8) Adam Smith Written by Rainer: rainer.lehrer@yahoo.com Learn languages (via Skype): Rainer: + 36 20 549 52 97 or + 36 20 334 79 74

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A short summary of Adam Smith's work “The wealth of nations” When people talk about Adam Smith and his work "The wealth of nations", the term "invisible hand" appears again and again. This suggests that these people either have not read his book, or have not understood it. Essentially, Smith compares three countries from the 1750's. - United Kingdom - France - The English colonies in North America In France at that time, the economy was controlled by the king and centralized. In the UK, there was a parliamentary system with various groups of interest represented in Parliament. And the English colonies in North America could not really be controlled from England, because even a trip there and back took six months to complete. He now collected a lot of data on: - Population growth - Economic growth - Price development He noted that the economy develops best when it is not controlled by the state, but can develop freely. But then, where does the superstition come from that Smith wrote about "invisible hand"? At his time, Europe lived in an "Aristotelian" view of the world. Everything had to be organized and regulated by someone. The world had been created by God, and that way, the economy had to be controlled. The fact that the economy regulates itself, simply did not enter people’s imagination. Later this idea of self regulation was taken over by Charles Darwin to establish his theory of evolution. Another important part concerns the effects of protective customs on import goods and the internal market of a country (quality of products offered, prices). Here he refers to the example of Holland. There the cities, a kind of free cities were very strong, and they founded in these walled settlements guilds that not only lined up a combat-capable defence squad, but also controlled the trade in the settlement. An artisan had to be a member of this guild (the name of the currency guilders derives from guild) in order to trade in the given city. That way, his business was protected from the extra-urban competitors. Only for buyers, it was often bad because they had to acquire bad goods at a higher price because of lack of competition. Today, when a politician says that we need to protect our jobs, I always think: Damn, again I have to buy bad goods too expensively. I also need to be competitive on the market. Why is that not valid for everyone? Back to list!

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