1 Adam Smith

8/8/2019 1 Adam Smith

1/12


2/12

ADAM SMITH-Father of Economics

y born in 1723 in Kirkaldy, Scotland

y a Scottish moral philosopher

y a great Economist

y author of Wealth of Nations

y part of school known as Moral Sense Thinkers

y also wrote on Ancient Physics, Ancient Logic, on

Imitative Arts, etc.


3/12

SMITHs Contribution

y Devised the term--Division of Labor

eg. Pin manufacturer

y Specialization-increases PRODUCTIVITY

y Labor Theory of Value-defining feature of classicalpolitical economy.

y Self-interest drives actors(buyers and sellers)to

beneficial behavior.


4/12

DIVISION of LABOR

y Improves dexterity by focussing attention.

y Reduces time lost shifting from one operation to another.

y Stimulates invention.

y Increases production.y Quality products.

y Efficiency in meeting constantly evolving competitiverequirements.

y The end-result--successfully market the output.

Note: Exploits local knowledge


5/12

CONTD..

y Increased co-operation and assistance.

y Broadening market enables increased division of

labour and specialization.


6/12

CLASSICAL LIBERALISM

y Pre-political individuality

y Private property.

y Individuals priority over the state.

y Limited government.

y Natural freedoms and natural rights.`


7/12

Laissez Faire Concept

y opposes interventions that favour individual marketparticipants or groups of participants

y favours policies that facilitate commerce as a wholeor that prevent private parties from interfering withmarket mechanisms


8/12

CAPITALISM

The essential tenants of capitalism, as developed bySmith, included:

y The means of production, land and capital, are

privately owned. "Capital", here, means the plantand equipment used to produce goods and services.

y The economy is organized and coordinated throughthe interaction of buyers and sellers (or producers)

in markets.


9/12

CONTD..

y Suppliers, the owners of land and capital as well aslabourers, pursue their own self-interests in seekingmaximum gain and profits from the use of their

resources. Buyers of goods and services similarlyspend their money to yield the greatest satisfaction.

y With suppliers and buyers pursuing self-interest themarket is constructed in which the value (or price) of

goods and services is determined through the"haggling" of seller and buyer.


10/12

CONTD..

y With a competitive market of buyers and sellersfollowing self-interest, the economy is self-regulatingand there is little role for government.


11/12

CONCEPT of INVISIBLE HAND

y The possibility of cooperation without coercion.

y Allows consumer to choose freely what to buy and

each producer is allowed to choose freely what to selland how to produce it.

y A balancing mechanism.


12/12

CONCLUSION

y Individual is organized into community by virtue ofeconomic markets based on individual needs andproduction.

y New and more innovative policies for division oflabor.

1 Adam Smith

Documents

Transcript of 1 Adam Smith