Adam Smith’s influence is here divided into three specific areas:
1. The Behavior of the Market
To begin with, Smith’s theory changed the agricultural priorities of economics in his assertion that “labor, not nature, was the source of value” (Smith 49). In other words, it is the availability (and cost) of labor, rather than whether the weather is seasonable or not, that contributes to the overall economic picture. What Smith argued was that many economists previously had “failed to see that labor could produce wealth wherever it performed, not just on the land” (Smith 49),
This led Smith to certain laws of the market, which basically indicate that the market tends to move in the direction of primary public interest. “Adam Smith’s laws of the market are basically simple…Specifically they show us how the drive of individual self-interest in an environment of similarly motivated individuals will result in competition” (Smith 55) Moreover, that competition changes as demands for goods and services change, and, of course, so does the price asked by providers, and willingness to pay by the consumer.
Society to Adam Smith was a great family; to Ricardo it was an internally divided camp” (Ricardo 79). The concern seemed not to be the increasing power and profit of industrialists, but an increase in population which exceeded the agricultural supply,. This meant high food prices, because food had to be imported from outside Britain. An argument in Parliament went under the theory that regardless of the price of bread, for example, a laborer’s wages would be increased to cover that higher price. In other words, the availability of the market did not so much dictate the price of goods as the ability to purchase them.
2. Income distribution
The difference between the Have’s and have-Nots in England at the time of both Smith and Ricardo were wide. It was a curious differentiation of the working class, just beginning to become subservient to machines and dust, smog and pollution (compared to a mostly agricultural past) and yet the text observes that it was “curious that Dr. Smith should have professed to see order, design, and purpose in all this” (p. 43). However, the idea of store owners providing value, creating a new and powerful middle class, was far more optimistic in terms of wealth distribution. The wealth came, as Smith seemed to see it, from the value a store owners put on his services- the butcher, baker, candlestick-maker changed raw products into acceptable consumer-oriented goods. For this reason, Smith is well known throughout future history for his consideration of En gland as “a nation of shopkeepers”. (p. 52).
As this text makes clear (53) Smith was not nearly as interested in the rise of this middle class of shopkeepers as in his promoting the idea that en tire nationals can profit, a profit that “consists of the goods that all the people of society consume, although not, of course, in equal amounts” (Smith 53).
3. Future growth
Smith thinks of nations- nations made up of varying classes, professions and producers, all somehow joined (intentionally or otherwise) into creating the wealth of the nation. One, of the economists whop disagree with Smith, David Ricardo, sees not people, “they are prototypes. Nor do these prototypes, in the everyday sense of the word live, they follow laws of behavior” (Ricardo 94-5).
It is obvious that Ricardo is far more concerned with land use- or, in some cases over-use. “Here is where the world of Ricardo turns sharply away from the hopeful prospects of Adam Smith. As population expanded, said Ricardo, it would become necessary to push the margin of cultivation out further. More mouths would demand more grain, and more grain would demand more fields. And, naturally, these new fields put into seed would not be as productive as those already in use” (Ricardo 97).
It seems obvious, then, that the look into the future was one of constant (and perhaps consistent) pessimism for Ricardo who saw the “wealth” of the nation as being the land, and the land’s productivity being stretched thinner and thinner, and the results becoming more expensive. For Smith, he tended to perhaps overlook this struggle of land, landlord and a rising bourgeoisie in favor of the greater good for the greatest number of people in the long run.
Ricardo’s future sees the capitalist as being squeezed on two fronts: higher wages to be paid to the workers, and second having to pay increased rent for the land, because land has become dearer. “In Smith’s world everybody gradually became better off as the division of labor increased and made the community more wealthy”. (97). As the text explains, this conclusion tends to hang on the land itself not providing a barrier to growth, and that there is no lack of fertile soil on which to grow necessities. As it turned out, Ricardo’s pessimism didn’t come to pass, and the industrialists managed to secure the importation of cheap food. Both views of the future have some basis in fact. The future has turned out to be neither as bright nor as pessimistic as Smith and Ricardo foresaw.
What remains important in Smith’s economic insight is this: In his Wealth of Nations he developed the theory of value. “The word value….has two different meanings…’value in use’ and ‘value in exchange'” (Smith 1956 12). To simplify this theory, perhaps, one can say “how much do I have to spend? And “what can I get for the money I have to spend? However, then one has to come to the question of the value of money if it is not spent in exchange for goods or services. Is money only worth something when it is exchanged for goods or services? We tend to think of “having” money if it sits in a bank account drawing interest, or is invested in bonds or stocks where it is said to “work” for us. This also denotes a difference between “safe” money and money being “risked”. So, when we talk about value of money, we are following in the footsteps of Adam Smith
CITATIONS:
ARRINGTON, R. L. .: The World’s Philosophers:
“The Wonderful World of Adam Smith”
“The Gloomy Presentments”
Blackwell publishers (2003)
Smith, A.: Wealth of Nations Great Books of the Western World, Vol. 39 Chicago: University of Chicago and En cyclopedia Britannica (1956)
