Smith’s principles endure today
Adam Smith is a name possibly familiar to most of us. Back in my earlier school days, we were required to read selected readings from the writings of Adam Smith. Work ethic, competition, growth and development, profit motive, free market solutions … these concepts were all part of the Adam Smith lexicon.
Primarily, the readings came from the well known work by Smith entitled “The Wealth of Nations.” It was not until much later in my life that I realized that Adam Smith is considered a towering figure in the history of modern economics. And today, the subject of economics is a major story in the headlines of newspapers and other media sources across the world.
To be sure, the condition of the economic scene is of major concern! The jobs situation is pressing on the minds of most Americans. “Making ends meet” and maintaining a reasonable standard of living is a common theme in kitchen table discussions. It was not until these later years, the I realized that Adam Smith, a Scottish philosopher of the 1700s , had much to say about the current state of the economic condition.
The ideas that became associated with Smith not only became the foundation of the classical school of economics , but also gained him a place in history as the “father of economics.” His work served as the basis for other lines of inquiry into economics. Economic philosophies, such as minimizing the role of government intervention and taxation in the free markets, were paramount ideas expressed by Smith.
His idea of an “invisible hand” which guides supply and demand is among his key ideas. This reflects the concept that working persons help to create the best outcome for all, including the desire to share altruistically. “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner , but from their regard to their own interest,” Smith wrote.
By selling products that the people want to buy … the butcher, brewer and the baker … hope to make their income. As Adam Smith saw it, if they are effective in meeting the needs of their customers, they will see financial gains. While they are engaging in their enterprises of earning an income, they are then also providing products that the people want. Such a system, Smith argues, creates wealth not just for the butcher, brewer, and baker, but for the nation as a whole when that nation is populated with citizens who desire to better themselves and their families.
The ideas of the work of Smith generated international attention and helped to drive the move from land-based wealth to wealth created by assembly-line production methods driven by division of labor. One example Smith cited involved the labor required to make a pin. One person undertaking the 18 steps required to complete the tasks could make but a handful of pins each week, but if the 18 steps were completed in assembly-line fashion by 10 persons, production would jump to thousands of pins per week.
It has been more than two centuries since the death of Adam Smith but his work is a towering contribution to modern economics. His celebrated work on “The Wealth of Nations” captured the spirits of industrial capitalism, and presented its rationale in a form which dominated the thinking of the most influential political economists.
When I, as a student, was required to read the assigned readings of Adam Smith, I had no idea the impact his work would have on our lives today.
Dr. Robert L. Heichberger is professor emeritus at the State University of New York at Fredonia and distinguished professor at Capella University in Minneapolis, MN. All of the past columns can be viewed on www.fromourperspective.net/ Send comments to: Rheich@aol.com