Who was Adam Smith? Adam Smith was Scottish economist and philosopher, whose famous views in the Nature and Causes of the Wealth of Nations, better known by its abbreviated name of The Wealth of Nations (1776), was the first attempt of analyze the determinants of capital formation and historical development of industry and trade between European countries, which helped create the basis of the modern science of economics. In The Wealth of Nations , Smith conducted a deep analysis of the processes of creation and distribution of wealth. Showed that the fundamental source of all income and how wealth is distributed, lies in the differentiation between income , wages and benefits or profits. The central thesis of this paper is that the best use of capital in the production and distribution of wealth is one in which the government does not intervene, under conditions of laissez - faire and free trade. According to Smith , the production and exchange of goods increases, and that way also raises the standard of living of the population, if the private businessman, both industrial and commercial , may act freely through regulation and minimal government control . To defend this concept of a non-interventionist government , Smith established the idea of the "invisible hand " : to try to meet their own interests, all individuals are guided by an "invisible hand " that achieves the best possible social objective . So that way, any interference with competition between individuals from the government will be detrimental.
While this approach has been reviewed by economists throughout history , much of the theoretical content of The Wealth of Nations ( in a particular way in relation to the source of wealth and the determinants of capital formation ) remains the basis of the theoretical study in the field of political economy . The wealth of nations is also a guide for the design of economic policy of a government. In his famous treatise The Wealth of Nations, Adam Smith argued that deregulated private competition produces and distributes wealth better than government-controlled markets. Since 1776, when Smith wrote his work, his reasoning has been used to justify capitalism and discourage government intervention in trade and exchange. In the words of Smith, private entrepreneurs who are self-interested economics organize more effectively "as by an invisible hand." While Smith couldn't prove the existence of this “hand” (it was, after all, invisible) he presented many instances of its working in society. Essentially, the butcher, the baker, and the candlestick maker individually go about their business. Each produces the amount of meat, bread, and candlesticks he judges to be correct. Each buys the amount of meat, bread, and candlesticks that his household needs. And all of this happens without their consulting one another or without all the king's men telling them how much to produce. In other words, it's the free market economy in action.