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Great economists

Adam Smith is possibly the most influential economist the world has ever known and certainly the majority of his beliefs and models have had a great effect on and have been proven true in the modern world. Not only this, but his undoubted influence on so many great economists preceding him prove what a genius and original thinker he was.

Born on the 5th June 1723 in Kirkcaldy, Scotland he was not and would never be a rich man, however he was undoubtedly a gifted individual, joining Glasgow University at the tender age of 15 to study moral philosophy. Two years later he joined Oxford University although it seems Smith was unhappy with the lesser intellectual activity in the English universities compared to the Scottish and so he returned to Scotland in 1746.

Smiths contribution to the academic world was vast and his work was not restricted to just the economic world, however if we just look at his economic contribution to the world, its clear his most significant work was published in 1776 named “The Wealth of Nations”. Here he introduced a number of substantial concepts that have arguably affected the world hugely; these being: the invisible hand, division of labour,

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freedom of trade, modern capitalism and his own growth model.

These ideas are all inter-twined however each is a valuable concept, so first I will discuss the idea of the invisible hand. Smith’s perhaps cynical view is that individuals are out to increase his or her own interest before anything else and according to Smith an individual “neither intends to promote the public interest, nor knows how much he is promoting it”. However as a person promotes himself it is likely he will promote the society in which he lives in even though that was not particularly the intention. To become wealthy one must exchange his/her resources that are required by other members of society thus those members will benefit.

At its most simplest a good example of this theory could be two queues at a supermarket checkout, if one has a long line, people will disperse to the smaller queue so they can go through the checkout quicker, evening the queues out and lessening the queuing time for everybody.

The division of labour was also one of Smith’s ideas; the idea is to break the work force of any one entity down into groups who specialise in one area of any production process, if workers stay in one place doing one task on the assembly line it will save time and money. By doing this theory tells us that the production will be of much larger volume and this is evidently true just by looking at the world around us: huge multinational firms that turn over billions of pounds have a huge structure of different workers doing different tasks. Even if you look at a health service for instance it is clear to see that you need surgeons to be specialist in certain areas for the best quality service, it would be a service of much lesser standard if every doctor tried to cover every illness, procedure etc. Therefore we do indeed need specialisation and the division of labour.

However Smith did see that there would be a problem in that workers could get bored of repetition and will become unsatisfied especially if their work is tedious, thus output, utility etc will not be maximised. Therefore he specified that it would be better for workers to be educated thus becoming more versatile being able to switch to another task possibly. He also specified that workers should work in the area they are best suited to.

Smith was also a keen promoter of free trade. This being the little or no taxation on goods coming into the country, much like that which the members of the EU benefit from in today’s world. An economy with a free trade policy regarding goods from outside of the economy Smith believed would increase: production, competition, choice, living standards and opportunity to invest. He encouraged the British Empire to adopt this policy however it became very hard to do so when the American colonies refused to cooperate and use the same policy. The attraction of the current mercantilist policy was that by reducing the amount imported by setting tariffs or quotas on imported items, home-grown firms could prosper and produce more for the domestic market as well as foreign markets, thus exporting more.

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