Adam Smith and His Revolutionary Ideas

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Topic: Business & Economics
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Introduction

It is hard to underestimate the impact of economical theories on the development of modern society. Looking back on the progress that has been made to reach the status of informational society and start the globalization process all over the world, one must admit that people owe much to economical theories and concepts that allowed to get where the humankind is now.

Though it might seem that the idea of globalization is rather new, one might find out that the key concepts for spurring the creation of free market were offered much earlier by Adam Smith, by far the most famous economist in the world history. Therefore, his ideas are worth taking a closer look at. The idea of comparing the concept offered in the XIX century to what people have nowadays is truly enticing and allows for several thought-provoking conclusions.

Adam Smith and His Revolutionary Ideas

Even though globalization as a worldwide process has been known since recently – or, to be more exact, since the XXI century, it could have been started in the XIX century. Considering Adam Smith’s ideas closer, one will see that most of the current globalization principles are based on Smith’s principles.

Radical Solutions for Economical Progress

Analyzing Adam Smith’s ideas, one must consider his life’s work titled The Wealth of Nations. In this book, Smith explains his ideas concerning the world economics and the means of arranging it. Miraculously, a lot of the ideas that Smith expressed in his book make nowadays the basis for the globalization process.

Technological innovations – back to the future

Among the issues that Adam Smith tied together with the idea of a free market, technological innovations took quite an important place. Smith related the idea of technological innovations to staff training.

According to what the economist claimed, the company must provide the staff with the most up-to-date devices that allow the organizational process to go at a faster pace and at the same time make sure that the employees have the skills that are required to operate the provided equipment.

According to Adam Smith, the division of labor is determined by the extent of the market and is the cause of the increase of specialization. This leads to the accumulation of new technological knowledge, and eventually to the introduction of technological innovations. (Antonelli 15)

Considering the impact that technologies have on the modern market and its development, especially when it comes to speaking of informational technologies, one must admit that Adam Smith was leading people towards globalization.

The free market, its principles, and stimuli

According to Smith, the principle of a free market was supposed to be the foundation of the new economic system and will help establish the relationships between the private entrepreneurs from different courtiers, thus, encouraging international trade and boosting GDP as well as GNP. As Smith explained, the opportunities for companies to grow would serve as the natural stimuli for the trade relationships to develop.

Free market functions as explained by Smith – the dawn of a new era

Like any other system, free market as Adam Smith saw it was supposed to have its functions and serve a specific purpose. In Smith’s case, the purpose of the market was rather simple; bringing the nations together, it was supposed to serve as the area for private entrepreneurs to run their business on an international level.

The given description fits the idea of the free market as interpreted by the supporters of the globalization process: “A free market is a ‘democracy’ in which every penny has a vote, helping entrepreneurs to know the preferences of its owner” (Greaves 220).

Standing at the threshold of economic change

Since Adam Smith’s suggestions presupposed that several economic changes take place. Therefore, it was expected that the transition from one type of the economy to a completely different one that allowed for the emergence of several private companies would inevitably trigger drastic changes. On the one hand, it is natural to expect a crisis in the middle of the process of transition; on the other hand, the crisis aftermath might be quite undesirable.

Leave entrepreneurs alone: laissez-faire policy

Another important component of Adam Smith’s theory concerning the free market, lassie-fair, obviously exists in the present-day world market. As Killon explained, “Adam Smith’s argument against governmental intervention was grounded in a philosophy of laissez-faire economics that assumed the existence of perfectly competitive markets” (Killon 56).

According to the existing record, in most countries of the modern world, the government does not have a monopoly over the existing entrepreneurship (Killon 56). Enhancing business development and spurring economical development within the state, the countries that have chosen the development pattern offered by Smith seem to have contributed greatly to the process of globalization and are nowadays involved into the worldwide trade and financial relationships.

However, Smith’s idea of laissez-faire is likely to be ousted by another principle that offers more opportunities for private companies to develop: “The laissez-faire capitalism that drives globalization is incompatible with authentic democracy” (Burbach, Jeffries and Robinson 10).

Division of labor as the key principle of globalization – Smith’s prophecy

Another important suggestion that Adam Smith offered in his free market theory and that is used rather widely at present is dividing labor. Moreover, the idea of offering a specific job to the people who have been trained specifically for the job in question has transformed into training the staff to achieve better performance results.

It is essential that “since Adam Smith, economists have dealt with training as a form of investment in human capital” (Gospel 2), as Gospel explains. Therefore, one can observe that Smith’s ideas concerning the division of labor are improved and implemented nowadays.

Market capital extension and other globalization-related issues

The last, but not the least, the market extension is the element of globalization that is considered a crucial process in Smith’s theory of free-market development. Therefore, it is clear that Smith practically offered the steps that would gradually lead the world to globalization.

The Anticipated Results

Naturally, together with the ideas on how the then economical situation could be improved, Smith also provided his account of the possible results that the offered changes would supposedly lead to. Comparing Smith’s prognosis to the present-day economical situation will be a graphic illustration of the veracity of Smith’s theory.

According to Coupland, “Adam Smith, for example, anticipated the emergence of a (beneficial and liberalizing, in his view) world market system” (Coupland 2). At present, there is a free market system, yet, unfortunately, some people tend to believe that the existing market system provides the right amount of “fair political liberty” (Tomasi 243). Therefore, it can be considered that not all of Smith’s ideas work well within the XXI century economic environment.

Adam Smith seems to have developed the pattern according to which economics is going to develop for several centuries. Even though Smith’s ideas were voiced in the XIX century, nowadays, they seem to work perfectly well, too.

Moreover, the modern free market seems to depend on the same elements that were listed in Adam Smith’s work as well. Evaluating Adam Smith’s ideas, one must take a look at the way these ideas were implemented in the XXI century and what changes have been made to the traditional understanding of the free market and lassie fire that Smith offered.

Tangible improvements

In general, Adam Smith offered a perfect foil for the present-day market relationships to develop. Since the key idea that Adam Smith offered concerned the independence of the entrepreneurship from state and the ability for private entrepreneurs to shape the course of their business on their own, it must be admitted that the modern economic world owns a great deal to the economist and his theory.

Indeed, if considering some of the key postulates that Smith provided, one will see that the modern globalization process follows the key principles established by Smith: “The 3W Model (Washington, World Bank, and Wall Street) of globalization is built around the theoretical structure of three great economists – Adam Smith, David Ricardo and John Maynard Keynes” (Nayak xvii).

Negative aftermath

As has been mentioned previously, the current globalization process is based on the general idea of a free market that Adam Smith suggested. The world free market develops with the help of free entrepreneurship that does not depend on the choices that the government makes, according to the pattern that Adam Smith suggested.

However, when it came to details in the free market development, some of Smith’s ideas had to be reconsidered and changed to fit the current market environment. As Jenewein explained,

Adam Smith has merely taken the world capital in that sense in which it is necessarily taken by renters or merchants in their book-keeping and their balance sheets… He has forgotten that he includes (in his definition of capital) the intellectual and bodily abilities of the producers under his term. (Jenewein 5)

Conclusion

Even though a lot of time has passed since Adam Smith offered his ideas of the free market, the economist’s idea has launched the process of globalization, which is taking place now and will soon embrace the entire world. Hence, it can be considered that the suggestions that Adam Smith made for developing free market will remain topical for the entire humankind for the next couple of decades and that Adam Smith’s legacy will live on for quite long.

Works Cited

Antonelli, Cristiano. Handbook of the Economic Complexity of Technological Change. Northampton, MA: Edward Elgar Publishing, 2011. Print.

Burbach, Roger, Fiona Geffris and William I. Robinson. Globalization and Postmodern Politics: From Zapatistas to High-Tech Robber Barons. London, UK: Pluto Press, 2001. Print.

Gospel, Howard F. Industrial Training and Technological Innovation: A Comparative and Historical Study. New York, NY: Taylor & Francis, 2010. Print.

Greaves, Bettina Bien. Free Market Economics: A Syllabus. Auburn, AL: The Ludwig von Mises Institute, 2007. Print.

Jenewein, Klaus. Intellectual Property Management: The Role of Technology-Brands in the Appropriation of Technological Innovation. New York, NY: Springer, 2005. Print.

Nayak, Satyendra. Globalization and the Indian Economy: Roadmap to Convertible Rupee. New York, NY: Routledge, 2008. Print.

Tomasi, John. Free Market Fairness. Princeton, NJ: Princeton University Press, 2012. Print.