Adam Smith and Modern Capitalism

Modern capitalism started in Britain around the 16th century and quickly spread throughout Europe and America. Later after the industrial revolution in the 19th and 20th century it started to spread throughout the world.

Adam Smith was born around 1723. He was a Scottish political economist and a moral philosopher. He was one of the first people to study historical development and commerce in Europe. He promoted, created and published ideas about free trade and capitalism. One of Adam Smith’s teachers was Francis Hutcheson. While studying under Francis Hutcheson, Adam Smith developed his strong passion for liberty, free speech and reason. While Adam Smith had many supporters, rulers of countries didn’t like the idea of free trade because it ruined mercantilism. Mercantilism was when countries exported goods for gold. Since the rulers of the countries owned most of the gold they had the power of trade. The idea of free trade changed this because it gave the power of trade to the people instead of the government.

Adam Smith’s magnum opus, The Wealth of Nations was written in 1776. In this the idea of free trade is introduced. The idea of free trade was created out of the frustration of economic hardships and poverty after the American War of Independence. So, instead trading items through rulers of their countries, free trade enabled people to trade goods with each other. Free trade took the power of trade away from the leaders of countries and put it into the hands of the people actually creating and buying the goods.

Adam Smith also introduced the idea of division of labour. Division of labour is about breaking up jobs to make the work go faster. This way more products could be produced and more customers could buy. Therefore making a more systematic and productive economy.

Another idea Adam Smith introduces is the free market. The free market was a way for sellers and buyers agree on the price of their goods whereas in a controlled market the government set the price of each item. Also free markets were a way to produce the right quantity and assortment of goods. This worked because if there is was a product shortage then the price raised and it created more room for others to enter production, resulting in the price being lowered back down. Also, if there was over production then there an increase in competition between sellers occoured so the price lowers. Even today, the free market benefits people by creating low and affordable prices for many of the items they want to buy.

Many of the ideas of modern capitalism Adam Smith created are still being used today.