Adam Smith’s work remark the enlightment of the Europe, especially The Scottish Enlightment where philosophy and economics thinking was produced. Adam Smith became a key figure in the Scottish Enlightment. He took his strategy inquiry from Newton and offered scheme of the gradual evolution of society. The key ideas were of the division of labor driven by technical innovation which via the regulation of the invisible hand of the marketplace generated material and moral advance. Smith applied the ideas of the division of labour in a market system. There were three main pillars of the institutional vehicles of The Scottish Enlightment: The Church, The Law and The Universities (as well as a series of popular clubs and societies). There was an intellectual shift away from theology towards the social sciences.
Smith was one of scholars in Scotland. He studied at Glasgow and Oxford University. Smith’s Wealth of Nations (1776) presents a model of the economy as a developing system centered on the market-carried refinement of the division of labour which ensures, in the absence of interference, the evolutionary growth of the wealth of the nation. The remarkable writing of Adam Smith was economics and ethics in his Theory of Moral Sentiments (1759).
It was in England, the theorists of mercantilism argued that economic activity centered on trade and exchange. It was the theory of the early commercial bourgeoisie. The conclusion which was drawn from this view of the nature of economic activity was that the state should be strong enough to break down feudal patterns of restriction to trade and that thereafter the state should exercise regulation of internal trade via guilds and monopolies in order to avoid damaging competition. In respect of external trade the mercantilists took the view that the state should assist them as much as possible in competition with the merchants of other countries as the role of external trade was primarily to accumulate wealth in the f6rm of precious metals.
On his ethics, Smith argued that for people to live in society as free individuals there must be an element of perceived common interest in order to make social life tolerable and possible. Smith believed in a system of natural law through which the individual was reconciled to society. The ethic of individual action within the community was represented in Smith’s Wealth of Nations (1776) which offers a political-economy of the growth in the wealth of nations which is built around the observation of the increasing interdependence of people within society as the underlying productive system advances. In Smith’s analysis wealth was derived from creative human labour working on available natural materials in order to produce useful objects. The key to increase in the wealth of nations is the rise in labour productivity associated with the increasing division of labour. As the tasks of production are broken down into specialist parts on the basis of advances in productive techniques and machinery then both the overall output of the economy increases and the interdependence of the various elements of the economy also increases. The answer which Smith gave was that the mechanism of the marketplace acted to regulate economic exchanges, and Smith went on to analyze the workings of the marketplace in terms of the contributions and rewards of land, labour and capital to the productive process.
Smith presents a model of the economy as a developing system, including the key ideas: (a) the division of labour, where specialization in production coupled with technical innovation allows vastly increased production and economic growth; (b) the notion of the market, an institutional structure which allows products to be offered to consumers; it is the sphere of exchange where buyers and sellers meet and agreements on price signal to all parts of the economic system how future economic behavior can be rationally ordered—the key variables being land, labour and capital, earning respectively rent, wages and profit in a self-regulating system that rewards all its participants, thus scarcity is being created—not given, as well as price. (c) the postulate of economic rationality, the idea that all buyers and sellers are rational agents who know their own wants; (d) the notion of spontaneous order, the idea that the pursuit of individual satisfactions generates via the mechanism of the invisible hand optimal societal benefit-and here in the invisible hand in Smith’s theory of social structure, and (e) the idea of economic progress over time as market freed of mercantilist restriction worked to secure the growing wealth of the nation.
There is a trio of approaches can be identified. Firstly, the work of classical political-economy, Adam Smith was concerned with innovation, accumulation and progress on the one hand, and exploitation, distribution and poverty on the other hand. Secondly, the work of the marginalists of the late nineteenth and early twentieth century who reacted against the social philosophy of classical political-economy focused instead on the business of price setting and resource allocation within a competitive marketplace. Thirdly, the work of J. M. Keynes addressed the question of depression equilibrium and mass unemployment and in the process identified a strategic regulative role for the state. These are respectively, the theories of economic development oriented to the newly victorious bourgeoisie; the theories of market stability oriented to the established bourgeoisie, and the theories of state intervention oriented to the reformist technocrats. Adam Smith took the view that competitive capitalism would ensure the ongoing development of the market-sustained division of labour, and this turn would ensure general benefit in the long turn.