Adam Smith's Theory: Division Of Labor, Invisible Hands And Government Intervention

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Adam Smith was one of all time’s greatest minds. His great gift was observation, and he is absolutely awesome in his study of human nature, as it existed in different types of society at different times in history. Born in 1723 in the small seaside town of Kirkcaldy, Scotland, Adam Smith studied morals and economics at the market of local merchants. He studied at Glasgow University, and became its top leader, and then the Scottish Enlightenment was a cornerstone of the unexpected cultural movement. He lived, lectured and socialized in Scotland’s more prosperous. He had eloquently argued the power of free markets and the division of labor; to enable people at all strata of society to become have proved- empirically and historically now- to correlate positively with all of these metrics of human well-being. Smith was particularly concerned about the well-being of the least well off, and thought that markets, especially the type of commercial. Adam smith theory has helped the economic world by using his modern theory. His theory has always been relevant till this day.

Topic 1: Division of Labor

The division of labor is defined as the degree which tasks in the organization are divided into separate jobs with each step completed by different person. It is also known as work specialization. The more complex the division is for Smith, the more efficient it will be for a given company, industry or society, Smith first described the division of labor by looking at the manufacture of simple pins but its ideas still been used considering the large scale in this modern world. Furthermore, division of labor concept is one of the reason global trades being introduced. Adam Smith believed that the more others create and the more you trade with them, the better off you are. Trade is really important. This is where other countries or corporation that has their own innovative ways to share around the world. For example, a ship like Maersk Mc-Kinney could make international trade is much more efficient and environmentally friendly. In addition, now days there is a lot platform that we can use to perform global internet in which is for example, by using internet, In conclusion, by using specialized in particular fields, the nation will be wealthier.

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Topic 2: Invisible Hands

Invisible hand is defined as the unobservable market force that helps the demand and supply of goods in a free market to reach equilibrium automatically.

Adam smith is the one who introduced this term. He suggest that if people were allowed to trade freely, self-interested traders present in the market would compete with each other, leading markets towards the positive output with the help of an invisible hand. In a free market scenario where there are no regulations or restrictions imposed by the government, if someone charges less, the customer will buy from him. Therefore, you have to lower your price or offer something better than your competitor. Whenever enough people demand something, the market will supply it and everyone will be happy. The seller end up getting the price and the buyer will get better goods at the desired price. This can be seen in eBay’s situation, which is as prices of one product are on the rise, because buyers want a particular item, seller’s stream into the market to satisfy that demand but when the demand drops, prices will go down. Moreover, the world of economy has involve is due to Internet. Internet has created an explosion of confidence amongst buyers. EBay, for example, is one of those confidence qualities. EBay is based on this concept of economic democracy; that people around the world who do not know each other and have never met should operate in a system in which financial transactions can be carried out freely and safely. Pierre Omidyar created EBay in 1995. Pierre was speaking a great deal about the theory of the free market. He embraced Adam’s principles. He claimed that not only would an economic democracy be a great business, it would do a lot of good in the world. Adam Smith would conclude that an “invisible hand” operated the world’s eBay traders. According to Adam Smith, ‘public services are never better delivered than when their compensation is attributed to their success and is proportionate to the care in which they have been employed. This idea also approved by Devin Wenig, eBay’s president and CEO, as he said that “free market is one of the most influential forces in the world, and we saw that in our business”.

Topic 3: Government Intervention

The idea of government intervention was appose by Adam smith, as he believes that market forces could reduce property and he believes that all of his ideas worked. Adam smith introduce a concept which is the poor could live a better life as he concerned about the well being of poor people. Sir John James Cowperthwaite has used this idea. He was Hong Kong’s financial Secretary from 1961 to 1971. He applied Adam’s theory to save Hong Kong’s economics problems. He is the smithian political economy that provides easy taxes, peace and tolerable administration justice. Adam Smith (1776) nothing else is needed to bring the notion to the highest degree of extravagance, but the normal course of things helps bring regarding stability, simple taxation and tolerable administration of justice. As a result, China has changed from a county of socialism to a capitalist country because of Adam Smith essential concepts as it opened up the economy of china that evolves as the world market trade. According to Adam Smith (1776) it is of the utmost importance and confidence…to continue to watch over the private people’s economy in kings and ministers.

Topic 4: The Pros and Cons of Government Intervention

The idea of government intervention was oppose by Adam smith, as he believe that economic should be run naturally. However, some economist agreed that there are certain things that should involved government intervention for example when it comes to unwanted shortages and surplus tend to occur which is the massive gas shortages in the united states during 1970s.this happened due to OPEC cut production to raise oil prices. Then, the Nixon and Ford administration responded by introducing price control to limit the cost of gasoline to American consumers. The goal of it is to make gases that are available for public cheap. In conclusion, there are many benefits we can achieve from government intervention, such as the distribution of income, secured public goods and services property rights, and welfare opportunities for those who cannot afford.


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