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Adam Smith the creator of the capitalist system – Part II

In the previous part we learned the bases of the system and how the greater supply of goods reduces prices, which translates into higher levels of well-being since there are more and more people who can acquire goods and services.

Smith argues that each individual seeks to achieve the highest return on his resources at the lowest cost, and also that each person knows better than anyone else his opportunities and the context in which he can act. He implies that to excel in the capitalist system you first have to be an entrepreneur (be able to sell) and then everything else.

Through the famous “invisible hand,” which is simply an analogy, this search for individual well-being will drive the progress of society, because personal success depends on our activity having value for a third party, who otherwise would not be interested in what we produce.

That is, we only benefit if we benefit someone else, and the more people join in the quest for progress, the greater wealth and well-being we will achieve.

In this sense, economics is not a “zero-sum game,” where some lose so that others win, a concept that Marxists and pure socialists will never understand.

Adam Smith defends market economies, in which people are free to pursue their own interests and generate the virtuous circle of prosperity through self-interest, so he seeks to eliminate: barriers to the entry of new competitors, trade restrictions, monopolies, as well as price controls and other measures that distort the free flow of information in the markets.

These preferential treatments and undue privileges were promoted by the very businessmen and governments, enemies of competition, who did everything possible to get the government to protect their businesses.

In this way, with institutions that ensure the administration of justice, people will have confidence to save, make investments, produce, trade and form associations that promote their benefit and the progress of the economy as a whole.

As for government, Smith argues that its role should be primarily to provide security and justice and protect members of society from international conflict, as well as to build infrastructure, as long as it benefits society as a whole.

Adam Smith's thinking has been fundamental to the development of economies. It is clear that the close relationship between strengthening economic freedoms and compliance with the rule of law is a necessary condition for the progress and well-being of countries.

It is not difficult to demonstrate that the economies that comply with this are those that have higher levels of development, generate more resources to reduce poverty levels and achieve higher standards of living for their population.

For this reason, there are business groups that promote in their daily activities and through various initiatives, the strengthening of institutions that facilitate the formation of free markets, encourage the creation of companies and promote competition in all industries, generating inclusive prosperity.

They firmly believe that progress results from a virtuous circle in which free environments foster innovation, which generates greater competition in economic sectors and boosts family prosperity.

This capitalist system has major flaws but we have to evolve and improve it.

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– Dr Roch