Adam Smith

Definition

Adam Smith was an 18th-century Scottish economist and philosopher who is considered the father of modern economics. His ideas and theories had a profound impact on the development of liberalism, international political economy, and the advent of the liberal economy.

5 Must Know Facts For Your Next Test

1. Adam Smith's seminal work, 'An Inquiry into the Nature and Causes of the Wealth of Nations,' published in 1776, laid the foundations for classical economic theory and the concept of the free market.
2. Smith's idea of the 'invisible hand' proposed that individuals, acting in their own self-interest, are led by an 'invisible hand' to promote the greater good of society, without any central planning or coordination.
3. Smith advocated for a laissez-faire economic policy, where the government should have minimal intervention in the free market, allowing supply and demand to regulate the economy.
4. Smith's concept of the division of labor, where workers specialize in specific tasks, was a key driver of increased productivity and economic growth during the Industrial Revolution.
5. Smith's ideas on free trade and comparative advantage influenced the development of international political economy and the advent of the liberal economy in the 19th and 20th centuries.

Review Questions

• Explain how Adam Smith's concept of the 'invisible hand' relates to the development of varieties of liberalism.
  • Adam Smith's idea of the 'invisible hand' was a central tenet of classical liberalism, which advocated for a free market economy with minimal government intervention. The belief that individuals, pursuing their own self-interest, would be 'led by an invisible hand to promote an end which was no part of his intention' formed the basis for liberal economic policies that sought to limit government's role in the economy. This concept was a key driver in the development of various strands of liberalism, including laissez-faire liberalism, which emphasized the importance of individual liberty and the free market as the best means of promoting economic prosperity and social welfare.
• Describe how Adam Smith's theories on international trade and the division of labor influenced the origins of international political economy.
  • Adam Smith's ideas on comparative advantage and the division of labor were instrumental in the development of international political economy. His theory of comparative advantage, which states that countries should specialize in the production of goods they can produce most efficiently and engage in trade, laid the foundation for the emergence of the liberal international economic order. Additionally, Smith's concept of the division of labor, where workers specialize in specific tasks to increase productivity, was a key driver of the industrialization and globalization processes that shaped the origins of international political economy in the 19th and 20th centuries. Smith's influential work on these topics directly informed the advent of the liberal economy and the rise of free trade policies that characterized the international system during this period.
• Analyze how Adam Smith's advocacy for a laissez-faire economic policy contributed to the advent of the liberal economy.
  • Adam Smith's staunch support for a laissez-faire economic policy, where the government should have minimal intervention in the free market, was a central tenet that shaped the advent of the liberal economy. Smith's ideas, as outlined in his seminal work 'An Inquiry into the Nature and Causes of the Wealth of Nations,' challenged the prevailing mercantilist economic policies of the time and promoted the concept of the free market as the most efficient and beneficial system for economic growth and prosperity. Smith's arguments for limiting government involvement in the economy, allowing supply and demand to regulate the market, and embracing free trade were instrumental in the rise of liberal economic policies that characterized the 19th and 20th centuries. This shift towards a liberal economy, guided by Smith's principles, had far-reaching implications for the global economic order and the development of international political economy.

Related terms

Invisible Hand:

The concept introduced by Adam Smith that describes the unintended social benefits of individual actions in a free market, where the pursuit of self-interest leads to the greater good of society.

Laissez-Faire: An economic policy of non-intervention and non-interference by the government in the affairs of individuals and the free market, as advocated by Adam Smith.

Division of Labor:

The specialization of labor and tasks within a production process, which Adam Smith identified as a key driver of economic growth and efficiency.