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Adam Smith Research Paper

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Recommended: Aspects of classical economics and its relevance to modern society

Adam Smith
Since the dawn of mankind, the works and propositions of many theorists and philosophers have contributed to the development of economics. Classical economists by far have had the most significant impact on world economics, whose works are considered most relevant in the contemporary society. Today nearly all the countries have a capitalist economic structure, which was first penned by Adam Smith in 1776 in his book "An Inquiry into the Nature and Causes of the Wealth of Nations." USA, the most powerful and richest country in the world is entirely capitalist and based on a free market structure.
Under Mercantilism the amount of gold and silver determined a country's wealth. In contrast, Adam Smith proposed that the nation's wealth …show more content…

He said that "an invisible hand" leads people to pursue their own self-interest and consequently help to fulfil the interest of others. The invisible hand refers to how the price of a good on a free market changes over time. After a sudden change in market conditions, price fluctuates rapidly as people are unsure of true worth of a good. Slowly, over time, people learn its value and the price moves towards the equilibrium price where demand equals supply. For example, whenever a new stock is issued in the stock market by means of an Initial Public Offering (IPO), its price is highly volatile because people don’t know its intrinsic value. However, after some time people get to know it’s worth and price stabilizes. Lastly, Smith’s theory of value added accounting has inspired great interest from businessmen. The main focus of entrepreneurs today is to add value to the raw material so that they can sell their products at the highest possible profit margin.
The principal theme set by Adam Smith in his book is that a country expands its own wealth by providing liberty to the individuals to pursue their self-interest. This self-interest motivates individuals to produce and trade and thereby leads them to meet the needs of others. This principal is found in today’s world as whenever there is a gap in the market, an unfulfilled demand or an unexploited profit opportunity, producers rush to tap that market and exploit that

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