Economics

Adam Smith is one of the founding fathers of economics and he has contributed greatly to this field. The Wealth of Nations is one of his books that contributed largely in the field of todays economics. This book was published in the year 1776 and its contents are still highly valued today by economists. During the era when this book was published, competitions and free trade as means of gaining progress and encouraging innovation were not understood. The governments of that time used to give subsidies and also grant monopolies as a means of protecting merchants, manufacturers and farmers from their own countries so as to safeguard them from unfair competitions. Local cartels in that time were being operated by the gilds whereby artisans from one region or town were prohibited from going to other locations in search for work. The national and local laws also forbade the innovation and even use of machineries that were thought to be labor saving. As a result, poverty levels were high and accepted as the natural, inevitable and common to most individuals. This drove Adam Smith to come up and write his book The Wealth of Nations (Blatt, 2003).
Adam Smith, The Wealth of Nations
     Adam Smith felt that the restrictive nature of the government towards trade and economics or the mercantilist system were hindering economic development, moral and social improvement of individuals and enhancing poverty in the country. Adam argued that principles of competition and free trade could have changed this situation spurring economic growth and development, reducing poverty and even improving humankinds moral and social stance. To make his arguments vivid, Smith collected evidence from various places including China and Golconda mines where free trade had encouraged competition, leading to creation of wealth. The concepts brought up by Adam Smith laid the intellectual foundation of economic expansion brought about by free trade in the 19th century (Wiersema, 2009).
    Adam Smith measured the nations wealth by money, although money to him did not constitute or make up the wealth. He argued that this wealth was produced by the fixed assets but again those fixed assets did not make up part of the wealth. Lastly, Smith stated that fixed assets should be able to generate consumables that are subsistence enough to maintain resources and human capital. However, Smith did not include resources or consumables while measuring a nations wealth (Butler, 2001).
    To create wealth, Adam advocated for institution of superior markets mechanisms. He argued that by making the markets mechanisms superior, this would encourage free trade as well as competition thus improving innovation and contributing to the progress of a business as well as the total economy. Adam also argued that individuals aim is to maximize their profits and to do so, a person employs his capital in ways he feels are valuable. He argued that despite the limitations and imperfections of human beings, person gains expertise of his business as well as the economic needs and this expertise must be superior to that of other outsiders so as to make profit. This concept advocated for innovation and creativity as a means of creating differentiation and competitive advantage. The third argument of Adam was that government interference and restrain on both foreign and domestic commerce were foolish and dangerous. He argued that businessmen were better placed to judge the market situation than lawgiver or statesmen. Adam was also against mercantilist policies (Blatt, 2003).
Evidence of Adam Smiths principles in todays economy
    The principles of free trade developed by Adam Smith back in the 18th century are highly evident in the American economy today. American markets operate in a free market for most products where the forces of demand and supply determine the prices of commodities and services. As Adam argued, this has helped in increasing competitions in the market leading to high levels of innovation in businesses as they try to outdo competition. Competition has been essential for driving growth in most American industries leading to economic growth in the country and business development (Kilcullen, 1996).
    Adam Smith also advocated that government should not impose trade barriers to both foreign and local trade to encourage economic development and wealth creation. America today has decreased the number of trade tariffs imposed on both local and foreign traders and this has encouraged many companies to go global (emergence of multinational companies). America has entered into many trade agreements with various countries which have led to trade liberalization in the country. This is a principle contained in Adam Smiths The Wealth of Nations, although various modifications have been done on it (Wiersema, 2009).
    American economy is also characterized by private ownership of companies and businesses unlike the traditional mercantilist system criticized by Adam. As Smith argued, allowing private ownership of businesses would drive up competition and enhance development of human beings both morally and socially. This is highly evident in American economy. Individuals from all states and outside the country are allowed to freely interact and conduct business as long as such endeavors do not violate the business laws. This has encouraged exchange of ideas, innovation and healthy competition in American economy that has helped reduce the poverty level.
    To a large extent, Adam Smith seems to have favored the right of workers as he highly criticized landlords who were charging high rents for their buildings to businesses. Adam viewed labor as crucial to economic development of a country. Today, labor is also highly valued as a means of improving the overall performance of an entity (Butler, 2001).