Adam Smith was a philosopher and political economist; the results of his work became significant in the entire world and shaped the modern economy. The Scottish scientist formulated the fundamental theories that enlightened the world on economic matters (Mankiw, 2003). He stood with what he believed was right for the government and the citizens. Sometimes, he adopted positive criticism on the government to ensure that the economic power is diligently gained. His strategies have reached the current generation and are still timely and topical, as numerous other economists have based their research on his work. Adam Smith’s economic strategies have shaped the present economic strategies. His concepts and ideas are extremely important; thus, it is necessary to study his life, work, and theories as the source of the paramount economic innovation.
Adam Smith’s Theories
Adam Smith formulated two crucial theories: The theory of moral sentiment (1759) and an inquiry into the nature and causes of the wealth of nations (1776). These theories helped to explain wealth and economy from the economic point of view, at the individual and national levels. He clarified why the individual work and the communal-based work was crucial to the economy (Smith, 1976). Additionally, he explained how each strategy contributed to the economic growth thus eliminating any controversy upon explaining his thoughts to people. The two theories also took into account the welfare of the society implying that a person or the nations aiming at amassing wealth had to follow some legal principles.
Theory of Moral Sentiment and Its Importance
The theory of moral sentiment revolved around the ethics in the pursuit of public interest. With the economy on his mind, Adam Smith recognized that institutions could be used to nurture individuals, who embraced morality in the economic activities (Mankiw, 2003). He considered economics to be a branch of science that was more inclined to the social science (Raphael, and Macfie, 1975). He remarked about those who opposed the social science since they failed to assess the approach seriously. According to him, everybody deserved to reap the best from the efforts. Arguably, healthy competition is necessary meaning that every person could produce better results individually. A community where the competition existed ended up with high quality products since indolent people lack means of subsistence. The individual’s output could eventually sum up to the general community welfare. There is no complexity in the economic approach, but it impacts some members significantly-.
Adam Smith highly advocated for the adoption of the market economy. However, according to the economist, the market economy is not purely independent. Individualism should not be applied alone to attain economic growth. Individuality revolves around personal interests; therefore, people tend to amass a lot of wealth without considering their colleague’s welfare (West, 1976). According to Smith, other factors could lead to success beyond the one achievable through mere individuality. Supporting others is crucial since an individual is too weak to create economic development in the area on his or her own. Though people are not supposed to depend on others completely, those having an upper hand should assist the disadvantaged in the society. It is unethical for a person who can uplift other members of the society to exercise ignorance (Sen, 1987). Nobody will ever force their colleagues to support the weak, but it is their moral obligation. Any idle resources should be allocated to these people either directly or indirectly so that they can be of economic benefit to the community. A spirit of togetherness in achieving a common goal should drive the community.
Rationality is a factor that should be considered when dealing with a society. This means that the profit motives and personal interests prevail in the normal society. The exchange of goods should not receive condemnation since it serves as an encouragement to the producers. Exchange of goods encourages production of a variety of goods and services. Considering the fact that there always is a good medium of exchange then trade is a contributor to the economic growth and development. Everybody should strive for perfection of fair trade. Adam Smith targeted to see market economy that never condoned social injustice. As a rule, vested interests ruin businesses since a proper foundation is not laid during the pursuit of public interest.
Theory of the Wealth of Nations and Its Importance
The wealth of nation’s theory targeted to expound what the national economy entailed. The wealth of a country is defined in terms of the per capita national product. The number of active individuals in the production process, thus, defines the country’s wealth. The public policy affects the national economy significantly. Countries are known to support different economic theories, which in turn affect the economic growth. Adam Smith emphasized that pure capitalism was not the ultimate key to the economic growth of nations. The inhabitants of certain state were the determinants of the economic destiny of the country. The rights and welfare of the residents determined the rate, at which the economy was to grow. Striking a balance in the living standards ensured that everybody contributed effectively to the economic development. The countries employing the strategy are projected to have a tremendous economic growth.
Consumption in the country was a critical factor in the economy. Adam Smith wanted the nation to be seen as consumers of their own products.
Socialism could help balance the needs of the citizens at various production stages. There is a tendency of the people at the end of the production chain to benefit more than those at the initial stages. Everybody in the chain plays a major role in the production process; hence, the imbalance created is an injustice (O’Rourke, 2006). As a rule, the injustice harms the country since capital tends to incline towards one direction. Either the vice should be eliminated, or it will continually haunt the national economy forever. Adam Smith identified that something was to be done to ensure that the economic development also prevailed. Currently, the trade unions attract trust with this duty of virtual restoration in the production chain. The national produce is linked to dividends that are enjoyed by the public.
A nation comprises of the inhabitants who have certain individual problems. The nation should target to alleviate poverty. The nation’s definition shapes in terms of the population, therefore, ignoring the plight of the citizens means that the country is harming itself. Citizens deserve proper services and security. The security that Adam Smith targeted most was that concerning the workers since the violation of rights was done without fear. The workers are split into the skilled and unskilled ones, and, as a rule, are involved in the development process of the country to a different extent. The former group becomes dejected due to the improper working conditions and meager earnings. The country that upholds the approach makes a grievous mistake. The national should strive to make the workers better by training them. Finally, the country gets to a point where the general level of skills becomes higher; hence, employers lack any means of exploiting the workers.
Adam Smith’s theories were technological in their formulation. He related the labor power and the countries’ output. The laborers became innovative when there was enough capital to manage. A country enjoying good income has its citizens participating in the field of innovation. The main objective is to reduce costs of production. Classical infrastructures construction commences when a country achieves reasonable income levels. The Panama Canal construction targeted to solve transportation problems. Currently the nations having proper per capita income have magnificent infrastructures. The cycle then emerges where the infrastructures accelerate the rate of economic growth. Adam emphasized on the need to improve the infrastructures and push for economic growth concomitantly.
Adam Smith also noted that professionals should join hands to achieve the objectives of economic development. Sociologists should liaise with the economists, economists with engineers, and lawyers with engineers. The interdependence targets to uphold the proper ethics in society. Policies should be adopted carefully to avoid repetition of the mistakes. The British adopted a policy where the industries location is near major towns, probably due to the benefits accrued form localization. The industrialization in Britain became rampant since it scrapped the strategy of rural industry. To come up with this constructive approach required there to be a group of professionals, in order to assess the impact of the decision.
A better nation should not rely solely on the incomes generated by the citizens as the government budgets in such cases experience deficits. The revenues could be sourced from other nations. Smith existed in the era of colonization and highly discouraged exploitation of resources. Though guarding its citizens, the nation has no justification to exploit resources without developing their sphere of influence. He criticized the British government for making the innocent Indians languish in hunger and poverty.
Importance of Adam Smith’s Ideas to the Modern World
The adoption of Adam Smith’s policies has transformed many nations within a century. The principal developed countries have relied on the economic strategies advocated by Adam Smith for many years. Therefore, infrastructure in countries, like the United States, the united Kingdom, China, are exceptionally good. The countries’ economic growth rate is continuously growing. The colonies of these countries were supported by the respective colonial governments; therefore, they managed to develop at a higher rate. The interdependence of people is evident in many countries. The more the countries adhere to the policies that are traceable to the Adam Smith’s ideas, the more economic development and growth they are able to reach.
Poor Economic Strategies in the Modern World
Intense competition is emerging among the countries. The countries are adopting pure communism and pure capitalism. The USSR declined economically due to the political supremacy ambitions. Pure communism has encouraged indolence in the society; hence, the economic development and growth have been hindered. Pure capitalism exercised by the United States and the Cold War allies have created large economic imbalance within countries and in the world as a whole. The gap separating the rich and the poor is large due to the development of individualism that lacks assisting the weaker strata of the population. If Adam Smith were to live in the modern world, he would possibly rebuke both pure communism and pure capitalism since they are harming the citizens. The neocolonialism would also be criticized since, under this theory, the developed countries are taking advantage of developing countries. Exploitation experienced during the neocolonialism era is probably less than that of the economic era, as the subject nations end up with heavy losses.
Pollution is rampant in the developing countries. The countries are not adopting pollution control policies. The increased suffering amongst the citizens is the major cause of economic stagnation. Some of these nations are adopting economic policies carelessly. These poor economic policies are the key contributors of inflation and poor performance of nations; therefore, they would be rebuked by Adam Smith, for sure.
Adam Smith is the undisputed ‘father of economics’. His accuracy in the formulation of policies that achieved results is commendable. Adam Smith considered factors that had been subjects to ignorance for centuries and integrated them to tools of economic breakthrough. Many economists that succeeded him relied on his line of thought, in their efforts to formulate new economic policies. The nations that have departed from Adam Smith’s principles are plunging in serious economic problems. On the other hand, countries that have performed well in terms of economy apply the policies that are closer to those of Adam Smith. The fact means that Adam Smith’s ideas and concepts will never be outdated. Economists should carefully screen the economic policies proposed to them. Nevertheless, they should never forget to consult Adam Smith’s approach since the implementation has transformed the economy of nations across the world.