According to the Economics Library(EL), Adam Smith was born in a small village of Scotland in 1723. He went to the university of Glasgow, then entered Balliol College at Oxford with European literature background. His major influential work is Theory of Moral Sentiments, The Wealth of Nations, Criticism and Dissent. 1 He advocates the individualism and self-interest nature of the economy. He believed that international trade could open the new market to exchange goods and service at a better price. Moreover, he opposed the tariffs levied on international trade since he explained the tariffs could not protect domestic industry; instead, the production costs would increase due to the inefficient economies of scale. Furthermore, he also claimed that an individual would invest a resource with the maximum return, and every resource allocation combination would yield equal rate of return, otherwise reallocation would reallocate the resources to the optimal level.
When I just started to study Economics in high school, I was so fascinated by Adam Smith “Invisible Hand” theory. In terms of the definition presented on Investopedia.com, He assumed that individuals try to maximize their own good through trade and entrepreneurship, society as a whole is better off. Moreover, the efficient market should be free from the government intervention. Instead, the market is self-regulated by invisible hand.2 Before read his theory, I always thought the market is guided by the government. Moreover, the market could work efficiently is due to the all different kinds of the government policies and different level of government intervention. Since I am a Chinese student, so I am only familiar with the mixed market not free market like the United States. Hence, after reading the invisible hand, it totally expanded my vision to think about the market economy. I started to compare the U.S. market mechanism and that of Chinese to figure out which one works more effectively.
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Quotation
It is worth noting when Smith wrote The Wealth of Nations its publication coincided with the American Revolution. Economies were largely agrarian then. Manufacturing was just beginning. James Watt's work on the steam engine was also contemporaneous and not yet exploited commercially. So the atomistic assumptions we make about perfect competition were nearly met then. It is less clear that Smith's view of the world explained things well 100 years later, yet his philosophy is still adhered to by many.
ReplyDeleteI think it is quite common for those scholars advanced points of view being neglected in their own times. It might due to the limitation of people's knowledge or the world economic conditions. Eventually, the right ideas would be widely accepted by the world.
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