maximize its economic position by
moving to a free market economy or invisible hand. “In a free market economy, self-
interested individuals operate through a system of mutual interdependence to promote the
general benefit of society at large”. The free market theory makes the best usage of
individuals competing against each other to better the society. In addition, the law of
supply and demand regulates production and labor. There are several countries that
currently run a variation of the free market economy such as the United States,
Singapore, Australia, New Zealand. Conversely, when the government runs the economy
in a nation, innovation and competition are not at the forefront of businesses to produce
better products and services. The free market economy also suggests there is a benefit of
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global trade. “For Smith and later classical economists, wealth was conceived of not as a
stock of money but as a flow of goods- real income in modern terminology. More
fundamentally, Smith and the classical school stressed the creation of wealth, rather than
its transfer. International trade was seen as a source of mutual benefit, rather than of
differential gain.”
Adam Smith viewed governmental intervention in the economy as a means to
help the wealthy. The way government dealt with landowners and businessmen that
formed a monopoly in the 18th century still exists today in some form. “Adam Smith
believed that, "Government should limit its activities to administer justice, enforcing
private property rights, and defending the nation against aggression." Smith’s beliefs on
how the government should support their citizens appears to be in favor for all and not
just the wealthy. Nevertheless, Smith realized though his ideas would allow for a larger
portion of the nation to prosper economically, it would also allow for the nation as a
whole to prosper economically. In truth, Smith realized the politicians and wealthy people
of his day did not share the same ideology on how the government should assist all
citizens economically. “The member of Parliament who supports every proposal for
strengthening this monopoly, is sure to acquire not only the reputation of understanding
trade, but great popularity and influence with an order of men whose number and wealth
render them of great importance.”
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Conclusion
If Adam Smith was alive today, he would notice several similarities in the 18th
century and the 21st century and his response today would be the same as it was in the 18th
century. Today mankind continues to fight wars at the expense of the tax paying citizens
of a nation. Also there is continued manipulation by the wealthy people around the world
to gain more wealth by any means necessary. “Adam Smith’s conception of the nation
was implicit in his statement that “no society can be flourishing and happy, of which the
far greater part of the members are poor and miserable” (Sowell, 2006, p. 6).
Governmental leaders still want to play a large role in the economic success of their
country by administering trade agreements, sanctions, and tariffs when dealing with other
countries. However, there is still hope for increased globalization and economic
prosperity. Adam Smith’s theories were transcendent; this is proved by several large
nations around the world that continue to use the economical concept of the free market
system.
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References
Ashraf, N., Camerer, C. &Loewenstein, G. (2005). Adam Smith, behavioral economist.
The Journal of Economic Perspectives. 19.3, pp. 131. Retrieved from:
https://search-proquest-com.ezproxy.liberty.edu/docview/212075972?pq-
origsite=summon&accountid=12085
Economist’s View. (July 15, 2017). Economistsview.typepad.com. Retrieved from:
http://economistsview.typepad.com/economistsview/2010/03/adam-smith-and-the-role-
of-government.html
Investopedia. (July 15, 2017). Ivestopedia.com. Retrieved from:
http://www.investopedia.com/terms/m/mercantilism.asp
Sowell, T. (2006). On classical economics. Yale University Press. New Haven & London
