Adam Smith’s “Wealth of Nations”

Adam Smith’s “An Inquiry Into the Nature and Causes of the Wealth of Nations” presented an alternate economic model called a Market Economy.  The title of “Wealth of Nations” was a radical because it questioned an economic system that had ruled in Europe for hundreds of years.  The Mercantile System defined a country’s wealth by how much money was in the bank.  The wealth was not distributed among the people; instead the government officials, monarchy, and small elite class held the funds while the rest of the nation lived in poverty.  To ensure its wealth, the government would regulate trade and maintain a strong government control over the economy.  They encouraged domestic manufacturing to eliminate imports and encourage exports.

  However, Adam Smith believed that the wealth of a nation should be defined by the lifestyle and standard of living of the people; instead of the government “stockpiling gold” the people should be producing and consuming.  In order to increase a country’s wealth they needed to increase the per capita income, focusing on the happiness and welfare of the people.  The wealth would be expressed in how much the people consumed within their means (not referring to debt). 

This model was based on consumer sovereignty, putting the economic choice into the hands of the people.  He thought this would start with a simple exchange between two individuals seeking self interest.  Both individuals would feel that the exchange benefitted them and was a voluntary act exercising freedom of choice.   His Invisible Hand Theory stated that if each individual is seeking self interest then the “invisible hand” will direct the competition and both producers and consumers will benefit, furthering the economy.  By allowing the people to choose, efficiency of producers would increase, prices of products would decrease, the quality of products would improve, and profits for products the people wanted would rise, all based on the created competition.  He realized while the exchanges may not be equal, both parties would benefit and both would have the freedom to choose not to participate if it goes against their self interest.  

Published in 1776, Adam Smith’s model for economic freedom came forth in Scotland at the same time the United States was forming ideas of political freedom.  Adam’s Market Economy was successfully implemented into America’s foundation between Washington’s inauguration and Jackson’s farewell 50 years later.

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  1. […] 1776, l’économiste Écossais Adam Smith a prévu une erreur fatale dans l’économie. Il a  expliqué  que, pour chacun, le désir de […]

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