Did Adam Smith support Laissez Faire Economics

Summary of The prosperity of the nations

The economic policy of mercantilism

When Adam Smith's treatise appeared in 1776, an economic policy called mercantilism prevailed almost everywhere in Europe. Absolute nation-states had developed since the end of the Middle Ages. Even if not all rulers were as radical as the French king Louis XIVwho coined the famous saying "L’État, c’est moi - I am the state", all absolutist rulers strived for the wealth they needed for the court, the army and the entire state apparatus. The material prerequisite for this was the productive use of the country's resources. There was no uniform concept or even a scientific theory for it. That led to different variants of this economic policy in different countries (e.g. restrictive cameralistics in the German Reich, strongly dirigistic "Colbertism" in France and more moderate mercantilism in England).

Mercantilism was basically a central administrative economy in which the state intervened dirigistically in the economic cycle: The establishment of minimum and maximum prices, an expansive population policy (immigration relief and emigration bans) and the promotion of trade, agriculture and trade were among the government action. Particularly promising sectors of the economy have been transformed into monopolies by the state, and subsidies and tariffs have been set up to protect the domestic economy. Foreign trade in particular came to the fore: under all circumstances, export surpluses had to be achieved. H. they wanted to draw up a “positive trade balance”. At the same time, large stocks of precious metals were hoarded in their own country, also through the exploitation of colonies. Adam Smith's theory changed the view of economic policy decisively: his idea of ​​free trade and the “laisser faire” policy found more and more supporters at the beginning of the 19th century.

Emergence

Adam Smith spent twelve years of his life completing the manuscript dated Wealth of nations. When the book was published in 1776, it sold quite well: the entire first edition was sold out within six months. Smith cleverly combined his own ideas with the ideas already available from his time and also embedded them in a cultural and social history. Smith's liberal view of individual freedom and the development of market participants was strongly influenced by his teacher Francis Hutcheson (1694–1746), who in turn was based on the ideas of John Locke (1632-1704) and David Hume (1711–1776) resorted to. Adam Smith found further inspiration for his economic theories during his trip through France from the French Physiocrats, above all from their masterminds François Quesnay (1694-1774). The famous saying “Laissez faire! Laissez aller! ”, Which has become the concept of laissez-faire politics. Even if Smith disagreed with the thesis of the Physiocrats that the only productive force lies in agriculture, he owed valuable impulses for his work to the French economists.

Impact history

It is fair to say that Adam Smith's book is one of the most important theoretical cornerstones of the capitalist system. Smith struggled against mercantilism's policy of meddling, thereby establishing modern economics. He developed the main ideas of classical economic theory, which were subsequently used by economists such as David Ricardo (1772-1823) and John Stuart Mill (1806–1873) were further developed. Smith's doctrine of labor value, which measures the value of a commodity according to the work involved, was adopted by Karl Marx (1818–1883) adapted for his own law of value.

Neoclassical economic theory developed the ideas of classical economics in the middle of the 19th century. One of their most important representatives was Vilfredo Pareto (1848-1923). The new classics shifted the focus from labor theory to the marginal utility that a consumer assigns to a commodity.

Smith's principles of division of labor and freedom of trade, his insights into the dynamics of the market and the functions of money continue to the present day: economists like Paul Samuelson  (1915-2009), Friedrich August von Hayek (1899-1992) and Milton Friedman (1912-2006) rediscovered Adam Smith for our time and propagated his ideas as the basis of a pragmatic economic policy.

According to the Austrian economist Joseph Alois Schumpeter (1883–1950) is Adam Smith's work on the Wealth of nations for “the most successful book on economics, or with the possible exception of Darwin's Origin of Species, the most successful scientific work published to this day ”.