Life

How Adam Smith’s Ideas Shaped Modern Economics

  After graduating from Oxford, Smith returned to Scotland to teach English literature in Edinburgh. In 1751, Hume was hired as a professor at the University of Glasgow, first teaching logic and later moral philosophy.
  In Scottish universities, professors were paid in part according to the number of students they taught, a system that Smith believed to be extremely fair. Lazy, incompetent professors always attribute low enrollment to overly serious subject matter, or their own strict attendance requirements. They believe that their courses should be required for students to obtain degrees. While there is some truth to this justification, I think it’s best to confront them with empty classrooms.
  Smith did not believe that anyone would sacrifice his own interests for the sake of principles. He was very concerned with Colonial America at the time, and he was influenced by the views of his contemporary Benjamin Franklin.
  In 1763, Smith became convinced that self-interest was superior to principle. At that time he was employed as private tutor by the Duke of Bucklew, whose family then (and later) controlled vast expanses of land on the English frontier. The position paid well and provided a pension, so Smith resigned his professorship and began traveling the continent with the young duke. Like the study tours of other English aristocrats, this trip had no historical impact on the young man, but for Smith, it was indeed a great trip.
  Smith returned to Scotland with the harvest of his trip to Europe, and began to write his masterpiece. His friends all doubted whether he could really finish this book, and felt that he should, like other great scholars of his time, aspire to become a famous teacher in an excellent university, and devote himself to the rigor and academic contribution of writing and discussing works, instead of Put your energy into publishing this book.
  In 1776, Smith’s “The Wealth of Nations” finally came out. It was an instant hit, with the first run sold out within six months of printing. When you consider the size of the print at the time, you realize how staggeringly the book sold out. The rich material in the book embodies the great ideas of those observant Oxford professors: while individuals are rewarded for hard work and punished for lazy, the wealth of the country comes from the pursuit of individual interests by each citizen. In the process of pursuing self-interest, the individual achieves the public interest. In one of Smith’s most famous phrases, the individual seems to be guided by an invisible hand. This has become a familiar thought today.
  National wealth does not only come from the pursuit of personal interests. Smith believed that the division of labor, or in a broad sense, the high efficiency of specialization, further consolidated national wealth.
  The efficiency improvement brought about by specialization comes from the differentiation of production lines or occupational specialization, just as some countries are better at the production and sales of specific products. Part of the efficiency gain comes from the specialization of industrial processes. “The greatest increase in the productivity of labor, the greater proficiency and dexterity, and how to apply the judgment of labor, seem to be the result of the division of labor.” The following
  is Smith’s famous passage describing the division of labor. In the process of collecting data, he , must have carefully observed the production line of pins from his own special angle:
  one person pulls out the wire, another straightens it, a third cuts it, a fourth sharpens it, and a fifth grinds the other end ready to be glued to the head and making the head of a pin requires two or three separate processes; gluing the two parts together can be a separate trade, whitewashing is another, and even putting the pins in a carton is another trade
  . According to precise calculations, ten people can make 48,000 pins a day with such a division of labor, which is equivalent to making 4,800 pins per person. If one person completes all the program operations, it may only make one piece a day, or 20 pieces or the like. But the public has always believed that the assembly line, which greatly improved productivity, was invented by Henry Ford in the early 20th century.
  The larger the market, the longer the product circulates—the greater the opportunity for division of labor, whether it is a pin or any other product. It is precisely because of this that Smith used the example of pin production to oppose tariffs and other trade restrictions, and believed that commodity exchange should be as free as possible within the country and in the international market, and the widest possible market should be developed.
  Freedom of trade in turn expands the freedom of individuals to pursue self-interest, allowing him to see not only domestically but globally. The combination of market liberalization and enterprise freedom allows the operation of the market to produce the most beneficial result for society, that is, the output of what society needs most will increase.

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