Adam Smith & his desire for free trade and deregulation

external image 2957529329_42e570e755.jpg

Scottish philosopher Adam Smith (1723-1790) is a highly significant historic figure and trailblazer best known for his work on the economic aspect of liberalism. Two of Smith's best known works include: The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776).

Smith argued for free trade and its deregulation which he thought best suited a nations' economic climate. During Smith's lifetime, taxes were imposed on imported goods, subsidies were granted to exporters and domestic industries were produced by the state. However, Smith argued in his The Wealth of Nations (1776) for a competitive market place which was based on free trade, while also trying to limit the control by Kings and their ministers. While urging for individuals to focus on self-interest to achieve economic success, Smith also maintained that sympathy was fundamental to humanity's behaviour and morality which would also improve a nation's economic situation. This is expressed in Smith's The Theory of Moral Sentiments (1759), where he states: "however selfish so ever men may be supposed, there are evidently some principles in his nature which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it" (quoted in the Adam Smith Institute, 2010). Thus, Smith emphasized how "self-interested human beings can live together peacefully (in the moral sphere) and productively (in the economic)" (Adam Smith Institute, 2010).

The Wealth of Nations (1776)

wealth%20of%20nations.jpg

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

"[Without trade restrictions] the obvious and simple system of natural liberty established itself on its own accord. Every man...is left perfectly free to pursue his own interest in his own way...The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient, the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society" (Smith 1776, p.687, quoted in Adam Smith Institute, 2010).

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

During Smith's time, gold and silver were seen as the main aspects of the nation's wealth, while the state sought to encourage exports but preventing the importation of goods in order to increase its metal wealth. Smith argued in his revolutionary text that the nation's production capacity should not be restricted as the nation's economic climate is reliant on both the importation and exportation of goods. Thus "a nation's wealth is not the quantity of gold and silver in its values, but the total of its production and commerce- what today we would called gross natural product" (Adam Smith Institute, 2010). In this way, Smith pushed for the deregulation of international trade and for nations to focus on their specialties in order to augment the importation and exportation of industries.

Smith also proposed for states to focus on the division of labour in order to ensure the accumulation of capital and to increase the nation's productive capacity. He asserted that the production of goods should be reduced to smaller, achievable tasks and assigned to specialists of the field. This specialisation was encouraged by Smith as he asserted it would encourage competition among industries and also increase human productivity as individuals are able to focus on their acquired skill. While emphasizing specialisation, Smith also maintained that the economy's condition rested on its productive capacity thus urged industries to invest capital in innovative, labour-saving machinery to increase the amount of products being created for an expanding and competitive market. This is demonstrated in Smith's following statement: "in general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition it will always be the more so" (Smith 1776, p.329 quoted in Adam Smith Institute, 2010).

In addition, Smith urged for limited government intervention in the commerce of a state as he regarded the government's main functions were the nation's military defense, infrastructure and level of education. Smith's critical view of the government was encouraged by the monopolies and taxes that had been placed on trade and production as they prevented free exchange and an efficient and competitive market place. Furthermore, Smith demonstrated how "the freedom and security to work, trade, save and invest promotes our prosperity, without the need for a directing authority," all significant aspects of what Smith perceived as economic well being. (Adam Smith Institute, 2010).


References:
  1. Adam Smith Institute, 2010, accessed 4 October 2010, http://www.adamsmith.org/adam-smith/
  2. Adam Smith Institute, 2010, accessed 5 October 2010, http://www.adamsmith.org/the-wealth-of-nations/
  3. Adam Smith Institute, 2010, accessed 6 October 2010, http://www.adamsmith.org/adam-smith-quotes/
  4. Bradley M 2010, 'Adam Smith's System of Natural Liberty: Competition, Contestability, and Market Process', Journal of the History of Economic Thought, Vol.32, No.2, pp.1-26, accessed 10 October 2010 from Cambridge University Press Journals Complete Full Text Database.
  5. Economy Professor, 2010, The Professor Network, accessed 12 October 2010, http://www.economyprofessor.com/theorists/adamsmith.php
  6. The Concise Encyclopedia of Economics, 2008, Library of Economics and Liberty, accessed 6 October 2010, http://www.econlib.org/library/Enc//bios/Smith.html
  7. The International Association of Scottish Philosophy, 2010, accessed 7 October 2010, http://www.scottishphilosophy.org/adamsmith.html