Adam Smith's Idea of Free Economy

Introduction

Adam Smith is also known as one of the fathers of economics. He is most known for his profound ideas and theories on capitalism presented in his book The Wealth of Nations. In The Wealth of Nations, the ideal capitalist government and society relies on man being prudent, and those assumptions and descriptions of the prudent man are seen throughout the work. Smith is considered by many to be the first free-market capitalist. In many ways, his philosophies and theories have helped shape our economy into what it is today (Smith, 1776).

Adam Smith's Idea of Free Economy

Smith introduced us to the invisible hand theory, which emphasized a free economy not influenced by government intervention. The invisible hand theory posited that when people are left to pursue their best interests—whether by engaging in work that makes them happy and allows them to command the highest wage, or when entrepreneurs provide goods—the economy would flourish on its own. Smith argued that government regulation, though intended to protect or benefit society as a whole, is often less effective for achieving these goals compared to a freely operating market economy. In many cases, such intervention is harmful, denying people the benefits of a burdenless marketplace. By having the government keep their hands off the economy, it encourages individuals to work harder and earn more for themselves. When the government intervenes, people have less incentive to work because the rewards are diminished compared to an unfettered market (Smith, 1776).

Smith's ideas are still highly relevant today. However, with recent events in today's economy, it's clear that some practices that worked previously require serious revision to function in the modern world. For example, the market crisis in early 2008, primarily due to the way markets were run and the lack of transparency, highlighted the necessity of government involvement. While Smith's theories held that there is no need for government involvement, the absence of regulation in this case would have led to even greater chaos. Smith’s theories were a great foundation, and much of our modern life is based on these ideas. This is evident in our ever-growing society, the diverse professions people work in, and the numerous new businesses being created (Krugman, 2009). However, as times and society change, the handling of markets will need improvement, likely requiring more government involvement at various levels to ensure and promote transparency. As the world continues to evolve and new challenges arise, a fresh perspective will be necessary to apply Smith's ideas effectively (Stiglitz, 2010).

Conclusion

In conclusion, Smith's ideas were and remain instrumental to our society and the functioning of free markets. Since Adam Smith's ideas and theories have outlasted those of any other economist, whether the invisible hand exists or not is frequently debated. However, it is difficult to deny that Smith's philosophies helped create the most successful economy in history (Kennedy, 2008).

References

• Smith, A. (1776). The Wealth of Nations. London: W. Strahan and T. Cadell.
• Krugman, P. (2009). The Return of Depression Economics and the Crisis of 2008. New York: W.W. Norton & Company.
• Stiglitz, J. (2010). Freefall: America, Free Markets, and the Sinking of the World Economy. New York: W.W. Norton & Company.
• Kennedy, G. (2008). Adam Smith: A Moral Philosopher and His Political Economy. New York: Palgrave Macmillan.