Adam Smith and eighteenth-century economic globalization

Adam Smith and eighteenth-century economic globalization
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Choice of topic
Globalization is an area of concern in the world today. Globalization has several benefits to trade and contributes to development in the world’s economy. Further, negative impacts to developing countries’ economies have been noted as some of the disadvantages of globalization, Douglas (1997). Many people hold to the opinion that globalization is the cause of slow growth in developing countries and high growth in developed countries. The issue of free market has its impact on the world financial systems and economic systems, Williamson & Jeffrey (2011). Through the years, globalization has caused growth in the economic system in the world. Further, Adam Smith was the father of classical economics, which brought about globalization. Together with other economists of the 18th century, he brought the revolution that changed the face of trade and gave birth to Industrialization. Through their call for free market, globalization took over and the resultant disadvantages emerged in the world economy, Douglas (1997). It also acted as the basis for neoclassical economics and the tools used presents in the world to evaluate economic system and understanding their behavior. The study of the events that took place during this era is historic and carries weight in understanding the growth and development of the world economy over the years, Pahre & Robert (2008). This is why I chose to study on this topic.
Adam Smith
Today, the most powerful Economic theories were based on the 18th century classical economist developed by Adam Smith and David Ricardo. These theories were based on economic efficiency due to the creation of economic environment achieving competition, Istvan (2005). The classical economists hold that competition brings about efficient allocation of economic resources and acts as a regulator of the economic system to achieve and equilibrium of the forces of demand and supply. Since the 18th century historian have associated Adam smith with classical economics among other economists e.g. Milton Friedman. Their contributions to bring in new tools and ideas to explore economic issues have realized good developments in the economic world. Theirs contribution to economic systems bought about the concepts like elasticity and utility. The other tools included marginal analysis and comparative advantage theorem, Vries &Jan (2008). The interaction between market players (consumer and producer) was thought to necessarily explain the economic behavior of an economic system. Their contribution acted as a basis on the 21st century to explain the unexplained variables such as unemployment, inflation and economic recession. These gave birth to management tools for the economic system to curb financial crisis and stabilize the financial system in the world, Douglas (1997).
Adam Smith is referred to as the father of classical economics. Since the publication of his book, “An Inquiry into the Nature and Causes of the Wealth of Nations” in 1770s, several developments have been done in the field of economics. In his book, Adam used deductive logic to approach several subjects in economics. His main aim was to encourage economic growth in countries through economic policy changes. He philosophically attributed the division of labor as the most important factor to cause growth of the economy of a country. He further articulated market expansion and growth as determined by division of labor. Thus, policy formulation by the government towards achieving labor division was the way to expand the world market for goods and services, Williamson & Jeffrey (2011). He was opposed to government’s involvement in the market, either as a producer of goods and services or regulator but advocated for the involvement of the government to provide public goods where the private sector has no incentive to provide such goods or services due to their characteristics. He concluded that taxes act as drawback to economic activities and hence deter economic growth and development. On his opinion, he only approved the government to take land value tax and taxes on public expenditures e.g. Value Added Tax, Pahre & Robert (2008).
In his analysis on prices of goods and services, he introduces the left had principle, which assumes that if there is effective demand and effective supply such that the market clears the prices of goods and services tend to be equivalent to the production cost, the price he considered to be the natural price of goods and services, Istvan (2005). This effects depicts a perfect market scenario where bargaining becomes the only price determining mechanism without any government intervention. The interaction between demand and supply forces acts as the market price determining method.
Eighteenth-century economic globalization
The economics drastic changes marked in the 18th century made many countries to move from sovereign territories to globalization. Many socio-economic aspects in the world experience pressure to change to accommodate the new way of trade and governance, Vries &Jan (2008). Countries were no longer independent, thus, had to formulate laws and policies in engagement ...