The name of the famous English economist Adam Smith is associated with the formation of the classical economic school. He developed and presented the economic picture of society as a system. Smith was a founder of the science in the field of financial, banking and tax matters. His energy, talent, and sharpness of mind forever entered the history. Smith identified the general principles of the economy on the eve of the formation of industrial production. This paper aims to observe the phenomenon of Adam Smith and his contribution to the economy.
Adam Smith was born on June 5, 1723, in Scotland in the family of a customs officer who died a few months before Smith’s birth (Otteson 24). A four-year child, Smith, was kidnapped by gypsies, but quickly rescued by his uncle and returned to his mother. It is assumed that Adam was the only child in the family since there were no records of his brothers and sisters. After graduating from the local school, Adam at the age of fourteen enrolled in the University of Glasgow (Milgate and Stimson 54). At the age of seventeen, as one of the best students, he received a scholarship for further studies at the prestigious and more influential Oxford University and graduated in 1745 (Phillipson 13). After graduating and defending his doctoral dissertation, the young scientist lectured at Edinburgh University. The themes of his research at the time were economics, philosophy, land, and tax law.
The literature reveals that giving lectures in Edinburgh, Smith began formulating his ideas about the problems of the economy. The basis of Adam Smith`s scientific theory was to observe an individual paying close attention to the three key points: the standpoint of morality, civilian and government positions, and the economic perspective. He received wide recognition and fame after the publication of his book The Wealth of Nations in 1776 (Otteson 31). It had reinvented the economy as a science by establishing the doctrine of free enterprise.
The development of industrial production in the 18th century led to the growth of the social division of labor, which required an increase in the role of trade and monetary circulation (Milgate and Stimson 58). As a result, the old practice conflicted with the prevailing views and traditions in the economic sphere that required to review the existing economic theories. Smith presented a logical system that explained the work of the free market based on the internal economic mechanisms rather than external political control (Phillipson 121). Until now, this approach remains the basis of the economic analysis. Moreover, Adam Smith formulated the concept of “natural order” and “economic man.” Thus, he believed that the natural order is a market economy where an individual`s behavior is developed in accordance with personal and selfish interests. In Smith’s view, this procedure provided the wealth, prosperity, and development of society and the individual as a whole. Analyzing human behavior, the motives and desire for personal gain, Smith concluded that “economic man” is the basis for the society.
Smith believed that for the existence of the natural order, people needed a system of natural liberty, the basis of which Smith saw in private property. Many studies indicated that Smith’s most famous metaphor was “invisible hand of the market” that provided the autonomy and self-sufficiency of the system, which was based on selfishness. The essence of it was formed in the idea that self-interest was achievable only through the satisfaction of someone’s needs. Therefore, in Smith’s view, the free market economy encouraged all people to realize their interests and increase the wealth of the whole society. At the same time, the resources moved through the supply and demand system in those areas where their use was the most effective.
Adam Smith is a founder of classical political economy. He described theoretical foundations of classical political economy in his outstanding book The Wealth of Nations. According to Smith, the subject of political economy was the study of wealth, the objective laws of its production and stockpiling for the purpose of welfare of the population growth. Moreover, he had created a coherent theory of logical operation of commodity production, the components of which was the doctrine of the division of labor, productive and unproductive labor, labor costs, the origin and functions of money and capital, its structure, and reproduction.
The starting point of his study was the doctrine of the division of labor as the most important factor of progress. He determined the division of labor as the main condition for the growth of its performance. Smith emphasized that only the volume of the market limited the intensity distribution. He also developed views on the productive and unproductive labor. Thus, Smith believed that the productive labor was based on any work that created a material product and exchanged for capital, and unproductive labor did not create value and was exchanged for income. Developing the theory of reproduction, the scientist allocated gross income and net income (Milgate and Stimson 61). Smith was the founder of the commodity theory of money. He explained its origin by the objective natural process of development within the division of labor and exchange.
Adam Smith was one of the most outstanding economists who introduced numerous ideas. His studies laid the foundation for numerous economic theories that are still in use today. Smith’s classical political economy played a large role in the development of economic thought and influenced the economic policies of most states.