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destiny35 Group Title

What was the main idea behind economist Adam Smith's book, The Wealth of Nations? A. A good economy is based on a socialist approach. B. A market economy is most profitable for a society. C. Command economies are always more productive. D. Government should be heavily involved in economics.

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  1. Carl_Pham Group Title
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    Well, none of these is very accurate, but of them all B is probably the least awful. The essential contribution of Smith's book is what's called the "invisible hand" observation, which is that IF you have a system in which people can (1) freely exchange goods and services, without any body interfering by force in the price either offered or accepted, without any forcing of anyone to sell or anyone to buy, and (2) the parties to transactions are allowed to fully understand what is being bought and solid, and what it costs in real terms -- so there is no distortion of information, no lying about what a product or service might contain, then the personal drive of each person to maximize his personal gain will, almost magically, ensure the greatest good for the greatest number automatically. That is, to maximize the distribution of wealth, so that everyone is as well off as possible, all you need to do is ensure that everyone is able to enter into whatever economic transaciations he wants to, freely -- without coercion -- and with as much information as possible -- no lying or deception. The "invisible hand" of the system does the rest. This stood in profound contrast to the prevailing thought of the time, which is roughly that people are generally stupid, and if left to their own devices will do something dumb with their own labor, and make bad choices about what to do with their time and energy. Hence, it was necessary, to maximize the wealth of the nation, for a strong government to set rules and force people to engate in some transactions, and prohibit them from engaging in others, and to control the flow of information by controlling prices, so that people were kept ignorant of certain aspects of their transactions. This is still the general conventional wisdom today, actually, so Smith's argument is still hotly debated. It is still the case that the average person thinks (ironically enough) that he himself should be allowed maximum liberty in how he spends his time and effort and money -- but everyone ELSE is an idiot, and should be constrained in how he makes the same decisions, for the good of society. It's an odd bit of human inconsistency that we readily think this way. But then, surveys consistently show that the average person considers himself a better than average driver.

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