Adam Smith’s Interpretation of The Free Market as Illustrated in His Book, Wealth of Nations

Introduction to Adam Smith's Economic Philosophy

Adam Smith, whose Wealth of Nations was published in 1776, is widely regarded as the father of modern economics and capitalism. He argued that the free operation of market forces was the best recipe for a flourishing and growing economy. If everyone is as free as possible to pursue his or her own self-interest, he or she will be led by an "invisible hand" to promote the welfare of society as a whole (Smith, 1776). Many would agree that societies consisting of people pursuing their own self-interests are the most effective way to increase wealth.

The Role of Self-Interest in Economic Growth

There are many reasons why self-interest is the most effective technique for increasing wealth in society. Within a community, society, or country, there are two main assemblies: the government and the citizens. Both assemblies play an important role in the marketplace. The government is there to regulate conflicts, minimize problems, and bring social justice to society; beyond that, they have no place in the marketplace. On the other hand, the citizens' main role in society is to produce goods and meet society's needs and wants to increase wealth. As Smith once stated, "Government should not repress self-interested people, for self-interest is a rich natural source" (Smith, 1776). Individuals in society know best what is good for them, and under the influence of profit, they are motivated to understand what society wants and needs, turning their self-interest into products that society desires.

Smith's Influence on Modern Economic Systems

Smith's theory has influenced many of the foundational aspects of today's economy in Western Europe and North American countries. The main reason is quite evident: Smith's core idea of perfect competition and a free market system. An example of a free market country would be Canada. Smith believed in an economy where competition drives individuals to innovate their self-interest to stay competitive in the free market. Otherwise, the "invisible hand" would knock them out of the market.

Comparing Smith's Capitalism with Marx's Communism

A clear sign of the success of Smith's theory of capitalism can be compared with Karl Marx's theory of communism. A capitalist belief is that each individual continually exerts themselves to find the most advantageous employment for whatever capital they can command (Marx, 1867). In Adam Smith's opinion, each person has the right to pursue happiness, and each person must take it upon themselves to advance within society. Marx disagrees, arguing that when a person betters themselves, they do not improve but instead endanger society. In Smith's idea of society, each person can do whatever they want to advance themselves and pursue happiness in whatever fashion they believe to be best. Furthermore, technological advancements create new and better ways to do things, allowing society to grow and become more advanced.

References:

• Smith, A. (1776). The Wealth of Nations. London: W. Strahan and T. Cadell.
• Marx, K. (1867). Das Kapital. Hamburg: Verlag von Otto Meissner.