Term Paper on "Adam Smith and David Ricardo"

Term Paper 15 pages (5669 words) Sources: 1+

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Adam Smith & David Ricardo - Political Economy

To compare two persons who began and closed the theories of what was then called 'political economy' and the classical school of Economics necessitates the comparison of their intellectual and general lives. It also involves the comparison of the environment and the intellectual climate of the times that influenced Adam Smith, the 'father of economics'; and Ricardo who contributed most of the theories in the classical economics along with Mill and Malthus. They were not contemporaries and the comparison between them could be only on the principles which were common and which they agreed to and disagreed in. Smith was a philosopher and jurist who studied the economy of his times. His first popular work 'The theory of moral sentiments' was influenced by the Greek and Roman philosophers, and it is regarded with equal reverence and is the significant work 'An inquiry into the nature and causes of the wealth of nations'. David Ricardo on the other hand came into the scene almost half a century later, and was a down to earth banker who postulated theories on pure economic issues. Thus to compare the economists we have to see in detail their biography and what they achieved in their times.

Adam Smith: In Brief the theory of moral sentiments was published in 1759 and then came the 'wealth of nations'. During the later half of 1776 the new country across the seas was being formed. The colonies were clamoring for freedom and there was civil war. A new country was about to be born in the Americas. Hume, an ardent admirer of smith urged him to return from the continent to London stating that it was apt time for him to be involved in the affairs of state. (Hirst, 1904)

The independence of America, and the 'wealth of nations' publication brought the principles of laissez faire and the seeds of capitalism were tailor economic principles for the new nation. Although Smith did not realize it at that time and was personally pained at the struggle in the colonies, his work was to set the ground for the American way of life some time later. We may thus call Smith the founder of modern capitalism, although in his time it was not explicitly known so. Perhaps being a professor of philosophy at Glasgow and the research into that subject was dearer to him. The theory of moral sentiments created a source of new ethics which was the basis of the ideas that matured into his writings on the economy. The theory of economic progress and the division of labor advanced in the 'wealth of nations' found many adherents and admirers and the earlier works of Smith were obscured by the enthusiasm created by that book. Smith was a positivist and a realist who believed that nothing happens by itself which is the basis of the idea of 'self-interest' and the 'unseen hand that guide us to the common good' the self-interest he argues brings about the advancement to society. Although this portion of the philosophy forms the foundations of the 'wealth of nations' it is a sentiment culled from his earlier statements and works. (Vivenza, 2001)

The famous and oft quoted line "it is not from the benevolence of the baker, the brewer and the butcher that we expect our dinner, but from their self-interest. We therefore appeal, not to their humanity, but to the interest in their own selves" from the 'wealth of nations' forms the underlying sentiment of all his works in philosophy and jurisprudence. (Ross, 1995) Smith professed a connection with the human nature with regard to the theory of 'moral sentiments'. Hume had alluded to his passions in this regard in the Treatise of Human Nature. Further the theory of 'moral sentiments' as also the 'wealth of nations' had been received well among the circle of his friends. Hume even wanted that the Wealth of Nations be published at London and Smith reciprocated by making Hume his literary executor. The wealth of nation's publication was in coincidence with the birth of America. The independence of America and the subsequent search for an economic basis of running a new country made the Wealth of nations and the Laissez faire policy the basis. However the lectures of Smith at the time gave scant importance to the new nation and took it to be an economy of slaves. (Ross, 1995)

Influences on Adam Smith

Smiths travels to France and the contacts with the thinkers of the times, especially the school that called itself the Physiocrats, the chief of which was Francis Quesnay, and the English thinkers of the times, called the Mercantilists largely influenced his thoughts on the 'political economy' studies. In fact it was Smiths efforts that created a separate branch of human knowledge called economics which was organized in the scientific fashion as we know it today. The physiocrats in France were a scholastic unit that was disciplined in to a modern type of thinking by Quesnay and we can say that some of the ideas of the French rubbed off on Smith. On the other hand, the thinkers who were grouped into the school of thought called 'mercantilism' were independent thinkers in England and the continent who contributed various doctrines and theories on economic affairs spanning three centuries before Smith. The theories had common threads but lacked the tools or the method of their verification because there was not the system of scientific thought taking shape yet. Some of the contributors had identical views and thoughts on the economy and its allied science, the administration of the country or polity. These identical concepts were grouped together and called 'mercantilism.' How much of the Mercantilist theories influenced Smith can only be conjectured, but from the documents we can say that the Physiocrats and their system of thinking influenced him a lot. (Blaug, 1962)

The principles and optimism of Adam Smith

The most important concept and the fundamental theory that advocated a control free economy where the market forces with the competition as the 'invisible hand' will lead the economy and result in a fair pricing of goods services and labor is central to the theory of Smith. Therefore Smith opposed the interference of the government into the economic arena, and the laws like wage laws, restrictions on trade and government regulations were seen as the factors that restricted the growth of the nation's wealth. This laissez-faire policy of government which he advocated was popular in the century that followed and plays the most vital role in the economy of the capitalist countries of today. However it is not that evil did not result from the total absence of government control. The child labor, poor wages and the working hours of labor that was exploited in the name of capitalism by the class of investors whom Marx was fond of terming as the 'capitalists' and the bourgeois cited the golden rule in support of their activities. (Dhamee, 1996a)

The attempts of using the theories to evil and questionable ends continued even to the end of the twenty first century. Smith was not a proponent of Capitalism as practiced and nor was a supporter of the monopolies. In fact Smith was of the opinion that there must be anti-monopoly laws. As the markets grew, Smith believed, there will be an increased demand for labor which will operate on achieving equilibrium at a higher wage rate and consequently benefit the working class. The reality with the changes in production and the increase in population upsetting the theory of labor was thus a paradox that was later found by scholars like Ricardo and Malthus who eventually predicted population growth will create a surplus and thus poor wages with starvation will be the result of such a society without government interference came to be a reality in the last centuries and the Victorian era. Thus the science of Economics which began with Smith's optimism soon became a dismal science during the period of Ricardo. (Dhamee, 1996a)

The Seeds of Capitalism

Strangely the idea of the capitalist enterprise seems to have sprung from the consideration of labor, and the division of labor that resulted in a faster and cheaper production resulting in a perfect competition. In Smiths market the use of the skill and the dexterity of the workman resulted in specialization and the demand for the specialization which sets off the chain of production and prosperity. Though it was some what utopian and the claim was vociferously disputed by later economists especially Karl Marx, we can say that labor remains the primary source of economic progress and the division of labor and the market forces that governed wages and the functioning of the economy was the major consideration in the Smiths system of economy and also was the major head of contention for Malthus, Marx and David Ricardo. Therefore it is apt to view the development of the ideas of Smith from the view… READ MORE

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