Adam Smith and the Wealth of Nations
Prof. Dr. Mustafa Al-Abdullah Al-Kafri
Adam Smith and the Wealth of Nations
Prof. Dr. Mustafa Al-Abdullah Al-Kafri
Contents
I – Adam Smith’s famous book Wealth of Nations: 3
III – wealth and number of people engaged in production: 5
IV – Smith’s intellectual work and the development of human society: 5
Adam Smith and the Wealth of Nations
Prof. Dr. Moustafa El-Abdallah Al Kafry
Adam Smith is an eighteenth-century Scottish economist, philosopher, and author who is considered the father of modern economics. Smith was a supporter of laissez-faire economic policies and his new ideas sometimes contradicted those of mercantilism. He was the first to scientifically define the concept of GDP and his theory of compensating wage differences. [1]
Smith’s recorded date of birth as reported from baptism is June 5, 1723 in Kirkcaldi, Scotland. Smith attended the University of Glasgow in Scotland at the age of thirteen and studied philosophy and ethics. He then went on to postgraduate studies at the prestigious Balliol College at the University of Oxford. After returning to Scotland, Smith gave a series of public lectures at the University of Edinburgh. The success of his lecture series helped him to become a professor at the University of Glasgow in 1751. He received the position of head of the Moral Philosophy track. During his years teaching and working at the University of Glasgow, Smith published some of his lectures. He also published his book The Theory of Moral Sentiment in 1759. He moved to France in 1763 to accept a more lucrative position as personal tutor for the stepson Charles Townshend, an amateur economist and future Chancellor of the Exchequer. During his time in France, Smith was a contemporary of the philosophers David Hume, Voltaire and Benjamin Franklin. [2]
Most economists assert that Adam Smith is the father of modern economics, and they base this on the fact that since the publication of his book entitled: Wealth of Nations, the importance of most of the books that were placed in economics before him has declined, in other words, it surpassed the economists before him, and the reasons for distinguishing his book from other economic books are: [3]
– His book during his reign had a scientific, intellectual and literary value.
– Adam Smith quoted his predecessors as economists, and added what he gained with experience or reached by lesson and developed a comprehensive new system. It appears that the authors who had a great influence on him in his life, or whose ideas were the reasons for his path (Hutchon and Hume Mandeville).
– He benefited from the views of the physiocrats, as he met during his stay in Paris in 1765 two poles of the physiocratic school (Tergo and Decknay), and Smith was influenced by the most important views of the physiocrats, especially with regard to the division of wealth, and his superiority over them is due to the fact that he left the disjointed economic systems, and introduced economics into the circle of science; Smith died on July 19, 1790, at the age of 67.
I – Adam Smith’s famous book Wealth of Nations:
Smith’s most prominent contribution to economics was his book An Investigation into the Nature and Causes of the Wealth of Nations in 1776. [4]
Smith’s most important work, An Inquiry into the Nature and Causes of the Wealth of Nations, was reduced to The Wealth of Nations in 1776 after returning from France and retiring to his hometown of Kirkcaldi, Scotland. In The Wealth of Nations, Smith popularized the ideas that form the basis of classical economics. Other economists built on Smith’s intellectual work to solidify classical economic theory, the dominant school of economic thought during the Great Depression. Smith’s ideas were evident in the intellectual works of David Ricardo and Karl Marx in the nineteenth century, and John Maynard Keynes and Milton Friedman in the twentieth century. [5]
II. Wealth as seen by Smith:
What is wealth? Wealth is the sum of the material funds that are suitable for satisfying human needs and that man obtains from his work directly or by exchange, and the annual wealth of a nation is the sum of the material funds produced by its members by their joint work directly or by exchanging part of their work for the product of the work of other nations, and it is evident here that Smith separated from both the Mercantilists and the physiocrats.
Smith defined the wealth of any nation as not the amount of gold or silver it possessed, but the land and its improvements and yields, and the people’s effort, services, skills and products. (His theory was that the greatest material wealth is the result of the greatest economic freedoms, and this with some exceptions. The love of personal benefit is common to all people, but if we allow this powerful impulse to operate with maximum economic freedom, it will stimulate more activity, boldness, and competition than any other system known in history.
Smith believed that the laws of the market—especially the law of supply and demand—would harmonize the freedom of the producer with the interest of the consumer; if the producer made exorbitant profits, others would enter the same field, and the mutual competition between them would keep prices and profits within reasonable limits. The consumer will enjoy a kind of economic democracy. By purchasing or refusing to buy, it will be largely decided which goods are produced, which services are provided and in what amount and at what price, rather than the government dictating all these things.) [6]
III – Size of wealth and number of people engaged in production:
Thus, the size of a country’s wealth depends on the number of people engaged in production and on the level of labour productivity (labour is the basis for the wealth of nations), and its labour productivity depends above all on the degree of division of labour. Production, according to Smith, means:
- Doubling the amounts of wealth (agriculture).
- Make the material fit for the satisfaction of the need (industry).
- In general, production in his opinion is exclusively physical production.
In fact, for Smith, “wealth of nations” means capital, and the primary means of increasing this “wealth” is to develop the Manfectural division of labour.
IV – Smith’s intellectual work and the development of human society:
Smith’s intellectual work discussed the evolution of human society from the stage of hunting without property rights, variable residences, or fixed dwellings to the stage of primitive agriculture. Then the feudal stage where laws and property rights are made to protect the privileged classes that own the means of production. Finally, modern society is characterized by a philosophy of free markets where new institutions are created to conduct market transactions.[7]
In his first book, The Theory of Moral Conscience (1759), Smith proposed the idea of the invisible hand, and emphasized the tendency of free markets to organize themselves by means of competition, supply and demand, and utility or self-interest.[8]
V. Smith’s principles and theory of the division of labour:
What surprises us in Smith’s principles is that despite his theory of the division of labor, we see that he does not appreciate, or does not want to equate agriculture with other sources of wealth, but rather puts it at the head of other arts, and this is undoubtedly due to the influence of physiocrats, and Smith has emphasized in addition to the principle of division of labor two other principles:
– his opinion on the nature of things,
– His opinion on good faith in things.
His view of the nature of things means that economic systems do not come after a measure, but they come spontaneously and without explanation, and by his good faith in things, we mean his opinion that all economic and social systems aim at good ends.
Adam Smith believed that once he proved that economic systems were natural, he could simultaneously prove their direction for the good of humanity. But this is a clear mistake from the great professor, because proving that an order was issued by nature is an order, and proving the direction of this matter towards the good is a second thing, but Smith did not separate them, but the economists who came after him took the first opinion, that is, the existence of economic systems by nature, and rejected the second opinion, that is, the direction of those systems towards the common good always.
VI. Adam Smith andhis theory of money:
Adam Smith applied this theory to the question of money. Adam Smith says the importance of bank notes because with their presence and by dispensing with pieces of paper for ample amounts of gold and silver, the nation was able to benefit from its gold and silver by sending it out of the country to increase real wealth.
In short, a policy that accumulates money in a country is contrary to the idea of the wealth of the nation, because too much money does not increase the wealth of the nation, but on the contrary bothers it. What is true of coins is true of securities, so these banknotes were subject to a fixed law, which requires them not to exceed what is required or their value will fall.
The hidden force that moves people in their economic activity towards a life of progress is self-interest, man’s desire to improve his condition, and the instinct of the individual that constantly urges him to progress. The conclusion of Adam Smith’s thought is that there are economic systems by nature, and that these systems are preserved by the interests of individuals and the fulfillment of their various desires and desires.
Prof. Dr. Moustafa El-Abdallah Al Kafry
Faculty of Economics – Damascus University
[1] – Adam Smith Institute. “The wealth of nations”. Accessed March 1, 2020.
[2] – Encyclopedia Britannica. “Adam Smith.” accessed March 1, 2020.
[3] – Mohamed Lotfi Gomaa, lecture on Monday, January 16, 1911.
https://www.hindawi.org/books/91480861/2/
[4] – University of Groningen. “Biography of Adam Smith (1723-1790)”. Accessed March 1, 2020.
[5] – Economics Education Foundation. “It all started with Adam.” accessed March 1, 2020.
[6] – Adam Smith,
https://www.marefa.org/%D8%A2%D8%AF%D9%85_%D8%B3%D9%85%D9%8A%D8%AB
[7] – Encyclopedia Britannica. “The wealth of nations”. Accessed March 1, 2020.
[8] – Encyclopedia of Philosophy online. “Adam Smith (1723–1790)”. Accessed March 1, 2020. Adam Smith, Rakesh Sharma, Updated February 16, 2020.
https://www.investopedia.com/updates/adam-smith-economics/#citation-10