Adam smith is called “Father of Economy”
He wrote a philosophy paper.
“An Inquiry into the Natures and Causes of the Wealth of Nations”
It has been reading among people until today.
Many people thought Adam Smith studied invisible hand.
But they didn’t know truly concept of that well.
So, i would like to try to explain this theory in detail.
Let’s go into Adam Smith!!
1. Division of labor in Pin factory
Adam Smith cited an example to explain his theory.
That was Pin factory.
Factory need 5 steps to make a pin.
First step is procure and next is casting and third is mold and forth is fabricating and fifth is casing.
If one people do all steps, pin factory can make one pin in a day.
But if five people separate this steps each other, pin factory can make 4,000 pins in a day.
Division of labor enables make the factory to improve production.
In this point, He could find wealth of nations.
That was industry!!
He insists “wealth of nations came from division of labor and industry and people who work for factory create value of labor.”
He was born at 1723 and England Industry Revolution arose at 1760
England Industry Revolution was influenced by him.
Hegemony nations of Europe were Spain and France before Industry Revolution.
Because Spain had a lot of gold and France had broad and fertile land.
But England was not.
Spain and France believed mercantilism and physiocracy were wealth of nations
However, England developed supremacy of nation in Europe after Industry Revolution.
It was moment that wealth of nations was identified by his theory.
2. Let’s trade each nations like the division of labor
He suggested that nations should trade each other like the division of labor.
This was the Free Trade and called Absolute Advantage.
He said if each nations trade the best making production, each nations have an advantage.
Next post, I will explain this theory with Ricardo’s Comparative Advantage.
3. Selfish Behavior of human is not good?
He insists wealth of nations might come from not only division of labor but also selfish behavior of human.
When we heard “selfish behavior of human” word, we feel it is not good.
Why he thought it might be not bad?
He also studied selfless behavior of human, and he likes this.
but why? he changed his philosophy?
He believed selfish behavior of human might be not good, but it could also be generate wealth of nations.
Especially, he focused on selfish behavior of bourgeois.
He said they should join the perfect competitive market to generate wealth of nations.
“When they enter the perfect competitive market, their selfish behavior enable allocation of resource to make effectively.”
As a result, effective allocation of resource can make wealth of nations.
But this is invisible.
So, he called this invisible hand and laissez-faire.
These days, the mainstream of economists said market economy is the best.
But there is a precondition that it have to be perfect competitive market and no monopoly.
Recently, many rich exclaim laissez-faire.
This is dumbfounded!!
They are idiot than Adam Smith who is man before 250 years ago.
Adam Smith hate monopoly capitalism and he said government have to inhibit this.
So, he called nation the night-watch state.
If he lives this time, he will accomplish fair-trade law and monopoly prohibition law.
But these day, rich argue government abolish fair-trade law and monopoly prohibition law as saying Adam Smith.
That is ridiculous.
Until now, we studied about “Wealth of nations” of Adam Smith.
Before 250 years ago, economy that he studied have been respecting until now.
We should realize his truth again and do not economic policy against his theory.