Adam Smith Wealth Origin

Superior Essays
What is the origin of the wealth of nations? This question posed by Adam Smith, the architect of classical economics, is appropriate starting point to understand how economic systems are essential to understanding national development. The wealth gap between countries can be attributed to the divergent national economic histories each nation possesses. Smith equates wealth with economic growth that arises from a growing source of labour and capital stock, increased efficiency in the use of capital and labour through greater division of labour and technological progress, and the promotion of foreign trade. Smith contends that the primary cause of the wealth gap arises from differences in productivity resulting from the division of labour. This division of labour is originates from humans’ propensity to exchange, while the productivity of the individual ceteris paribus is maintained by self-interest. Although today many recognize the division of labor as an ingredient to economic success, economists since Smith have built, critiqued, and engaged with his views to articulate other factors that contribute to differences in national development that are reflected in different ideas about trade, taxation, government spending, interest rates, and the flow of goods in an economy. To understand how Adam Smith came up with his ideas, it is important understand the different forces that emerged during and after the Rennaisance to prompt an interest in the study of economics. …show more content…
The main catalysts include the “emergence of national political units in Europe…slow decay of the religious spirit…and rise in scientific curiousity” (Worldly Philosophers 34-36). The idea of seeking a profit appeared alien to any plebian in a planned feudal economy. This changed with the emergence of the mercantilists and physiocrats in the 16th and 17th centuries. Thomas Mun, head of the Dutch East India compnay, was a renown mercantilist who perpetuated the mercantilist ideology that trade is the exlusive mechanism that promotes economic growth. In his most famous work England 's Treasure by Foreign Trade, Mun claims that England has “no other means to get Treasure but by foreign trade” (Mun). The rise of nation states at the end of Feudalism prompted the focus on an individual country’s development and focused on production. Mun’s idea that “wee must ever observe this rule; to sell more to strangers yearly than wee consume of theirs in value,” presents a fascinating look into the post-feudal economy where development was strictly looked at as national advancement at the expense of the raw material producers (Mun). This focus on trade to build a trade surplus was important in expanding the world economy, but the idea that exchange with strangers is the most important if not only way to enrich the commonwealth, was toppled by Hume’s Specie Flow mechanism and Smith’s more comprehensive understanding of the global economic machine. It was during the end of the 18th century when Adam Smith articulated in his magnum opus The Wealth of Nations, how the capitalist system can function effectively. Adam Smith disdained the ideas of Mun and other mercantilists because he claimed, “consumption is the sole end and purpose of all production” (Smith Book IV.8). He gave normative statements for how society ought to structure itself to become stronger through growth. Despite the positive growth Smith envisioned through the division of labour, he prognosticated a stagnant economy in the long-term. To formulate this idea, Smith traces the flow of economic goods and trade through a Laissez Faire system that arises from the specialization of labour. Smith argues that the division of labour is the engine of economic progress. By looking internally, he puts the power of development in the hands of the individual and not the government or wealthy class, which in Mun’s system are the only people who can afford to maintain trading routes and access capital to engage in trans-oceanic expeditions. Smith believes that trade will emerge from specialization of labour because countries will produce according to their absolute advantage and satisfy their wants though trade. Despite the clear advantages of specialization of labour that Smith rationalizes, which include increased worker dexterity, less idleness, and more innovation, Fredreich List favors a more nationalist approch to development since he does not see how specialization alone can account for observed economic disparities. In National System of Political Economy, List argues that only looking at

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