Adam Smith

Laissez-Faire Policies
Zac Carver
231
Midterm paper
 The current capitalist’s economic theory is so prevalent within the United States today

that it is hard to fathom, this is actually a relatively recent development. Prior to the 18 th

century, our economic system was based on a irregular and monopolistic bartering structure.

Having a significant wealth of knowledge on economics, Adam Smith is nearly single handedly

responsible for what we today recognize as free trade market economics.

Previous to Smiths contributions to the economic systems, the structure was reliant on

mercantilism, a system that assumes wealth and monetary assets are one and the same. A

dominant economic theory throughout the 15th – 18th century, mercantilism heavily endorsed

imperialism, which kept the social structure opposed to one another. This meant there were

two distinctive types of social classes, the super wealthy elite and the poor peasants, not

terrible in its self, though considering the wealthy elite accounted for less than 10% of the

population this system was far from adequate. This system also does not promote a

competitive production model. Furthermore, in the mercantile system as a peasant it was

nearly impossible to break free from poverty. Your entire social, economic and political

standing was inherited. The reason this theory survived as the leading system for so long, was

due mostly to a belief that common citizens, nor could the market control itself. Smith

theorized that there was in fact a better way, and that the market could indeed control itself

through the invisible hand theory.

Having an extensive academic resume, he began his scholarly carrier at the University of

Glasgow, age 14 and eventually receiving a tenureship there. Written several, still relevant

books on economics and is the forefather of the free trade market. Having shared theory’s and
thought with legendary philosopher David Hume, Smith himself an ever perfectionist is still a

celebrated figure among economist worldwide. In the 1776 publication “The Wealth of

Nations” Smith, debunks the idea that free trade is frenzied mess, which was the poplar belief

at the time. Introducing the concept of an “invisible hand” which describes a self-regulated

market. Smith conceived and introduced several economic models including, supply and

demand, resource allocation and subsistence-wage.

The invisible hand theory forms the foundation for laissez-faire economic philosophy,

this metaphor translated, means that, producers tend to produce products desired by their

neighbors, or in demand by the market. Resource allocation, a philosophy stating that owners

of resource, namely labor, land, materials and capital will use them most efficiently, adjusting

accordingly to in which the most profitability occurs. Supply and Demand, one of the most

common place terms in the business world today, states that the price of an item it directly

relative the demand on that item. Resource allocation, the theory of logically placing resources

in a strategic pattern that in turn maximizes productivity. Example: placing a cotton gin, near a

cotton farm, and or textile mill, streamlining posses. Subsistence-wage, also known as Iron Law

of Wages, states that wages tend to gravitate toward the minimum wage necessary to sustain

the worker.

Including his writing’s “The Theory of Moral Sentiments”, “The Wealth of Nations” Adam

Smith has contributed more to the current economical system or Free trade and laissez-faire

capitalism than any other in the world has, past or present. Having developed what the United
States adopted as their economic theory after the revolutionary war, we owe Adam Smith a

great deal of respect and reverence.