Economic theory of Adam Smith
In this article you will find the main features of the economic theory of Adam Smith.
Adam Smith was born in 1723 in Kirkaldy, a Scottish town near Edinburgh. From the outset he introduced himself as a brilliant young and inclined to reflection, but of modest family struggled to move ahead in studies. He was an excellent student at the University of Glasgow, where he attended professors who influenced his vision and intellectual education, also became interested in the moral philosophy. After winning a scholarship to Oxford he met David Hume, important philosopher of the era of which he became a great friend.
In 1766 After his return from France he devoted himself entirely to writing the opera “The wealth of Nations”, who published in 1776. The book was very successful and allowed him to buy fame, shortly after was hired as economic advisor to the Government. Smith died in 1790.
Smith knew the advances that technology had made during those years, He was a friend of Watts, inventor of the steam engine, However he could not know its revolutionary.
The research and economic theory of Adam Smith were based primarily on two factors: the liberty and l’market expansion. According to Smith the openness to trade, the abolition of State monopolies, education and a serious public administration were the fundamental premises for the well-being and the wealth of Nations. The two main works of Smith discuss the benefits but also the limits of benevolence in moral scope (Theory of moral sentiments) and those of selfishness in the economic sphere (The wealth of Nations). According to Smith there is a cohesion, or rather a synergy between individual and collective interest. This cohesion is a result shortly granted resulting from market-specific work, the great social institution that Adam Smith describes in detail. The market allows the meeting of those who want to sell products to gain and those who buy them to fill a need and draw a utility, This meeting will determine the price of the products and their quantities traded. Therefore if markets are free, so competitive, the price of the products will be smaller and larger quantities produced and sold. Smith then introduces the concept of “invisible hand”, the process whereby the competitive market means that individual choices (moved by self-interest) promote collective welfare. Smith is considered the founder of the economy as autonomous science, because tackles and has many themes that will be the subject of study of the political economy.
Smith among the many studies, at the dawn of the industrial revolution, developed the first theory of value, better known as the labor theory of value.
Smith began distinguishing the use value and exchange value of assets.
The value in use is the result of a subjective evaluation, It measures the ability of an asset to meet the needs of the individual.
The exchange value comes instead from the market and therefore has a base, an objective basis. The latter measures the ability of a commodity to be traded on the market with other goods or currency. The fact that an asset has a’ high utility and then use value for its owner doesn't mean it retains that value at times when it is sold on the market. For example, water has a great use for a variety of human activities, However as it says Smith with it “You can buy almost nothing”.
According to economic theory of Adam Smith on Exchange value can be defined as the ability to purchase of wealth. More good has value because you exchange with other goods or currency, more the latter is able to provide wealth and prosperity and to meet the needs of man. However, one question rises spontaneous…How do you measure the “level” the value? According to Smith the value of each good is the work, so every item traded takes on embedded value according to work in it.
Smith distinguishes two categories of work value: the business value content, which is the value that good takes depending on the amount of work embedded in it and the business value driven, which is the value that the same good takes when it is placed on the market to be traded for other goods.
According to Smith in the capitalist economy or capitalism, Since the worker is no longer owner of the entire product, of which splits the benefits with the capitalist and the landowner there can be no coincidence between work and work content (the first absorbs the second and shall determine the amount of compensation for land and capital). Smith will conclude by saying that in capitalism, the value of the goods produced will equal the cost of production, that is how you must pay those who have participated in the production of the asset ( wages, profits and revenues).