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Adam smith (Essay Sample)


Adam smith is one of the world’s most influential and best-known economist and philosopher. His contributions in teaching and his theories on wealth creation of nations, Free Market Economics, and management make him the best if not one of the best economists.


Adam smith is one of the world's most influential and best-known economist and philosopher. His contributions in teaching and his theories on wealth creation of nations, Free Market Economics, and management make him the best if not one of the best economists. He was born in Kirkcaldy Scotland in the year 1723 though the exact date is not known. He joined Burgh school where he studied mathematics, Latin, history, and writing. At the age of fourteen, Smith entered the University of Glasgow on scholarship. In 1740, he attended Balliol College at oxford, and graduated with extensive knowledge of European literature. Adam Smith was a pioneer of political economy, and a moral philosopher. His most famous works for which he was known for were theory of moral sediments and the wealth of nations. Wealth of nations was considered as the bible of capitalism. Wealth of nations entails early systems of political economy. He is thus considered as the father of modern economics (Buchan, 2006).
Adam smith started giving series of public lectures at the University of Edinburgh in 1748. It is during this lectures where he met, and collaborated with David Hume in the Scottish enlightenment. Smith was later appointed to the Glasgow university faculty. It was at the university where he obtained his professorship, wrote, and published The Theory of Moral Sentiments.
In 1763 smith left the university to accompany the young Duke of Buccheuch in a grand tour around Europe. This trip enabled him to meet other intellectuals and exchange ideas. These intellectuals included great French Enlightenment thinkers like Voltaire d'Holbach Quesnay, and Turgot who were a part of physiocrats school of thoughts.
The invisible hand was a metaphor, which was conceived by Adam smith to describe the behavior of capitalism, and the market place. It was the self-regulating behavior of the market as both buyers and sellers on both ends of transactions strived to maximize their profits, and resulted to desirable social ends. The profit motives and desire for self-gain in transactions lead to better products, for a lesser cost in an unregulated free market (Joyce, 2001). Adam Smith pointed out that the benefits of the invisible hand did not depend on benevolent aims of the individuals.The concept was developed by Smith to argue against government regulating trade, and protectionist policies. Unlike a centrally planned system, a free market generates demand and others provide the goods to satisfy the demand at a profit hence resources end up being allocated the best way possible (Durlau & Blume, 2008).
According to smith, division of labor is the specialization of individuals in different functions, which combine to achieve a common goal. The main contribution of division of labor was to breakdown large jobs into many tiny functions, which enabled workers to be experts in their narrow fields (Otteson, 2011). Smith argued that division of labor increased productivity. He also advocated for matching of skills with work area. Those who were good at a certain area were assigned to that function. He also emphasized on matching technology to improve productivity.The downside of division of labor, and specialization was the mutilation of workers skills, and lack of innovation and growth (Alvey, 2003).
The theory of moral sentiments was Smith's first work in 1759. He tried to explain human's moral inclination despite his self-interest personality. Smith explained why humans developed social relations. He concluded that humans showed sympathy to others or in presence of others, and developed a conscience. The moral thinking was an attempt to please an external or impartial spectator and in return gain sympathy. This theory argues that human moral actions are guided by social physiology more or better than is guided by reason. The basic prudence rules and justice enable a society to advance. Prudence moderates people's actions and excesses while justice prevents our destructive actions toward others (McKenna, 2006).
According to Smith, humans tend to care about other people's welfare not for any self-interest or self-satisfaction but the pleasure one gets in seeing other people happy. This is called sympathy. The level of sympathy extended to others depends on whether we see firsthand the misfortune which befalls a fellow human; how vividly we recollect the misfortune and how vividly the account of another person. This limits the level of sympathy shown towards another person. According to Smith, a person feels happy when other people around have the same emotions, and displeasure when people feel contrary emotions. Mutual sympathy has more pleasure when it is a negative emotion rather than a positive one. People communicate more anxiously when in a negative emotion.
The wealth of nations was Adam Smith's second work. He titled the work ‘an inquiry to the nature and causes of wealth of nations'. It is the most important work of Adam Smith according to other philosophers and economists. It offers an explanation on what builds a nation's wealth, and is today viewed as the foundation of classical economics. It reflects economics at the beginning of industrial revolution (Weinstein, 2008). Topics covered in this work include topics as the division of labor, free markets, and productivity.
Smith emphasized on division of labor in creating wealth for nations. It is a concept of specialization and breaking up tasks into smaller parts leading to greater productivity to countries. Diversification was more in rich countries than in poor ones.
Division of labor was more efficient in industry than in agriculture. Rich nations were better in industry and not in agriculture as compared to poor countries. According to Smith, division of labor arises due to need to exchange different skills and is hence limited few opportunities for exchange. This exchange of skills was assumed to occur in a free market situation.
Smith explained that in a free market the price of a commodity compensated a capitalist for risking his resources. It hence included rent and other costs associated with the commodity and profit (Alvey, 2003). Smith also pointed out the relationship between market prices, and quantity of supply in free market. He explained that when a commodity was in low supply, and could not meet the effectual demand, people were willing to pay more to get it hence its price increased. Consequently, if the supply was in excess of the effectual demand it could not all be sold and hence its price would sink (Smith, 2009).
Smith also pointed out how people could make huge profits, and charge prices way above the natural price. This concept was commonly referred to as the ‘dyer who discovers a unique dye'. By discovering a unique product, which the market needed, or creating a monopoly, one could charge high prices without reducing demand. The unique product had a shorter profitability lifespan than a monopoly. This is because the monopoly could keep supply way below demand hence creating a shortage at all times hence continuing enjoying the profits for longer (Ashraf, Camerer & Loewenstein, 2005).
Adam smith also explained productivity of labor in his work. The wage rate was determined by competition between laborers and masters. If laborers win then wages are high, if master...
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