Term Paper on "Adam Smith Wealth of Nations"

Term Paper 6 pages (1766 words) Sources: 1+

[EXCERPT] . . . .

Adam Smith's Wealth Of Nations

The objective of this work is to focus on specific economic policy and agreeing or disagreeing strictly based on the context of the book and Smith's contemporary view of foreign and international commerce. Smith writes that each individual seeks to "employ his capital as near home as he can" and the result is the provision of support that is given to the industry in the home country. Smith relates that it is the desire of the wholesale merchants, when the profits are equal or even nearly equal, "prefers the home trade to the foreign trade of consumption" and states this is because the capital of the individual stays well within the sight of the individual instead of being out of "his sight as it frequently is in the foreign trade of consumption."

Smith relates that there is a uneasiness for the merchant when he is "separated so far from his capital" and the merchant will attempt to sell his goods in the home market rather than submit to the extra charges that accompany his being able to keep his capital within his sight.

INTRODUCTION

Adam Smith is the author of the work entitled: "An Inquiry into the Nature and Causes of the Wealth of Nations" (1776) in which he states a case for free trade and lower taxes. The language used by Smith in this work is somewhat difficult to deconstruct as his writing is characterized by extravagant sentences with an interesting rhythmic structure. Envisioned in Smith's work is a "wide and expanding range of government expenditures" and all of which are "motivated either by specific failures of the market to meet society's needs, or else by the spirit of economic equality that so infuses this work."

I. SMITH on CAPITAL of a SOCIETY

Adam Smith wrote in Book Four: of Systems of Political Economy that by "restraining, either by high duties or by absolute prohibitions, the importation of such goods from foreign countries as can be produced at home, the monopoly of the home market is more or less secured to the domestic industry employed in producing them." (1776) Monopolizing the home market, according to Smith provides incentive to the industry that holds that monopoly, employs a large share of labor of the society than would have been employed in that industry otherwise. Smith questions however, if that increases the "general industry" of the society and whether it in reality results in pushing the society in a direction that is advantageous as he states that is not so clear.

According to Smith the society's "general industry" can not exceed "what the capital of the society can employ." (1776) in other words, the workers that the company or individual is able to employ is dependent up on the capital possessed by that employer and likewise, the workers that are employed within society as a whole id dependent upon the total capital possessed by that society and will not be more than the proportion as compared to the total capital of that society. Smith states specifically that capital "employed in the home trade, it has already been shown, necessarily puts into motion a greater quantity of domestic industry, and gives revenue and employment to a greater number of the inhabitants of the country, than an equal capital employed in the foreign trade of consumption: and one employed in the foreign trade of consumption has the same advantage over an equal capital employed in the carrying trade." (1776)

II. DOMESTIC PRODUCE

Smith states that the industry's produce is that which is added to the "subject or materials upon which it is employed. In proportion as the value of this produce is great or small, so will likewise be the profits of the employer. But it is only for the sake of profit that any man employs a capital in the support of industry..." therefore, the individual will always attempt to employ the capital to support the industry in which the produce will hold the highest value..." And will attempt to exchange the produce or sell it for the highest value or the highest exchange of goods possible. Smith relates that it in the case of the statesmen attempting to direct the private entrepreneurs in how their capital should be employed, that statesmen would not only draw attention to himself that might not be positive in nature and as well would assume a position of authority that no individual person should be vested with because that much power in the hands of one person might be too great of a responsibility and too great of a temptation to the individual "who had folly and presumption enough to fancy himself fit to exercise..." that power. (1776)

In the event that the home market is in possession of a monopoly to production of the domestic goods in any "particular art of manufacture" results in attempting to "direct private people in what manner they ought to employ their capitals..." results in regulations that are either "useless or hurtful." (1776) if the domestic produce can be imported as cheap as the foreign industry the regulation is stated by Smith to be 'useless' in nature and in the case where it cannot that regulation is of a 'hurtful' nature. Smith explains that it makes no sense to produce what it costs more to produce that it costs to buy that same product. Smith specifically states: "The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers. All of them find it for their interest to employ their whole industry in a way in which they have some advantage over their neighbors, and to purchase with a part of its produce, or what is the same thing, with the price of a part of it, whatever else they have occasion for. " (1776)

Smith relates that in the case where a foreign market is able to supply the home market with a commodity at a cheaper price than the home market is able to produce that commodity that the home market is well served to purchase it from the foreign market and that this does not diminish the home market in any way. In the case where a country possesses "natural advantages" over another country in the production of specific commodities which are so great "that it is acknowledged by all the world to be in vain to struggle with them" that it would not be reasonable to prohibit the import of these items in order to encourage the production of those goods in the home country. In fact, in this case, as long as the foreign country has the advantage in producing these goods and the goods are desired in the home market, Smith states "it will always be more advantageous for the latter rather to buy of the former than to make." (1776)

III. FREE IMPORTATION of GOODS

Advantages of a monopoly of the home market are held primarily by the merchants and manufacturers. Smith relates that it allowed were "the free importation of foreign" goods that the manufacturers in the home country would likely suffer and "some of them, perhaps go to ruin altogether with "a considerable part of the stock and industry at present employed in them would be forced to find out some other employment." (1776) in relation to free importation of agricultural produce Smith holds that free importation "could have no such effect upon the agriculture of the country. Smith addresses importation of foreign corn and cattle and states that prohibition of importation of these two "is in reality to enact that the population and industry of the country shall at no time exceed what the rude produce of its own soil can maintain. " (1776)

IV. TAXATION on NECESSITIES

Taxation on what Smith refers to as the "necessities of life" is stated by Smith to result in the same effect on people's circumstances "as a poor soil and bad climate." (1776) and in the case where "extraordinary labor and expense" is required to produce the items are "rendered dearer." (Smith, 1776) Smith states that there is a question as to "how far it is proper to continue the free importation of certain foreign goods is, when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country. Revenge in this case naturally dictates retaliation, and that we should impose the like duties and prohibitions upon the importation of some or all of their manufactures into ours." (1776) Smith states that there is seldom a failure of nations "to retaliate in this manner."(1776) Additionally, Smith, in his work supports the rule of law and security of property and states a vision that the costs in defending both the rule of law and property security will… READ MORE

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