Monday, October 18, 2010

Adam Smith - Father of Modern Economics

Hello!!! friends. I hope you all completed holidays. So welcome back from holidays.''ohhh god college''. College never leave us. So to all of you i wish to have good days.

As all we know that our world is totally based on the basic word economics, it is our duty to know at-least some thing about it. The cause why i'm telling all these is because, now i'm here to say about Father of Modern Economics. As our world is miserable without buying and selling since few centuries,he proposed so many theories for the human survival. He is none another than Mr.Adam Smith.

Adam Smith is the Father of Modern Economics for his great work towards the society as a philosopher and also as an economist. He proposed many theories. Among them theory of Free enterprise system, invisible, hand,laissez-faire ......... he is famous for every theory in economics. No theory exist without his involvement. His philosophy theories also got a very good name to Adam. He is very well known for his Wealth of Nations. It got a miraculous change during industrialization.He fought against  mercantilism to become the father of modern free trade. So if we go in to the details, here they are............

Adam Smith ( 16 June 1723 – died 17 July 1790) was a Scottish moral philosopher and a pioneer of political economics. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations (Wealth of Nations). Smith is widely cited as the father of modern economics and capitalism

Smith studied moral philosophy at the University of Glasgow and the University of Oxford. After graduating, he delivered a successful series of public lectures at Edinburgh, leading him to collaborate with David Hume during the Scottish Enlightenment. Smith obtained a professorship at Glasgow teaching moral philosophy, and during this time he wrote and published The Theory of Moral Sentiments. In his later life, he took a tutoring position that allowed him to travel throughout Europe, where he met other intellectual leaders of his day. Smith returned home and spent the next ten years writing The Wealth of Nations, publishing it in 1776. He died in 1790.

 Early Life:

Smith was born to Margaret Douglas at Kirkcaldy, Fife, Scotland. His father, also named Adam Smith, was a lawyer, civil servant, and widower who married Margaret Douglas in 1720 and died six months after Smith was born.Although the exact date of Smith's birth is unknown, his baptism was recorded on 16 June 1723 at Kirkcaldy. Though few events in Smith's early childhood are known, Scottish journalist and Smith's biographer John Rae recorded that Smith was abducted by gypsies at the age of four and released when others went to rescue him. Smith was close to his mother, who likely encouraged him to pursue his scholarly ambitions. He attended the Burgh School of Kirkcaldy—characterised by Rae as "one of the best secondary schools of Scotland at that period"—from 1729 to 1737. While there, Smith studied Latin, mathematics, history, and writing.

Formal education:

Smith entered the University of Glasgow when he was thirteen and studied moral philosophy under Francis Hutcheson. Here, Smith developed his passion for liberty, reason, and free speech. In 1740, Smith was awarded the Snell exhibition and left to attend Balliol College, Oxford.

He spent years teaching and tutoring, publishing some of his lectures in "The Theory of Moral Sentiments" in 1759. The material was well received and laid the foundation for the publication of "An Inquiry Into the Nature and Causes of the Wealth of Nations" (1776), which would cement his place in history.

Adam Smith - Theory of Moral Sentiments (1759):
In Theory of Moral Sentiments Adam Smith developed the foundation for a general system of morals. It is a very important text in the history of moral and political thought. It provides the ethical, philosophical, psychological and methodological underpinnings to Smith's later works. In Theory of Moral Sentiment Smith states that man as self-interested and self-commanded. Individual freedom, according to Smith, is rooted in self reliance, the ability of an individual to pursue his self-interest while commanding himself based on the principles of natural law.  

Invisible Hand Theory"An Inquiry Into the Nature and Causes of the Wealth of Nations" documented the industrial and development in Europe. While critics note that Smith didn't invent many of the ideas that he wrote about, he was the first person to compile and publish them in a format designed to explain them to the average reader of the day. As a result, he is responsible for popularizing many of the ideas that underpin the school of thought that became known as classical economics. (Learn economics principles such as supply and demand, elasticity, utility and more in our tutorial, Economics Basics.)

Other economists built on Smith's work to solidify classical economic theory, which would become the dominant school of economic thought through the Great Depression.

Laissez-faire philosophies, such as minimizing the role of government intervention and taxation in the free markets, and the idea that an "invisible hand" guides supply and demand are among the key ideas Smith's writing is responsible for promoting. These ideas reflect the concept that each person, by looking out for him- or herself, inadvertently helps to create the best outcome for all. "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. (Read about one implementation of Smith's "invisible hand" in The Rise Of The Modern Investment Bank.)
By selling products that people want to buy, the butcher, brewer and baker hope to make money. If they are effective in meeting the needs of their customers, they will enjoy the financial rewards. While they are engaging in their enterprises for the purpose of earning money, they are also providing products that people want. Such a system, Smith argued, creates wealth not just for the butcher, brewer and baker, but for the nation as whole when that nation is populated with citizens working productively to better themselves and address their financial needs. Similarly, Smith noted that a man would invest his wealth in the enterprise most likely to help him earn the highest return for a given level of risk. (Read more in Risk And Diversification: The Risk-Reward Tradeoff.)

Keeping these aside Wealth of Nations is the massive work done by smith.

Wealth Of Nations:
An Inquiry into the Nature and Causes of the Wealth of Nations (generally referred to by the short title The Wealth of Nations) is the masterpiece of the Scottish economist and moral philosopher Adam Smith. First published in 1776, it is a reflection on economics at the beginning of the Industrial Revolution and argues that free market economies are more productive and beneficial to their societies. The book, written for the educated, is considered to be the foundation of modern economic theory.

The Wealth of Nations was first published on March 9, 1776, during the British Agricultural Revolution. It influenced not only authors and economists, but governments and organizations. For example, Alexander Hamilton was influenced in part by The Wealth of Nations to write his Report on Manufactures, in which he argued against many of Smith's policies. Interestingly, Hamilton based much of this report on the ideas of Jean-Baptiste Colbert, and it was, in part, to Colbert's ideas that Smith responded to with The Wealth of Nations. Many other authors were influenced by the book and used it as a starting point in their own work, including Jean-Baptiste Say, David Ricardo, Thomas Malthus and, later, Karl Marx and Ludwig von Mises.

Five editions of The Wealth of Nations were published during Smith's lifetime: in 1776, 1778, 1784, 1786, and 1789. Numerous editions appeared after Smith's death in 1790. To better understand the evolution of the work under Smith's hand, a team led by Edwin Cannan collated the first five editions.

Book I: Of the Causes of Improvement...

Of the Division of Labour: Smith states that "the greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgement with which it is anywhere directed, or applied, seem to have been the effects of the division of labour."
Of the Origin and Use of Money: When money was first invented, it was not well regulated, which made agriculture and trade in commodities very difficult between individual owners.
Of the Real and Nominal Price of Commodities, or of their Price in Labour, and their Price in Money: “The real price of every thing,” says Adam Smith “what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it, or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people.” That this is really the foundation of the exchangeable value of all things, excepting those which cannot be increased by human industry, is a doctrine of the utmost importance in political economy“.
The value of any commodity … is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.
Of the Component Parts of the Price of Commodities: Smith argues that the price of any product reflects wages, rent of land and "profit of stock," which compensates the capitalist for risking his resources.
Of the Natural and Market Price of Commodities:
"When the quantity of any commodity which is brought to market falls short of the effectual demand, all those who are willing to pay... cannot be supplied with the quantity which they want... Some of them will be willing to give more. A competition will begin among them, and the market price will rise... When the quantity brought to market exceeds the effectual demand, it cannot be all sold to those who are willing to pay the whole value of the rent, wages and profit, which must be paid in order to bring it thither... The market price will sink..."[14]
Of the Wages of Labour,Of the Profits of Stock,Of Wages and Profit in the Different Employments of Labour and Stock,Of the Rent of the Land,
these are the things other explained in Book1. for these visit the below link 

Book II: Of the Nature, Accumulation, and Employment of Stock
visit the link for the concepts of nature,accumulation, employment of stock
Book III: Of the different Progress of Opulence in different Nations
 visit the link for the concepts of the different Progress of Opulence in different Nations

Book IV: Of Systems of political Economy
visit the link for the concepts of Systems of political Economy

Book V: Of the Revenue of the Sovereign or Commonwealth
 visit the link for the concepts of the Sovereign or Commonwealth

As these are very big to post, so i gave some links. There you have brief description of those theories. I hope you may like it.

Interestingly, while much of the philosophy behind Smith's work is based on self-interest and maximizing return, his first published work, "The Theory of Moral Sentiments", was a treatise about how human communication relies on sympathy. While this may seem to be at odds with his economic views of individuals working to better themselves with no regard for the common good, the idea of an invisible hand that helps everyone through the labor of self-centered individuals offsets this seeming contradiction.

Today, the invisible hand theory is often presented in terms of a natural phenomenon that guides free markets and capitalism in the direction of efficiency, through supply and demand and competition for scarce resources, rather than as something that results in the well-being of individuals.

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 the field of economics, including ideas that built on his work and those that differed. Smith died on July 19, 1790, but the ideas he promoted live on. In 2007, the Bank of England even placed his image on the £20 note.


So friends we all should appraise his work for our survival. He is the person who started life as a philosopher and became an economist. His inventions will stay till the human beings live on the earth. So thanks to Adam smith sir. He made us to live happily and luxuriously with all basic needs. Even his theories gave an opportunity to everyone. His theories made workers to work like a human and not like a slave. So for making these hats-off to Adam Smith.
I hope you all like my posts friends. Thanks for visiting my blog. Any objections or comments then please post on my posts. Bye friends. Have a great days in-front.

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