I. Adam Smith
1. Theory of Moral Sentiments-
Man is motivated by his self-interest; the approbation and acceptance of his fellow man, being chief. Alongside with this, are two natural sentiments of man: sympathy and imagination. These he uses to feel along with another who suffers. Man can place himself in the position of an impartial spectator who has no bias for or against himself or others and this causes him to have sympathy, imagining himself in that position of the other man. Furthermore, man pursues his self interest by seeking wealth which would place him at equal rank with others (acceptance and approbation). In trying to pursue his self interest, man unknowingly causes others to benefit through this “invisible hand”.
2. Laissez Faire-
Smith believes that the government’s role is to provide a social framework which would help each man realize his interest, wealth, uninterrupted. Man is able to pursue his interest the greatest with free market which provides the greatest division of labor, which says Smith, gives rise to the greatest productivity. Any constraints or laws placed that will hinder the natural flow of the market will only bring impediments to it.
3. Theory of Value
Smith saw two kinds of value: the value in use and the value in exchange. The value in use is the amount of use that a product has, water for example has a great value in use. The other one is the value in exchange, which is the amount of value a thing has that allows a person to exchange it for another or to purchase another. The measure of this exchangeable value consists in the labor that was spent on it. There are of course, two kinds of labor as well. The labor content and labor commanded. Man his self interest goes into labor and the labor content is that amount of labor which allows him to supply himself. With the arrival of the division of labor, the effort man places in supplying himself is lessened and he is rich or poor according to the labor of other which he can command. Man obtained things on this earth through labor, and the value of the things that he has is the amount of labor that can enable others to purchase or command. Of course labor is not only according to the quantity but also the quality.
4. The Role of the State
The role of the state in Smith’s case is limited, because he believes that man can pursue his self interests fairly independent of government. The role of the state therefore is to provide the protection or national defense, impartial justice and the establishment of public works and institutions for the benefit of the people.
5. Analysis of Distribution
Greater productivity will lead to greater demand for labor and in turn higher wages.
6. Theory of Capital Accumulation
Capital is stored labor. The greater the capital, the greater the opportunity to experiment and invest for the future. While accumulated capital will diminish the existing standard of living, it will give rise to a higher standard of living in the future. Greater capital means that the society has the ability to enhance its future production.
In the division of labor, a worker may become too specialized that his knowledge will consist only of matters pertaining to those related to his area of work. Education therefore, is approved by Smith.
* Against monopoly
* Pro laissez faire
* Profit is inversely proportional with wage
* Rise in economy rise in wage
* Land , labor, capital > rent, wage, profit
* Revenue (gross and neat) neat = gross – fixed and circulating capital * Wage is determined by the duration of work, location of work, skill of worker, alternative employment and bargaining power of worker * Rent is determined by level of wage and profit
1. Theory of Rent
Rent, for Ricardo is not only the price to pay for the use of land. It is also based on...