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Adam Smith's contributions to economics

About Adam Smith 

Adam Smith is a Scottish political economist, lecturer and essayist best known for his authorship of The Wealth of Nations and Theory of Morals.

Smith is primarily known for his contributions to political economy and moral philosophy, yet his writings cover a wide range of topics ranging from astronomy to the etymology of language. Smith first achieved notoriety for his theory of moral sentiment, where he emphasized the important role of empathy in moral decision-making .

  • Adam Smith's Economic Contributions 

Smith made four unique contributions: 

  • The first contribution was a clear acknowledgment that probabilities could not be computed exactly using precise one-digit answers, that probabilities were indeterminate and/or imprecise, the mathematical laws of calculus cannot generally be applied to real- world decision-making , and Smith rejects any An approach to making a decision based on a fair or sports lottery .
  • Second , Smith was the first to explicitly realize that real-world decision-making was highly uncertain, as opposed to being based on the mathematical concept of risk which was based on known probabilities and outcomes that lead to expected value and expected utility calculations modeled on the logic of Jeremy Bentham, an economic calculator to model probabilities.
  • Third Smith was the first to realize that as long as the odds were greater than zero, retaliatory tariffs could lead to a country that imposed tariffs on another country reversing this decision, and there was room for a range of strategies in interstate disputes over tariffs involving war, threats, negotiations, and mediation and revenge, which implies eye-handling strategies.
  • Fourth , Smith realized that the main threat to economic prosperity arose from the speculators, speculators, and unwary adventurers such as the speculators, who were able to obtain bank loans to try to profit from their debt position several times, and the result is that the bank deposits would be lost and damaged, and this would lead to a recession or depression , and as long as the odds are greater than 0, retaliatory tariffs may cause a country that has imposed tariffs on another country to rescind this decision, there was room for a range of strategies in interstate disputes over tariffs involving war, threats, negotiations, mediation, and retaliation, implying eye-hand strategies . [1]

Why was Adam Smith important to the Industrial Revolution

Adam Smith is sometimes cited as an influential figure in the Industrial Revolution, which is usually described as beginning in 1760 in England, during which time advances in technology changed the way human society lived and worked.

This was also the decade in which Smith worked on The Wealth of Nations and the timing indicates that Smith was working on his book just as industrialization had begun, perhaps why the Wealth of Nations has little reference to the tectonic shifts that were beginning to occur around it.

Before the Industrial Revolution, most of the population lived and worked on farms. Skilled artisans made most of the products people used by hand. These artisans were often part of a guild that controlled the manufacture and sale of the products.

Smith criticized the monopoly power of the union system, as well as the protectionist policies of government to direct commerce, and suggested that allowing individuals to decide how to use their money, land, equipment, and labor in the manner they saw fit would do the most good to the nation, and his work suggested that allowing people to pursue their own self-interest would lead to a system of regulation Self is the best of all.

At the same time the Industrial Revolution centralized manufacturing with the help of machinery and steam power, factories could make products faster and cheaper than people could, and as a result a large portion of the population moved from cottage industries to new urban factories.

As Smith wrote of the theoretical benefits of the division of labor (having people specialized in specific tasks), and allowing the free market to direct the direction of the economy (as opposed to state intervention), his ideas were already at work in real life.

It is not clear to what extent Smith's ideas influenced, observed, or predicted the way the world would change in the nineteenth century, but his work overlapped with the expansion of the capitalist system he described, and the decades that followed have been replete with examples from countries that adopted free market economies and laissez-faire policies. promoted by Smith.

The main purpose of Adam Smith's book The Wealth of Nations

The main purpose of Adam Smith's book The Wealth of Nations was to increase understanding of political economy (the role of government in economic policy), he wanted to encourage governments to adopt a free market approach to production and trade.

At the time the book was written, the world was largely pre-industrial and ruled by colonial empires, the working class relied on a system of professionals and apprenticeships, run by a network of unions, and in many places kings and queens still ruled lands and measured the power of their people by They own gold and silver.

Smith studied the natural motives and inclinations of human beings, and observed that people's primary motive is self-interest and allocate their resources to those things that benefit them most. He argued that all trade was mutually beneficial. If one person does not come out on the stock exchange in a better position, he will simply reject the transaction, so Smith noted That all voluntary trade increased wealth and thus regulation of trade was unnecessary and potentially harmful.

Smith's work showed how government policies that prevented trade reduced the amount of wealth a country could create (this idea included the trade policies of England and France, but also the monopoly power of unions).

Smith wrote his book as a way of arguing that control of free trade is unjustified and undesirable, showing that members of society each seek their own gain and embrace the natural competition that results from human nature.

The forces of competition control all activities and ensure that everyone gets their value, workers get wages, landlords get rent, capitalists get profits, etc., in Smith's view, the best system ensures the exchange of resources so as to result in the best possible allocation.


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