That many more references might be given by an editor gifted with omniscience I know better than any one. To discover a reference has often taken hours of labour: to fail to discover one has often taken days.
When Adam Smith misquotes or clearly misinterprets his authority, I note the fact, but I do not ordinarily profess to decide whether his authority is right or wrong. It is neither possible nor desirable to rewrite the history of nearly all economic institutions and a great many other institutions in the form of footnotes to the Wealth of Nations.
I would beseech any one who thinks that this ought to have been done to consider seriously what it would mean. The book is surely a classic of great historical interest which should not be overlaid by the opinions and criticisms of any subsequent moment—still less of any particular editor. Much of the heavier work involved in preparing the present edition, especially the collation of the original editions, has been done by my friend Mrs.
Norman Moor, without whose untiring assistance the book could not have been produced. Numerous friends have given me the benefit of their knowledge of particular points, and my hearty thanks are due to them. The text and footnotes are presented here in full.
Editor, Library of Economics and Liberty Book Cover. First Pub. Date Comments 5th edition. Copyright The text of this edition is in the public domain. Table of Content. Preface Editor's Introduction B. I, Introduction and Plan of the Work B. I, Ch. Let the "free market mechanism" operate on its own without government intervention, Smith advised. Adam Smith advocated a limited role for government. But he recognized significant areas where only it could act effectively.
Smith saw the first duty of government was to protect the nation from invasion. He argued that a permanent military force, rather than citizen militias, was necessary to defend any advanced society. Next, he supported an independent court system and administration of justice to control crime and protect property. Smith favored "public works" to create and maintain an infrastructure to promote the free flow of commerce. These works included such things as roads, bridges, canals, harbors, and a postal system that profit-seeking individuals may not be able to efficiently build and operate.
The following is a simplified version of the economic system Adam Smith believed would emerge once governments ended their oppressive mercantilist policies. A man builds a cloth-making factory, hires workers, and divides their labor into many specialized operations.
The factory owner is motivated by self-interest, profit, maybe even greed. Others, however, are also building factories to make and sell cloth. They all have to compete for the money of the buyers whose self- interest is to buy cloth at the best price.
Buyers bid up the price of the cloth when the supply of cloth is low and their demand for it is high. But when there is an oversupply, the buyers can pick and choose and refuse to purchase high-priced cloth. The factory owners then have to reduce their prices to attract more buyers. Economists call this the "law of supply and demand.
Additional innovative divisions of labor, maybe brought on by new machinery, motivate others to invest in more factories. But they must compete to hire more workers. The "law of supply and demand" applies here, too, and wages go up.
Higher wages lengthen the lives of workers and their children. The population grows, which increases the supply of workers. Wages then stop rising. But, soon another division of labor wave occurs, producing more economic growth and the need for even more workers.
Wages go up again. The cycle repeats itself. Families now can afford to buy demand more cloth and lots of other products. The factory owners make more profits. Everybody wins and society as a whole improves. The cloth factory owner never intended to improve society; he just wanted to make money for himself.
But his self-interest, as if "led by an invisible hand," resulted in the betterment of all. As Adam Smith himself put it, "By pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote it. Thus, remarkably for the time, Smith advocated the education of all youth. He believed there was little difference in intelligence between the poor and the rich. Only the social conditions of the poor held them in ignorance, he concluded.
He called for a "little school" in every district, supported by public taxes and small parent fees. Smith wrote that paying taxes was "a badge, not of slavery, but of liberty. Taxpayers, he argued, should pay "in proportion to the revenue which they respectively enjoy under the protection of the state. Smith believed in taxing property, profits, business transactions, and wages.
But these taxes should be as low as possible to meet the public needs of the country. He also thought they should not be arbitrary, uncertain, or unclear in the law.
Nor should they require home inspections that intruded into the private lives of individuals. Smith criticized a large public debt, which, he observed, resulted mainly from wars.
He believed that the mercantilists encouraged wars so that they could lend money at high interest to the government and exploit conquered lands. Smith viewed wars as "waste and extravagance," producing a "perpetual" public debt that diverted money away from investment in new enterprises and economic growth. Public debt, Smith concluded, "has gradually enfeebled every state which has adopted it. For the sake of maintaining a monopoly of trade, he argued, the colonies had cost the British people much more than they had gained.
In the case of the Americans, Smith declared that denying "a great people" the freedom to pursue their own economic destiny was "a manifest violation of the most sacred rights of mankind. We know Adam Smith today as the father of laissez faire "to leave alone" economics.
Smith believed the ability to think long-term would curb most businesses from abusing customers. When that wasn't enough, he looked to the government to enforce laws. Extending upon self-interest in trade, Smith saw thrift and savings as important virtues, especially when savings were used to invest.
Through investment, the industry would have the capital to buy more labor-saving machinery and encourage innovation. This technological leap forward would increase returns on invested capital and raise the overall standard of living.
Smith saw the responsibilities of the government as being limited to the defense of the nation, universal education, public works infrastructure such as roads and bridges , the enforcement of legal rights property rights and contracts , and the punishment of crime.
The government would step in when people acted on their short-term interests and would make and enforce laws against robbery, fraud, and other similar crimes. He cautioned against larger, bureaucratic governments, writing, "there is no art which one government sooner learns of another, than that of draining money from the pockets of the people.
His focus on universal education was to counteract the negative and dulling effects of the division of labor that was a necessary part of industrialization. The third element Smith proposed was a solid currency twinned with free-market principles. By backing currency with hard metals, Smith hoped to curtail the government's ability to depreciate currency by circulating more of it to pay for wars or other wasteful expenditures.
With hard currency acting as a check on spending, Smith wanted the government to follow free-market principles by keeping taxes low and allowing free trade across borders by eliminating tariffs. He pointed out that tariffs and other taxes only succeeded in making life more expensive for the people while also stifling industry and trade abroad.
To drive home the damaging nature of tariffs, Smith used the example of making wine in Scotland. He pointed out that good grapes could be grown in Scotland in hothouses, but the extra costs of heating would make Scottish wine 30 times more expensive than French wines.
Far better, he reasoned, would be to trade something Scotland had an abundance of such as wool, in return for French wine. In other words, because France has a competitive advantage in producing wine, tariffs aimed to create and protect a domestic wine industry would just waste resources and cost the public money.
It lacks proper explanations for pricing or a theory of value and Smith failed to see the importance of the entrepreneur in breaking up inefficiencies and creating new markets. Both the opponents of and believers in Adam Smith's free-market capitalism have added to the framework set up in "The Wealth of Nations. Marginal utility , comparative advantage , entrepreneurship, the time-preference theory of interest, monetary theory , and many other pieces have been added to the whole since There is still work to be done as the size and interconnectedness of the world's economies bring up new and unexpected challenges to free-market capitalism.
The publishing of "The Wealth of Nations" marked the birth of modern capitalism as well as economics. Oddly enough, Adam Smith, the champion of the free market, spent the last years of his life as the Commissioner of Customs, meaning he was responsible for enforcing all the tariffs. Historical irony aside, his invisible hand continues to be a powerful force today. Smith overturned the miserly view of mercantilism and gave us a vision of plenty and freedom for all.
The free market he envisioned, though not yet fully realized, may have done more to raise the global standard of living than any single idea in history. Adam Smith. National Bureau of Economic Research. Accessed March 5, Ian Simpson Ross. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.
We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes.
Your Money. Personal Finance. Your Practice. Popular Courses. Economy Economics. Table of Contents Expand. Smith's Primary Thesis. The Invisible Hand.
0コメント