Adam Smith and The Wealth of Nations
Capitalism is considered a pivotal part of today??™s society but in 1776 when Adam Smith wrote his keystone article, The Wealth of Nations, capitalism did not exist. It is actually through The Wealth of Nations that Smith introduced the idea of capitalism. Smith is commonly referred to as the father of modern economics because of his revolutionary ideas that changed both American politics and the American economy. Even though capitalism is an idea closely associated with the United States, Smith did intend for his work to solely define one nation. He was a Scottish philosopher who took part in the enlightenment.
The Wealth of Nations was written to challenge the economic system that was dominating world politics in the sixteenth century. The most common economic system at the time when the article was written in 1776 was the Mercantilist System. It essentially required a mother country to take on a protectionist role over other countries in which the receive capital gain. This system was popular being of the widespread Imperialism of the 16th, 17th, and 18th centuries.
The Mercantilist System was set up so that nations would gain as much wealth out of their colonies so the mother country would benefit. It was a system that used relative gain as the world economic system. Countries believed that the world wealth was limited and was based on one countries gains coming at the expense of another nations lose. To be successful in this system, nations had to get as much resources from their colonies as possible. Europe especially depended on this system to gain access to the lucrative trade market of East Asia, especially China. Europe needed to acquire silver to trade with China. European leaders demanded their colonies to produce labor and resources in their countries yet the colonies had no representation in the politics of the European mother countries.
When Enlightenment ideals spread after the example of the French Revolution, those ideals made it across the Atlantic starting in Haiti. Because of this the aristocracy and merchants started to realize they were being held back economically due to tariffs. Also many businessmen were not able to be apart of this cash market at the time due to restrictions on merchant licenses by governments. Once Smith wrote The Wealth of Nations in 1776 he globalized this issue claiming that nations held back the possibilities that trade could produce. He claimed that individuals should have no restrictions by the government and that there is an invisible hand on the economics on the world.
The term ???invisible hand,??? which Smith coined, was actually first mentioned in another of Smith??™s work. But the term refers to the combination of self-interest, natural competition, and supply and demand all influencing the market and the allocation of resources in society. This concept of the invisible hand was crucial to the ideas of capitalism that Smith set up in The Wealth of Nations. Smith believed that businesses should be privately owned and operated instead of centrally run by the government. This way it produced natural competition and allowed the growth of the market and nation through enterprise.
Smith is one of the most important figures in modern day economics. Through his article The Wealth of Nations, Smith was able to change the economic system and help influence the downfall of Imperialism. His thoughts accurately reflected the enlightenment and his ideas affected not only the United States but also the world.