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Adam Smith, a well-known political economist and philosopher, is considered to be the forefather of contemporary economics. He was the pioneer in explanation of the roles that competition and rational self-interest played in economic stimulation and prosperity. These ideas are still valuable and appropriate to the present economic issues of concern.
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The standard economic theory postulates that self-interest and rationality are the fundamental attributes of the agent. According to it, men are distinguished by the goals based on self-interest and rational choice. Smith determines that people make the efforts for their own advantage rather than for the benefit of others. In his book, An Inquiry into the Nature and Causes of the Wealth of Nations, the philosopher states the following: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest” (Smith 26-27).
The individual revolves around its personal interests. Consequently, people tend to acquire wealth without taking into consideration their colleague’s welfare. They will not prepare drink or food, because of the wish to feed someone. The reason of their work is the payment of clients.
Nevertheless, Smith assumes that self-interest can result in the general good. In spite of self-regard objectives, the individual intentions are turned by their nature to work for the public interest. It happens in a mechanical way. Thus, self-interest transforms into public benefit increasing the public annual income to its maximum level. Its manner causes people to trade. In its turn, the trade drives the economy on a forward progress. The economic development makes the living conditions more profitable for the persons (Gavin 44).
The researcher designed the term “invisible hand” in order to show how the self-interests of the butcher and baker were converted into food on the table of others at the rational cost. It is competition that creates the market and its prices. Everyone wants to become wealthy aimed at only his/her earning. However, the ownership or production should be exchanged with others in order to make a profit. At the same time, the sold thing is valuable for the buyer. Therefore, public interest is advanced by the free market and the division of labor in it (Buchan 137).
The free market is the economic system, where the invisible hand is expected to work the most frequently. The market-based economy makes the individuals think what others need and want. It is one of its positive aspects that were realized by Smith. The invisible hand is the argument for free trade. It does not make the gain the takings of all, but it creates the essential principle of personal responsibility. It is self-interest that encourages people to make the treaties, purchase and barter. All these things will help the economy operate better in the future.
Adam Smith encouraged the adoption of the market economy. Nowadays, The Wealth of Nations is reviewed as the theoretical framework for the concept of free market that fixes the limits to the government involvement, wealth redistribution and taxation. Smith’s models are practiced on a wild scale by the majority of countries. The division of labor and specialization as the factors of productivity rise in production, demand and supply in the price determination of the goods and services, government in concession of the public goods and defense, order and law and other principles become embedded in the state policy. The explanations of the invisible hand are used for all kinds of phenomena, from the environmental degradation to scientific progress. This fact shows that Smith’s concepts will never be outdated.
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