Book Review: The Wealth of Nations- Systems of Political Economy
Book Review: The Wealth of Nations- Systems of Political Economy
In Systems of Political Economy, the fourth part of his famous book, An Inquiry into the Causes and Nature of the Wealth of Nations, Adam Smith is critical of the economic theories and policies of that time for being unfavorable and resistant to the development of the common people and their economic status. He criticizes the mercantile viewpoint that wealth is money, that is, gold and silver, only because it is used for commercial purposes, that is, to buy commodities and labor. This view made the governments restrict the movement of gold and silver. He showed that the outflow of gold and silver actually increased their worth, and the governments’ control over the metals was futile because they could be smuggled with ease. Thus, the right approach to deal with the metals was to maintain a trade balance. He also advocates trade between countries, as the surplus commodities of a nation, which are not in demand in the home nation, could be exchanged with commodities of demand in the nation, and this process would benefit both the trading countries. This also allows the division of labor and expansion of markets. He encourages countries to forgo the idea that the movement of gold and silver outside the country is detrimental to the country’s economy. Smith states that prohibiting the import of foreign goods make countries’ markets monopolistic and such countries will not benefit much from such an approach.
He explained that the process by which a person endeavors to use his or her capital to find a means of employment for ensuring maximum personal benefits is advantageous to the society. As people tend to seek such opportunities as close to their homes as possible, they actually work towards improving the industry of their country. If the government aims to increase the national wealth by increasing the price of commodities available outside the country at lower prices, they are actually harming the economy. Thus, although a specific industry will flourish, it will never reach its peak because the capital is not being circulated. He also illustrated the harms and exceptions of setting tariffs on certain products in the domestic market and the appropriate ideology behind taxing foreign goods.
Ages before the concept of globalization emerged, he propounded the economic advantages of diminishing trade boundaries by explaining his “invisible hand” concept, which states that people striving for their capital goals by itself brings order into a market. He was of the idea that a competitive market is the best means for increasing the expansion of the “wealth of nations.” According to Smith, artificers, manufacturers, and merchants can supplement the society’s income and capital only by exercising thriftiness or by placing themselves in adverse conditions or by declining/sacrificing the use of finances for their own needs. Thus, these professions are incapable of producing capital other than that for their own need. Hence, they have to save some portion of their income or deny themselves the use of a certain part of their income to ensure that they can give the society a certain degree of wealth. On the other hand, farmers and country laborers are free to enjoy all their income for their own needs as their professions by itself supplement the income and wealth of their society. Smith believed that although an agricultural system of economy has never been practiced by a nation, there would be no harm in it as it only helps the economy and the common man. However, we know that this is not possible today as other, such as the service sector, have shown to have a greater might in comparison to the agricultural sector. Moreover, agriculture cannot contribute much to the GDP of a nation. African countries like Cost Ivory, whose economy depends on cocoa and coffee production for its survival and development, have to deal with several economical and social problems. Moreover, the agriculture sector depends on other sectors, such as the industrial sector for its tools and implements and on the reality sector for its cultivation lands.
Smith showed that overpopulation was the reason “colonies” were established in the world, and colonization was often not very productive over a period. He believed that it was human curiosity that instigated the process of colonization. He explained that technologically undeveloped countries that had undeveloped tracts of land resulted in wealth gain of the colonists. He gave the example of the economic rise of Brazil after Portugal stripped it of its gold reserves and showed that, if a colonizing country left the colonized country to develop on its own, the latter would definitely prosper. He showed the reasons for the success in the colonization carried out by England were specific to land and labor. He also pointed out that the greatest advancement for Europe from the discovery of the American colonies was the American produce that were imported into Europe, thus giving the Europeans a large number of new commodities, which they could have otherwise never enjoyed. He was against the colonization policies such as those propounded by the British East India and Dutch companies, where the lack of concern about the colonized country by the company officials for financial prowess resulted in the colonized country’s economic derailment and degradation of the common man’s lifestyle. However, in the long term, colonies became expensive fairs for the colonizers. He pointed out that if the colonies were allowed to have a larger interest in their countries’ politics, that is, electing their own representatives in the law, etc., the colonizing countries could have been spared of the large amount of finances allocated for the defense of the colony, and thus, saved themselves large sums of money. However, most colonizing countries, such as Britain, refused to take this stance for the sake of pride. Colonization or otherwise, he basically advocated freedom of trade and desired a free-hand from governments in economic development of the people.
Adam Smith was strongly opposed to the mercantile philosophies that advocated accumulation of a country’s wealth within its boundaries. He was a supporter of free trade, and accordingly believed that only open boundaries would improve economies and the lifestyle of the common man. The United States was one of the first countries to practice this theory. Especially after the 1930s, the country’s liberalized trade policies have made the country the economic superpower it is today. The United States were colonies of the British state, but they were also colonizers of the Indian colonies that exited in the lands they claimed. A candid analysis of the situation show that they were not very successful as colonizers, as it was only though exploitation that the lands could be claimed. The United States shares Adam Smith’s sentiments regarding agriculture and farmers by giving financial support to the farming community. The history of the United States shows that the country has traced it path to success as Smith had proclaimed in his works. The capitalism approach allowed the merchants and businessmen to prosper and their prosperity is the very foundation of the country’s economic success.
