What Contribution Did Adam Smi Essay Research

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What Contribution Did Adam Smi Essay, Research Paper Topic: What contribution did Adam Smith and John M. Keynes make to the study of economics? Adam Smith was the founder of economics, as we know it today. His thoughts have shaped modern ideas about the market economy and the role of the state in relation to it. Smith laid the intellectual framework that explained the free market (which still holds true today) and laissez-faire. Both are connected with the underlying theme of economic growth. Smith’s analysis is not confined to showing the interrelation between the different elements of a continually maintained system. It also explains how the system can generate the continual accumulation of wealth. And since, according to Smith, this process is most successful when left

to the play of natural forces, his analysis leads him to urge governments to let well alone. Laissez-faire government believes commerce and trade should be permitted to operate free of controls of any kind; there should be no tariffs or other barriers. The direct translation from the French language is leave alone to do , which is self-explanatory. He is most often recognized for the expression “the invisible hand,” which he used to demonstrate how self-interest guides the most efficient use of resources in a nation’s economy, with public welfare coming as a by-product. And what drives this flow of goods and services? I quote Adam Smith from his book The Wealth of Nations : “Every individual is continually exerting himself to find out the most advantageous employment for

whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society. It simply encourages businesses to provide what consumers want and at the same time it discourages government involvement. He believed that the only responsibilities of the government should be to define property rights, set up honest courts, impose minor taxes and subsides to compensate for well defined and narrowly specified market failures . To underscore his laissez-faire convictions, Smith argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces. Adam Smith

explained that a monopoly charges any price that it chooses, robs consumers and makes countries less efficient and poorer. Competition, he said, means that businesses try to charge the lowest price possible, so consumers get maximum value for money. If they can buy more, they support more jobs in the economy and the country grows richer. Without the police stopping competition, he said, monopolies cannot survive for long. Around the world today, government monopolies and other bad practices are under major assault from Adam Smith’s ideas. Adam Smith believed that strong government was a great necessity, particularly to create and enforce laws and to ensure justice. He believed in a democratic partnership between government and the people, but knew that each should do what it

does best – businessmen should not control the justice system, nor should government try to run businesses. Thus he was the real father of privatisation and other 20th century reforms based on market economics under rule of law. The heart of Keynesian economics consists of an analysis of the determinants of effective demand. If one ignores foreign trade, effective demand consists essentially of three spending streams: consumption expenditures, investment expenditures, and government expenditures, each of which is independently determined. John M. Keynes attempted to show that the level of effective demand so determined may well exceed or fall short of the physical capacity to produce goods and services: that there is no automatic tendency to produce at a level that results in