80/20 of Wilfredo Pareto http://www.becspain.com/ Adam Smith (1723-90) was a philosopher who is known as the founder of modern economics. However, Smith wrote on ethics and other topics. The growth of science and the theories of Newton had a profound affect on him. The Wealth of Nations (1776) was an attempt at a scientific analysis of society. He wanted to find laws of human behavior, as Newton had found laws of science. Admirer of the English
As a young man, he was an admirer of English civilization. He attended Oxford for nearly a decade. There was a large number of middling people. In England, it was hard for lords to destroy the middle classes. In other nations, they could threaten the people with foreign warlords. However, due to its island nature, this was not the case in England. The townspeople were able to have a larger amount of freedom in England than in much of the rest of the world.
The "Invisible Hand" and Unintended Consequences
The “invisible hand” is a theory put forth by Smith ( Smith, Wealth of Nations , p. 184 ). He believed this invisible hand, and not God as had been thought previously, was controlling the market. Through the law of unintended consequences a “division of labor” ( Smith, Wealth of Nations , Ch. 1 ) would develop and allow for a rapid growth of wealth. The law of unintended consequences is the idea that private vice could often end up, unintentionally, as public virtue. Smith believed that human societies would develop towards wealth and it was important to take away the inhibitions that kept humans from gaining such wealth. He believed that what is needed for development is “peace, easy taxes, and a tolerable administration of justice” (Smith, Essays on Philosophical Subjects, xviii).
If these three things are achieved, Smith believed that a society would have wealth. Humans were competitive individuals and humans wanted to persuade people to do what they wanted others to do: “Men always endeavor others to be of their opinion, even when the matter is of no consequence to them” (Smith, Lectures on Jurisprudence , 352).
The Theory of the Division of Labor
The theory of the division of labor is one of Smith’s most important theories. He believed that dividing tasks amongst individuals led to more production. This was because of increasing skill, time wasted moving from various parts of the tasks, and doing one part of a larger task allows for more analysis regarding a certain part of the task. The development of machinery and technology flows out of the division of labor.
China's Economic Stagnation
Smith believed that nations that pursued bartering and trading became well-mannered, trustworthy, and more civil. Smith believed that half of human nature was a desire to subordinate others. He looked at history and saw continual wars that limited economic development. Violence towards other people was an obstacle to wealth.
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China was peaceful but by the late 18th century, it had gone into a period of economic stagnation. Taxation was not horrendous and the judicial system was not horrible. It was a stationary civilization in terms of economic growth. China looked inward but in the 15th century, it inhibited economic growth by deciding not to engage in commerce with others.
China overemphasized agriculture and, thus, downplayed manufacturing and industry. Rice also played a role. It required much labor and encouraged a style of social stratification with landlords at the top and workers at the bottom. This did not help the development of an economy. Smith also believed this happened with potatoes and predicted the problems that came about with Ireland and the potato famine in the mid-19th century.
Doomed to an Agrarian Existence?
In the end, it seems Smith was a pessimist. He couldn’t see how humans would escape from an agrarian existence. He believed that the division of labor led to misery. He knew that the division of labor would lead to people doing repetitive, boring tasks that would be horrible. Smith, did not see how humans could avoid this, however
To be continued...
