Adam Smith and Classical Economics
Adam Smith grew up in Scotland, which is home to David Hume, who is perhaps one of England's greatest philosophers. Smith had a good childhood, he was raised with some money at hand, but he was certainly not rich. As far as his family goes, his father was a lawyer and held a public office in Scotland and his mother was a member of the Scottish Gentry. There is no doubt that Smith began his political thinking through his mother. In his first book, the Theory of Moral Sentiments, he talked about the economy of his time. The market or economy consisted of small businesses started by individuals motivated by their self-interests. Self-interests do not necessarily always mean increasing one's wealth measured in dollars and cents. It is a fact that individuals seek many goals, not just increased wealth. Therefore, the self-interest of the individual involves at the minimum goals relating to prestige, friendship, love, power, helping others, and many other things. In a successful market, the competition between businesses would create enough goods for everyone. Supply and demand for desired goods would determine which businesses would be successful. It would also determine the price of the goods. This is how the market worked at Smith's
Specifically they show us how the drive of individual self-interest in an environment of similarly motivated individuals will result in competition. Furthermore they demonstrate how competition will result in the provision of those goods that society wants, in the quantities that society desires, and that society wants, in the quantities that society is prepared to pay. Adam Smith died in 1790. His theories continue to be widely read. Karl Marks even followed his teachings. He was the first person to really understand and describe how a free market functioned. He educated England and Western Europe in the importance of a free market and how the market kept society together. Smith looked at the market as a chain. The free market kept the chain unbroken. At first, both labor and capital in all areas of the market was equal. There were enough of all the goods that were demanded by the population. The market also made sure that the prices of the goods covered the cost of production. From the starting point, society began accumulating wealth, and this resulted in more services for production and labor. This accumulation would also raise wages because the capitalists would need more workers to help out at the new factories. As the wages continued to rise, the factories would eventually not be able to make a profit out of their accumulation. Higher wages however were very good for the workmen because they would take home more money to their families. This was an era when many children died, and the extra money helped to keep
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Approximate Word count = 1030
Approximate Pages = 4 (250 words per page double spaced)
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