Adam Smith

Adam Smith had many views that helped in making the world what it is today. I can't imagine what the world would be like if there weren't thinkers like Adam Smith. Going to college would be pointless and trying to be something more than a cashier in a little store down the street would be pointless. What would we be working so hard for if we made the same amount of money as when we were sixteen working in that little store? He had many other views that were just as important but this was a big interest to me as probably to many others.

Smith believed that a nation's wealth was not derived by how much they had in resources, or in exchangeable products, but rather by the labor that people put into making that product. "The annual labor of every nation is the fund which originally supplies it with all the necessaries and conveniences which it annually consumes." Smith stated that a nation could increase the efficiency of the potential of its people by increasing skill and proportion.

Smith noted that the best way to increase the efficiency of labor is the division of labor. The division of labor is the central factor in Smith's theory of economic growth. Division of labor is the splitting of a large task into smaller tasks and then having one person is responsible for only one or two of the smaller tasks, which leads to an increase in productivity and stimulates the entire growth cycle, which increases the efficiency of the whole task.

The division of labor and the accumulation of capital are what Adam Smith believed to be the driving forces of economic growth in any nation. He found that when the division of labor had broken down the production into a series of simple operations it was more natural for tools and machinery to be invented that replace hand labor and made everything go faster. Then it increased worker productivity. This increased productivity and combined with the growing production so it increased output. This made more resources available to society to enjoy higher standards of living standard of living and products were not as scarce as they once were. Then Smith noticed that there was a huge rise in the "wealth of the nation".

Adam Smith stated that what a product is worth depends on the amount of labor that must be used to make that product. He believed that the price of an object could be split into three parts: rent, wages and profit. The person producing the quantity must pay rent on the land he is using to produce the product. Then to make the product someone must either do the labor or hire people to do the labor for him. If he hirers someone then he must pay them wages. Finally, the producer adds on a profit that will also be used to pay for the upkeep of equipment.

Smith also believed that wages were very important and beneficial. The wage a laborer receives is the replacement for the profit he would gain by selling the product he produces. The worker has the responsibility of procuring materials and equipment, and of having to try to market the product. Instead, he gains cash for his labor. Wages are affected by many factors. First, there needs to be a fair wage for the employees. The second is the difficulty and expense of learning the employment. The third is the constancy of employment in them. The fourth is the amount of trust, which must be placed in the employees. Finally, the fifth is the probability of success in them.

Smith decided that wages must be at least enough for two people to live on, so that the workers can raise a family to keep the workforce going. The higher the wage is, the more likely a working family is to have more children, because children become a benefit. He believed that wages are people's incentive to work harder. Everyone wants and needs cause them to work harder so that he can get paid better. This is to the benefit of both employer and employee, because the employer gains more products to sell and the employee gains a larger wage, giving him more money to put in his pocket or spend on his wants and needs.

Smith believed that the market system was more than capable of managing itself, and that no government intervention was ever required. He believed that the competition between different producers of a similar product would keep prices reasonable, and that the quality of a product would allow it to be sold at a slightly higher price than a similar product of lower quality. He stated that government interference in trade through taxing generally caused more problems for the consumers than they solved. This was because people have to then spend more money and maybe they are not making that extra money to spend on what they once were going to buy.

Smith's theory of economic growth can be formulated in a math equation. Where G equals the growth rate, K equals the ratio of productive to unproductive labor, P equals the productivity