Adam Smith the creator of the capitalist system – Part I

How does this system we live in in the West work?

Adam Smith is the creator of the capitalist system in which we live today.
It is inspiring to read about characters who have played a decisive role in the history of ideas, and one of them, without a doubt, is Adam Smith.  

Adam Smith gives a comprehensive view of economics in general and capitalism in particular.

Matt Ridley, in his work, The Evolution of Everything, even considers that the seminal ideas on evolution belong to Smith, who inspired Darwin's work.

Let's see:

Adam Smith was born in 1723 in the town of Kirkcaldy, Scotland. He devoted much of his life to teaching - he was a professor of moral philosophy and logic - and his study objectives were to define the elements that allow for the construction of societies that live together in harmony and to understand the institutions that make it possible to promote prosperity in nations.

To achieve his first objective, in 1759 he wrote the book The Theory of Moral Sentiments and, in order to understand the elements that generate progress in societies, he published his most famous work in 1776: The Wealth of Nations.

In his first book, Smith argues that societies determine what is morally acceptable based on interactions with third parties, who continually make judgments about our actions.

When we are judged positively it gives us pleasure, so we tend to act in a way that will achieve greater positive feedback and minimize social rejection; this is how moral norms are generated in a community.

Of course, these change over time as society evolves—as has happened with views on divorce, the role of women in the economy, and respect for different cultures.

Another topic on moral virtues that Smith explores in depth is philanthropy as a superior attribute, since it consists of generating positive actions, voluntarily, to improve the situation of others.

It involves costs for the benefactor (time, money and other resources) and knowledge of the needs of the beneficiary (food, medicine, money), so this task should not be entrusted to the government, who, according to Smith, is unaware of the specific needs of the different communities.

Where government action is necessary, according to him, is in the administration of justice.  

Its basic rules must be: not to affect the physical integrity and freedom of people, respect for private property and compliance with contracts between the parties involved.

These are fundamental conditions for people to develop activities that promote the progress of society.

Once the set of behaviors and institutions that lay the foundations for social coexistence and legality had been determined, Smith asked himself what generates prosperity in countries, which involved the task of correlating historical production figures for various goods with the institutions and economic policies of various regions over a decade.

Smith found that the main characteristic that explains the progress of economies is the division of labor, which involves dividing the production of goods into different segments.

This allows each person to specialize in a single task and be more efficient at it—as opposed to producing the entire item, which causes distraction with scattered activities—boosting work productivity.

This generates surplus production that can be exchanged for other goods created by third parties, who in turn produce more, thanks to the same division of labor.

The greater supply of goods reduces prices, which translates into higher levels of well-being as there are more and more people who can acquire goods and services.

In the next part we will discuss how Smith argues that each individual seeks to achieve the highest return on their resources at the lowest cost.

I look forward to your comments!
– Dr. Roch

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