Beyond the criticism that his economic postulates have received, no one can dispute the enormous influence of his work within modern economic science.
With Adam Smith, economic liberalism is born. Intellectually influenced among others by Quesnay and David Hume, Smith writes one of his main books "About Nature and the Cause of the Wealth of Nations", considered "the Bible" of Political Economy.
Smith had been observing the great increase in the production of goods that England experienced in the second half of the 18th century, in the midst of the industrial revolution.
Their question did not differ much from that of physiocrats and mercantilists: where does the wealth of a nation come from? Two concepts appear in response, from which a whole political program is built that has had repercussions to this day:
- The division of labor as a source of productivity and The role of the market
Productivity: Adam Smith argues that productivity increases as the division of labor increases.
Productivity, considered as the ability to produce a certain quantity of goods with a given set of resources, will be higher if the work is divided among specialists who fulfill defined functions. While we won't reproduce it here, Smith's example of the pin factory is famous.
Smith calls the division of labor, produced inside the factory, the technical division of labor.
If it is shown that the technical division of labor can increase productivity in an establishment, this may also be true for an entire nation, Smith reasoned, calling it the social division of labor.
There would be a saving of time, and therefore more and better goods. The wealth of that community will no doubt have increased with respect to that of a hypothetical world without division of labor.
We must also remember that Smith, in his role as philosopher and moralist, also observed the negative effects of this hyper-specialization in the work that the economist Smith postulated: he already noticed and lamented that the operator was transformed into the character of Charles Chaplin in “Modern Times”, a being that carried out the same monotonous task for many hours of the day, with the consequent loss of other capacities of the mind due to disuse.
The market: in Smith's vision, those goods from the division of labor should be distributed through market exchange.
There is a natural propensity to do so, which comes from the natural properties of the human being towards "reason and speech".
Human beings, who have produced and have in their possession the goods in which they specialized, give them to others not out of charity, but because they hope to make a profit. "We do not expect our dinner from the benevolence of the baker or the butcher, we do not appeal to his mercy, but to his interest."
And through this reasoning Smith institutionalizes the maximizing human being that would be modeled to this day by most economic theorists, the human being with the invisible hand - a view that according to some economists Nash would have mathematically destroyed a few decades ago with his "Games theory"-.
According to Smith, each one tries to obtain for himself, selfishly, the maximum benefit of that exchange.
To do this, it will try to produce the best goods and make it as cheap as possible, to beat its competitors. As all members of the community will do the same, the set of existing assets will increase the maximum of which it is capable.
Thus, without anyone deciding it centrally, from countless individual decisions, a social maximum or optimum will be obtained. And all thanks to "the invisible hand of the market".
Any state intervention, however well-intentioned it may be, only manages to block the functioning of the market, diminishing the social optimum, Smith reasoned, directly criticizing the mercantilists. Smith said that the government should only have four duties:
- Defense against foreign aggression, The administration of justice, The maintenance of public works and institutions that are not profitable for individuals and The defense of private property.
Smith also differentiated between use value and exchange value of goods.
The first expresses the usefulness of an object for those who use it, the second expresses the ability to buy other products. For example, water has a lot of use value and little change, while diamonds have little use value and a lot of change, to illustrate Smith's reasoning.
Finally, Smith concludes that the real measure of the value of all commodities is labor, that is, the effort required to produce the commodity and also the labor that can be saved by exchanging it for another commodity.
Therefore the price of all merchandise is made up of wages, benefits and income.
Bibliography:
1. Economy of Editorial Aique
2. Economy of Editorial Santillana.
