What does Adam Smith's theory state?

Adam smith was a British philosopher and economist considered a great exponent of classical theory, his work systematizes the foundations of modern capitalism and has marked the thinking of influential economists since the nineteenth century and inspired the free market advocates until today.

According to Smith, society is capable of self-regulation economically without the need for state intervention, he claimed point out the coexistence of an economic order that would function more effectively the less state intervention would have.

Smith's approaches

• Poses an interaction between trade and economic growth defines the absolute advantage, as that which has a country that produces a certain good with the use of fewer productive factors, at a lower cost and exports to the rest of the world. world.
• It spreads free trade as a policy of interaction between the countries of the world and as a tool to achieve economic growth.

This theory led to the emergence of a new neoclassical doctrine, with a policy of protectionism in order to achieve a surplus in the trade balance and greater income of gold.

The Traditional Theory of Trade Policy Welfare

It affirms that international exchange contributes to the improvement of world welfare, the market is capable of maximizing social welfare without any intervention.

Trade policy in this theory is based on the fact that there is competition in all industries, in an industry under perfect competition, price equals marginal cost, free of long-term windfall term.

Industrial organization theory

Relax the conditions of perfect competition to establish a vision of the markets that is more like reality. However, this theory has not given an accurate answer to the behavior of the markets. imperfectly competitive, but has presented concrete models with notions of themes almost impossible to approach.

Smith retained in his theory a limited role for public authorities in the construction of the Wealth of nations, must be limited to defense, justice system and to facilitate social and economic.

This physiocratic liberalism outlined the character in which the governments of the world would act in times to come.

The labor theory of value

Proposal in which Smith considers work as the essential piece to quantify value with increasing and decreasing variations, despite the fact that the work would always be conserved as a contribution constant.

He highlights in this analysis that the value of a certain good or service is given by the amount of work incorporated.

The division of labour It is an important source of growth and development for a country, which is possible due to increasing the skill of the worker who is dedicated to specific tasks.

However, despite the fact that the division of labor brings multiple benefits to a country, it is also the cause of an important group of people is wasted when performing very mechanical tasks, which is why Smith also emphasizes the importance of encouraging education and religion as a way to cushion the evil caused and provide the possibility of development and improvement to any individual.

To conclude one of the reflections that made Smith known, he points out that “It is self-interest that directs the behavior and activity of being Human ”, and according to his ideas it is this that makes the division of labor, the increase in productivity and the accumulation of capital gain momentum. Well, only work is capable of generating wealth for a country. However, this wealth varies by country for 2 reasons:

• The aptitude, dexterity and sanity with which the work is instructed.
• The ratio between the number of people dedicated to useful work, compared to those who are not.