Question

what role did Adam Smith play in the development of econmics? discuss 3 key points

Answer 1

Natural Law:

Adam Smith proposes natural law in economic affairs. He advocated the philosophy of free and independent action. If every individual member of society is left to peruse his economic activity, he will maximize the output to the best of his ability. Freedom of action brings out the best of an individual which increases society wealth and progress. Adam Smith opposed any government intervention in industry and commerce.

He was a staunch free trader and advocated the policy of Laissez-Faire in economic affairs. He opines that natural laws are superior to law of states. Statutory law or manmade law can never be perfect and beneficial for the society, that is why Smith respects nature’s law because nature is just and moral. Nature teaches man the lesson of morality and honesty. These exercise favourable effects on the economic progress of society.

Laissez Faire:

Adam Smith’s theory is based on the principle of ‘Laissez-Faire’ which requires that state should not impose any restriction on freedom of an individual. The theory of economic development rests on the pillars of saving, division of labour and wide extent of market. Saving or capital accumulation is the starting point of this theory. He believed that “there is a set of rules or rights of justice and perhaps even of morality in general which are, or may be known by all men by hello either or reason or of a moral sense, and which possesses an authority superior to that of such commands of human sovereigns and such customary legal and moral regulations as may contravene them”.

The policy of laissez-faire allows the producers to produce as much they like, earn as much income as they can and save as much they like. Adam Smith believed that it is safe to leave the economy to be propelled, regulated and controlled by invisible hand i.e. the forces of competition motivated by self interest be allowed to play their part in minimizing the volume of savings for development.

Division of Labour:

The rate of economic growth is determined by the size of productive labour and productivity of labour. The productivity of labour depends upon technological progress of a country and which, in turn, depends upon the division of labour. This division of labour becomes the true dynamic force in Adam Smith’s theory of growth.

Division of labour increases the productivity of labour through specialization of tasks. When a work is sub-divided into various parts and the worker is asked to perform small parts of whole job, his efficiency increases as now he can focus his attention more carefully. Thus, the concept of division of labour means the transference of a complex production process into number of simpler process in order to facilitate the introduction of various methods of production.