In his book The Wealth of Nations, Adam Smith makes several important claims about the functioning of economic and tries to explain the welfare of the society can be improved. His central thesis is that countries should increase the value and productivity of their labor in order to promote the welfare of citizens. To some degree, this goal can be achieved by removing trade barriers or making market more open.
Even though Adam Smith’s ideas have been disputed by many thinkers, they have shaped the way in which many governments and economies work. Moreover, his views remain relevant to modern societies. In order to elaborate his argument, Adam Smith first focuses on the role of money. First of all, the author challenges a popular opinion, according to which money and wealth are “considered as in every respect synonymous” (Smith, 248).
He does not agree with the idea that rich country should only accumulate silver and gold. The author urges people to remember that this view of wealth completely overlooks such things lands, consumable goods or houses that are also important for the wellbeing of the society.
Furthermore, he objects to the idea that such metals as gold and silver should not be carried away from the country because such prohibitions only impede trade and prevent people from maximizing their wealth. To a great extent, Adam Smith views had profound implications for the strategies of many governments.
The discussion of money and its functions helps Adam Smith introduce such concepts as productivity, free market, and comparative advantage. First of all, the author notes that some countries can manufacture some products better than others and at a lower cost. For instance, he mentions that is more prudent to import wine from France, rather than encourage its costly production in Scotland (Smith, 265).
At this point, he introduces such a concept as “natural advantage” of a nation (Smith, 265). Among such advantages, one can distinguish climate or geographic position. On the whole, Adam Smith enabled people to look at economic relations from a different angle. His work demonstrates that the well-being of a nation greatly depends on people’s ability to create extra value.
Furthermore, the author points out that protectionist policies can be destructive and irrational. Adam Smith creates a very powerful analogy in order to illustrate his argument. In particular, he says that “the shoemaker does not attempt to make his own clothes, but employs a tailor” (Smith, 264). Similarly, people buy goods that can be better manufactured or produced by someone else (Smith, 264).
This example is supposed to illustrate the benefits of open markets. Thus, the government that erects trade barriers limits the choices that are available to the citizens. Thus, the welfare of the nation greatly depends on the ability of a nation to use its natural advantages. In turn, the presence of competition forces manufacturers to improve their work and make better offerings to buyers.
Therefore, Adam Smith succeeds in showing that the wealth of a nation should not be reduced only to money. Instead, people should pay more attention to the ability of the industry to create additional value and raise effectiveness of manufacturing. Furthermore, governments should focus on the welfare of citizens, rather than only production. On the whole, the works of this thinker has contributed to the evolution of economic science.
Works Cited
Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations, New York: Digireads.com Publishing, 2009. Print.