Introduction
Classical economists have emerged since the middle ages. This paper will focus on the ideas and principles which were proposed or invented by Adam Smith, one of the most famous classical economists during his time. The focus of this paper will revolve on the question “What were Smith’s contributions to the global economy during his time until now?” The paper will also focus on the significance and effects of Adam Smith’s theories and ideas about economics. Experts in the subject of economics would often say that classical economics started with Adam Smith. Other British classical economist like David Ricardo and Thomas Malthus just followed perhaps because they already got what Smith is trying to say about the way how an economy works. Adam Smith was actually a political economists and he has become one of the pioneers of a political economy in his country. His success in the field of economy occurred during the enlightenment period where a lot of changes, religiously, economically and socially took place because of a sudden change in the people’s beliefs.
Adam Smith and his Labor Theories of Value
Adam Smith contributed a lot of things in the field of economics during his time. One of his successes was marked when he became a proponent of the labor theory of value. Such theory was kind of new for the economic leaders and people to believe back then. Nevertheless, he succeeded in persuading people who do not know much about economics to believe that his theory is working and could actually be observed.
According to the Labor Theory of Value, a commodity’s value will be based on the amount of labor needed to produce or extract it (if it is a natural resource such as coal, gold, copper, silver, etc.). That commodity’s value will be directly proportional to the amount of labor required to produce or extract it. In short, the higher the labor requirement a certain commodity demands, the higher its value will be.
Adam Smith’s Labor Theory of Value has been modified to fit into the socioeconomic situations of today’s generation. A particular modification made is the theory of marginal utility. The theory of marginal utility on the other hand states that a consumer who wants to buy something will be able to maximize that item’s utility upon the first unit or time of consumption. If for example, Mr. X.Y wants to buy jeans because he simply wants to, upon buying the first pair of jeans from the store, his wants will be satisfied and it is unlikely that he will buy another pair of jeans anymore.
Other classical economists such as Karl Marx and David Ricardo tried to modify some of the weak points in Smith’s theory. One of which was the fact that Smith wasn’t able to require the quantification of the variables in his theory. A good example of such variable would be labor. Labor isn’t really required to be quantified to be able to compute for the value of a commodity. So, Marx and Ricardo tried to fill Smith’s gap by attempting to quantify labor for a more accurate value setting for commodities.
Adam Smith and the Role of the Government
Adam Smith was able to create a series of 5 books entitled “The wealth of nations”. This book tackled the different roles that the government has to play for it to be able to march towards success and prosperity. In a macro level, the cause and nature of a prosperous country was described and analyzed by Smith.
He focused on the value and contribution of a high productivity to a nation’s growth and success. He used the famous example about ten workers and pins. He suggested that 48,000 pins could be produced by a team of ten workers per day. However, he stressed that this could only be possible if each of the 18 tasks required to produce a single pin would be assigned to specific workers. One of the focuses of this work was productivity. He emphasized the relationship between proper division of labor and an increased productivity level.
It is ironic how some of the people from his time viewed Smith as a man who thinks that the government has no role to play in economics. Adam Smith actually believed that the government has a crucial role to play for a state’s economy to develop and even flourish. New ideas and inventions was a part of the big picture that Smith painted in his mind. He supported the theory that new ideas and inventions are key for the success of an economy and they could only be obtained if the government would allow the issuing of contracts, granting of patents, copyrights and supporting basically everything that would encourage innovation.
He also believed a government led by a wise leader should focus more on the development of public works (road and bridge constructions were two of his most used examples) as long as users or consumers will be willing to pay corresponding fees for newly constructed roads and bridges.
Government’s Role in Facilitating an Innovative Economy (Journal Title)
This was a study done to identify and further analyze the role of the government in facilitating an innovative economy. Different techniques that different governments use to facilitate such movements in the modern era were also discussed in the paper as well as the changing nature of the economy and innovation in this century and their implications for future effective government policies. According to Jacknis (2011), governments have historically played a crucial role in facilitating innovation in private economy. The importance of a mutually aligned societal purpose and entrepreneurial energies in the development of a country’s economy was noted in the study (Kao. 2009).
According to the results of the study, it was confirmed that the government plays a wide and diverse role in encouraging innovation in different sectors of society, including the sector responsible for managing a relatively stable economy. This could basically be executed by the government because it has a lot of tools and methods available to be used if even the need for innovation occurs. The researcher also noted that these tools and methods that the government has would not be as effective in a post-industrial future wherein people are already globally connected. This indicates that governments should use newer approaches in dealing with economic matters. This is what’s actually happening as noted in certain sections of their study.
The Role of the Government in Economy Transformation
This is another study conducted to identify the mechanisms and principles of economic regulation and differentiating it from the classical approaches. Results of the study show that the growth of the information economy (use of information technology in the field of economy) should serve as a trigger for governments to be active uses of information products (Ushakov, 2011). The author concluded that by doing so, economic productivity and thus, economic outcomes would improve on a much larger scale. The author also presented the idea that traditional tools and methods used by the government may lose their effectiveness when the subject being talked about is internationalization. It was recommended that governments should make use of networks (networking), give more priority to the social aspects of the country’s citizens and to concentrate on domestic consumption to be able to realize a more positive economic outcome. It was however noted that such recommendations are only intended to preserve the role that the government plays in economy as a whole.
Conclusion
After taking into consideration Adam Smith’s theories & beliefs about classical economy, and reviewing evidences which also tackles the same topic and variables that Smith discussed, it was proven that the government really plays an important role in a country or state’s economic development. That role has something to do with the act of encouraging new ideas and innovation which in the future, would result to improved economic outcomes (Johnson, 2010). Innovation is really needed for a more dynamic and productive economy. An economy which is an active user of information products and one who prioritizes innovations and new ideas more than anything else could be equated to a strong economy based on Smith’s theories and the evidences gathered from different journals.
References
Smith, A., 1976, An Inquiry into the Nature and Causes of the Wealth of Nations. Chicago: University of Chicago Press.
Jacknis, N., 2011, Government’s Role in Facilitating an Innovative Economy. International Journal of Innovation Science.
Kao, J., 2009, What is Large Scale Innovation.
Ushakov, D., 2011, The Government Regulation of Economy Transformations in Terms of the Multinational Entrepreneurship Development and Technological Progress. Chinese Business Review.
Johnson, S., 2010, Where good ideas come fromL Interactive Transcript. The Natural History of Innovation.
