Which ideology did adam smith favor

Smith saw the first duty of government was to protect the nation from invasion. He argued that a permanent military force, rather than citizen militias, was necessary to defend any advanced society. Next, he supported an independent court system and administration of justice to control crime and protect property. Smith favored "public works" to create and maintain an infrastructure to promote the free flow of commerce. These works included such things as roads, bridges, canals, harbors, and a postal system that profit-seeking individuals may not be able to efficiently build and operate.

The following is a simplified version of the economic system Adam Smith believed would emerge once governments ended their oppressive mercantilist policies. A man builds a cloth-making factory, hires workers, and divides their labor into many specialized operations.

The factory owner is motivated by self-interest, profit, maybe even greed. Others, however, are also building factories to make and sell cloth. They all have to compete for the money of the buyers whose self- interest is to buy cloth at the best price.

Buyers bid up the price of the cloth when the supply of cloth is low and their demand for it is high. But when there is an oversupply, the buyers can pick and choose and refuse to purchase high-priced cloth. The factory owners then have to reduce their prices to attract more buyers. Economists call this the "law of supply and demand. Additional innovative divisions of labor, maybe brought on by new machinery, motivate others to invest in more factories.

But they must compete to hire more workers. The "law of supply and demand" applies here, too, and wages go up. Higher wages lengthen the lives of workers and their children.

The population grows, which increases the supply of workers. Wages then stop rising. But, soon another division of labor wave occurs, producing more economic growth and the need for even more workers. Wages go up again. The cycle repeats itself. Families now can afford to buy demand more cloth and lots of other products.

The factory owners make more profits. Everybody wins and society as a whole improves. The cloth factory owner never intended to improve society; he just wanted to make money for himself. But his self-interest, as if "led by an invisible hand," resulted in the betterment of all. As Adam Smith himself put it, "By pursuing his own interest he frequently promotes that of the society more effectively than when he really intends to promote it.

Thus, remarkably for the time, Smith advocated the education of all youth. He believed there was little difference in intelligence between the poor and the rich. Only the social conditions of the poor held them in ignorance, he concluded. He called for a "little school" in every district, supported by public taxes and small parent fees. Smith wrote that paying taxes was "a badge, not of slavery, but of liberty. Taxpayers, he argued, should pay "in proportion to the revenue which they respectively enjoy under the protection of the state.

Smith believed in taxing property, profits, business transactions, and wages. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page.

These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice.

Popular Courses. Economy Economics. Key Takeaways Adam Smith was an 18th-century Scottish economist, philosopher, and author, and is considered the father of modern economics. Smith is most famous for his book, "The Wealth of Nations. Article Sources. Investopedia requires writers to use primary sources to support their work.

These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts.

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Economics Who Created Economics? Partner Links. Self-interest refers to actions that elicit personal benefit.

From the s to the midth century, The Wealth of Nations was often used as a textbook in political economy courses in the US. Politics became the arena in which his ideas — and economic ideas in general — were tried, tested and wielded. He is the founder of the science. Even those who championed protectionism appealed to his ideas, often only to delegitimise them.

Its popularity as a political catchphrase stems from the rising so-called Chicago School economists in the mid- to lateth century, of whom Milton Friedman is a prominent example.

What is more, Friedman also linked Smith with American founding values. Many scholars have argued the contrary. Indeed, it is easy to forget that Smith — who he was, is, and what he stands for — has been invented and reinvented by different people, writing and arguing in different times, for different purposes. It can be tempting to dismiss some past interpretations and uses of Smith as quaint, superficial, misleading or wrong.

But they also reveal something about how and why we read him. By backing currency with hard metals, Smith hoped to curtail the government's ability to depreciate currency by circulating more of it to pay for wars or other wasteful expenditures. With hard currency acting as a check on spending, Smith wanted the government to follow free-market principles by keeping taxes low and allowing free trade across borders by eliminating tariffs.

He pointed out that tariffs and other taxes only succeeded in making life more expensive for the people while also stifling industry and trade abroad.

To drive home the damaging nature of tariffs, Smith used the example of making wine in Scotland. He pointed out that good grapes could be grown in Scotland in hothouses, but the extra costs of heating would make Scottish wine 30 times more expensive than French wines.

Far better, he reasoned, would be to trade something Scotland had an abundance of such as wool, in return for French wine. In other words, because France has a competitive advantage in producing wine, tariffs aimed to create and protect a domestic wine industry would just waste resources and cost the public money.

It lacks proper explanations for pricing or a theory of value and Smith failed to see the importance of the entrepreneur in breaking up inefficiencies and creating new markets.

Both the opponents of and believers in Adam Smith's free-market capitalism have added to the framework set up in "The Wealth of Nations. Marginal utility , comparative advantage , entrepreneurship, the time-preference theory of interest, monetary theory , and many other pieces have been added to the whole since There is still work to be done as the size and interconnectedness of the world's economies bring up new and unexpected challenges to free-market capitalism.

The publishing of "The Wealth of Nations" marked the birth of modern capitalism as well as economics. Oddly enough, Adam Smith, the champion of the free market, spent the last years of his life as the Commissioner of Customs, meaning he was responsible for enforcing all the tariffs.

Historical irony aside, his invisible hand continues to be a powerful force today. Smith overturned the miserly view of mercantilism and gave us a vision of plenty and freedom for all. The free market he envisioned, though not yet fully realized, may have done more to raise the global standard of living than any single idea in history. Adam Smith. National Bureau of Economic Research. Accessed March 5, Ian Simpson Ross. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Economy Economics. Table of Contents Expand. Smith's Primary Thesis.