Adam Smith was a key figure during the Scottish Enlightenment of the 18th and early 19th centuries. He was an economist who pioneered the initial foundations of a classical political economy, a moral philosopher, as well as an esteemed author who produced two renowned works in The Theory of Moral Sentiments and his magnum opus, An Inquiry into the Nature and the causes of the economy. Wealth of Nations, these were considered criticisms of the most widespread political-economic system at the time known as mercantilism. This political theory, when put into practice, relied heavily on state intervention when scarce resources were accumulated at the expense of other countries, through methods such as imperialism. Although his ideas in these books have not been free from criticism from academics such as David Ricardo and Karl Marx, his influence should not be underestimated. This essay will aim to discuss the most important contributions made by Adam Smith to classical political economy, as well as to discuss why his subsequent influence has been so wide-ranging. This will be done by examining the ideas he presents in the two books cited, then analyzing why the influence of these ideas has become so great. These ideas include some of his revolutionary economic theories such as; the invisible hand, the labor theory of value, the division of labor, as well as the role of the state in an economy, among many others. Classical political economy is a school of economic thought that developed in the late 18th and early 19th centuries, predominantly in Great Britain. The main premise is to attempt to understand society in terms of its economic basis. “A branch of the science of statesmen, aimed at providing its citizens with abundant income or subsistence and sufficient income to the State for public service. He set out to enrich both the people and the sovereign.” This was Adam Smith's description of classical political economy in his book The Wealth of Nations and, for many, is considered its origin, a clear example of how Adam Smith influenced this theory. One of the main points that Smith makes in his book is that he believes that our society should be based on a market made up of three main characteristics of production, these are; capital, land and labor. When these features of production are implemented, they will create three main classes within our society; capital owners, landowners and workers. These classes will collect income independently, independently of each of the other classes, the main theory being that each class would benefit from the increase in the range of the market, however, a complication would arise if the free market were to be disrupted in any way. way. It was important that there was no disruption of the free market due, perhaps, to one of Smith's most important ideas, the “invisible hand”. This concept is still controversial among economists as to how to interpret what Smith meant by it, but the consensus is that it refers to a metaphor to describe how scarce resources are emitted in a free market. For a market to be described as free, there does not need to be any government intervention, this would allow market prices to be dictated by the relationship between supply and demand. Buyers and sellers involved in this process would be acting solely in their own self-interest, Smith said. Smith further stated that suppliers can freely choose the goods they supply, as well as determine the cost and quantity of those goods, while consumers are free to decide where to purchase their goods from, this wouldpossible only if there was an absence of government intervention. This concept is still extremely influential today and is considered one of the cornerstones of capitalism. It was also an extremely important contribution to classical political economy because it was in direct opposition to the leading economic theory of the time, mercantilism, which relied heavily on government intervention, for example tariffs on imports. However, this is not to say that Smith believed that total absence of government intervention was the most ideal theory. We say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay Smith was a proponent of progressive income taxes and, among other things, specifically called for a tax on luxury goods and a tax on rent. Smith assumed that this theory would primarily be a benefit to consumers, considering that they would purchase goods in their own self-interest, choosing among the cheapest suppliers. As a result, this would induce suppliers to introduce competitive pricing, this is a means of acquiring the greatest number of customers to expand their profit margin; the result of functioning in one's own self-interest. To acquire these customers, suppliers should be efficient with their resources to have competitive and economical prices; if they were inefficient, their prices would not be able to compete and, consequently, they would lose their advantage. position on the market, thus closing the business. This is an extremely influential idea and was a revelation at the time; examples of this can still be seen in our modern economy, such as the Toys 'R' Us company filing for bankruptcy in September 2017. This was due to the company being unable to compete with the rise of big box retailers such as Walmart and with the eventual challenge of online retailers such as Amazon, both of these companies introduced more competitive pricing that Toys 'R' Us could not match due to their lower efficiency. For suppliers to compete, they will need to be more efficient with their resources, while also ensuring that consumers receive their products at the highest quality and/or most competitive price. The supplier that is most efficient at meeting these demands and maximizes its utility will enjoy the highest profit margin. Smith argued that individuals maximizing their own utility would result in growth in society's utility, just as the free market is the best way to distribute sparse resources. These theories of the free market and the “invisible hand” are some of Smith's major contributions to classical political economy. Their influence can be most accurately seen through the current economic structure of the United States of America, which is primarily based on these concepts that lay the foundation for capitalism and are the most accurate representation of it today. However, it is questionable whether this is the most effective and successful method of distributing resources or reducing prices. Another important contribution made by Smith in The Wealth of Nations was his theory of the division of labor. This highly influential idea applies to dividing separate sections of a production line, depending on equipment and/or worker skills. Smith firmly believed that if one applied this theory to a manufacturing process, it would benefit greatly by resulting in more effective use of scarce materials, while also reducing the price of production. Furthermore, Smith believed that this theory would greatly increase the number of products a supplier and/or worker could generate. Workers would now be extremely competentand specialize in a certain skill; downtime when changing a production process would be greatly reduced, and workers would begin to innovate and invent new machines that would greatly increase the efficiency of their work, allowing them to complete tasks that would normally require more than one worker to complete. All these questionable improvements were due to Smith's theory, the division of labor. Reducing the number of tasks assigned to a worker during a production process makes him more specialized in a certain area, significantly increasing his competence and performance. This is due to the fact that the worker never has to change tasks, resulting in spending more time on a certain area of ​​the production process. However, the idea of ​​a production line makes it easier for suppliers to rely on machinery rather than workers, as machinery only needs to perform one task, which is much more efficient than employing human workers. Not only are they faster, but they also reduce production costs; the fewer workers you have, the fewer wages there are to pay. This idea was adopted by factory owners during the 18th century and became extremely important to their production lines during the Industrial Revolution. This theory was a huge contribution to classical political economy and can still be seen in more modern schools of economic thought. Another huge contribution made by Smith was the idea we know today as gross domestic production (GDP). Through the theories presented in The Wealth of Nations, Smith changed the way a country's wealth was judged. Previously, a country's wealth was based on the amount of valuable goods it owned; gold and silver. Smith was very critical of this mercantilist approach, he believed that a country should be judged by its levels of production and trade. This basic idea has been so influential that it is now the yardstick by which we judge a country's prosperity in the modern economy. This measurement was introduced due to the growing popularity of free trade, Smith believed that if countries were to import and export on a market free from government intervention, the value of these countries should be judged accordingly. Smith's influence became so great through the contributions he made to classical political economy, his theories became the basis for many other economic thinkers and influenced the likes of John Maynard Keynes, Karl Marx, Friedrich Hayek and David Ricardo. These theories were so influential because they were suited to an industrialized world. With technological advances resulting from the Industrial Revolution, traveling and transporting goods became much easier and suited to economic policies that encouraged free trade, rather than the mercantilist approach of seizing and hoarding valuable goods, which was more pertinent during the period previous. era of imperialism. As previously stated, Smith's influence became so substantial because his theories were well suited to the industrialized world; as discussed, his theory of division of labor was adopted by factory owners during that period. This theory is still important in our modern economic climate as, again, it is extremely applicable to technological progress, a great example of this is the automotive industry. This sector is almost completely automated, production lines allow cars to be assembled quickly and efficiently by specialized machines tasked with just one function. Remember: this is just an example. Get a custom article from our expert writers now. Get an essay.