Adam Smith Wealth of Nations - Essay Example

Adam Smith - Wealth of Nations Adam Smith is one of the well-known political economists in the 18th century because of his work called "An Inquiry into the Nature and Causes of the Wealth of Nations" or simply called Wealth of Nations. His work paved the way to modern economics and gave rationale for capitalism, free-trade and libertarianism. Smith is actually considered to be the Father of Modern Economics. Adam Smith's ideas as reflected in his work are still relevant today. His concept of free-trade is still what majority of the world's economy is practicing.

Free trade, according to Smith, is the ability of the economy to produce the sufficient amount of goods and provide different varieties with the guidance of what he calls "the invisible hand." If there is a shortage of a certain product, price tends to increase which, in turn, gives higher profit to the producers. This entices more producers to enter the market which leads to the increase in supply of the product and more competition among the producers. Given this condition, price naturally gets lower.

Once the price gets too low that the producers would incur losses than profits, they will be out of business. Although this competition can be due to human's pursuit of self-interest, this benefits the society as a whole by keeping the prices of goods at a low level and, at the same time, having a variety of products and services. This idea is what happens in our modern economic society. Businesses get into the market because they can see a potential profitable market. And what prevents these businesses to monopolize in their field is the fact that there will be other businesses or individuals who would want to get into the same market and have a fair competition.

Thus, the self-interest of that business or individual to also gain profit in the market generally contributes to the interest of the whole society. With the individual's self-interest, we can see how the invisible hand works. As Smith said in his work, "it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self love" (qtd. in Joyce). We have a better chance of getting what we want from others if we exchange it for something of their interest.

Let us take the example of electronic gadgets such as computers, mobile phones, digital cameras and MP3 players. These goods are not being produced by manufacturers out of their love for others, but for their own economic gain. And these products are continuously being produced by an increasing number of manufacturers because they see how people keep on buying these products, also because of self-interest. Because there is still profit in this market, there are more and more companies joining in to also gain from the self-interest of the consumers.

On the other hand, consumers like the fact that there is a continuous increase in the selection of the products due to increasing manufacturers while keeping the price at a reasonable or low level. Overall, the self-interest of one contributes to the general interest of the whole society. And that is because of the invisible hand working at the background. Adam Smith definitely contributed a lot to what our economy is now. His ideas persisted up to this day because "they describe how to attain a goal assumed to be socially desirable not just by Smith but also by many individuals today" (Hetzel).

Works Cited"Adam Smith." Wikipedia. 21 Mar. 2006 < http://en.wikipedia.org/wiki/Adam_Smith>.Hetzel, Robert L. The Relevance of Adam Smith. 1976. Federal Reserve Bank of Richmond. 21 Mar. 2006 .Joyce, Helen. "Adam Smith and the invisible hand." Plus Magazine. Mar. 2001. 21 Mar. 2006 .