Deat Adam Smith and the Wealth of Nations

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SECTION 1

Basic text A.

New Words:

Physiocrats - фізіократи
Mercantilists - меркантилісти
Output – продукція, кількість продукції, що випускається To outperform - демонструвати
to exert – напружити
to pin - проколювати, скріпляти
pertain – належати, мати відношення.

Pre-reading task:

What do you know about Adam Smith? What was he?
Read the title of the text and say what it can be about?

1. Reading.
1.1. Read the text.

Adam Smith and the Wealth of Nations

1776, the year that we associate with the signing of The Declaration of Independence, also marked the publication in England of one of the most influential books of our time, The Wealth of Nations. Written by Adam Smith, it earned the author the title “the father of economics,” Smith objected to the principal economic believes of his day. He differed with the physiocrats who argued than land was the only source of wealth. He also disagreed with the mercantilists who measured the wealth of a nation by its money supply, and who called for government regulation of the economy in order to promote a “favorable balance of trade.” In Smith’s view, a nation’s wealth was dependent upon production, not agriculture alone. How much it produced, he believed, depended upon how well it combined labour and the other factors of production. The more efficient the combination is, the greater the output is, and the greater the nation’s wealth is. The heart of Smith’s economic philosophy was his belief that the economy would work best if left to function on its own without government regulation. In those circumstances, self-interest would lead business firms to produce only those products that consumers wanted, and to produce them at the lowest possible cost. They would do this not as a means of benefiting society, but in an effort to outperform their competitors and gain the greatest profit. But all this self-interest would benefit society as a whole by providing it with more and better goods and services, at the lowest prices. To explain why all society benefits when the economy is free of regulation, Smith used the metaphor of the “invisible hand”: “Every individual is continually exerting himself to find the most advantageous employment for whatever capital he can command. It this own advantage, and not that of society, which he has in mind, but he is in this, as in many other cases, led by an invisible hand to promote and end which was no part of his intention, for the persuade of his own advantage necessarily leads him to prefer that employment which is most advantageous to society.” The “invisible hand” was Smith’s name for the economic forces that we today would call supply and demand, or the marketplace. He sharply disagreed with mercantilists who, in theft quest for a “favorable balance of trade,” called for regulation of the economy. Instead, Smith agreed with the physiocrats and their policy of “laissez faire” letting individual and businesses function without interference from government regulation of private monopolies. In that way, the “invisible hand” would be free to guide the economy and maximize production. The Wealth of Nations goes on to describe the principal elements of the economic system. In a famous section, Smith turned to the pin industry to demonstrate how the division of labour and the use of machinery increased output. “One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations.” Also modern technology has improved the methods by which pins are produced; the principles pertaining to the division of labour remain unchanged. Similarly, other section dealing with the factors of production, money and international trade are as meaningful today as when they were first written. You can see, therefore, that Thomas Jefferson’s Declaration of Independence and Adam Smith’s The Wealth of Nations...
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