Why did Adam Smith believe that the free production of wealth was good?

Essay by chriswadUniversity, Bachelor'sA+, May 2004

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Adam Smith was a philosopher but is also accredited to creating the market economy, supply and demand. Smith's book "The Wealth of Nations" not only explained how his new way of economics would work but also left some insight on how we wealth could better our societies.

Through the division of labor he used a perfect example. Instead of one person making a whole nail; why not use a few people to create the same nail? These few workers would be subdivided or using his words divided to different tasks. One would blow the bellows, one would forge the actual nail, and the other would create the head of the nail with a specific tool. These few people would be able to create over 2,000 nails a day compared to the one smith who would only be able to forge 250 nails.

As products are created at a higher volume because of this assembly line technique, supply of nails would go up which would inevitably drop the price of nails.

Nails may not be a good example to use but as the prices lower more people are more inclined to purchase them. This is turn will free up more of their money to purchase more products of a different nature. This will also create more of a profit for the business owner.

Since the business owner has a higher profit he can then invest in new machinery to produce the products cheaper but also hire more labor. In return for this labor he would of course have to compensate them monetarily. These workers would then go out and buy a new shirt for example. Which would make that shirt manufacturer more of a profit and hire more labor or machinery. This would create basically a circular effect.

As each person in this circle buys and creates goods it will in theory lower the price of certain goods and leave that consumer with extra money to spend.

Since people are now buying goods at a cheaper price and working less, they are able to have more free time and create more ideas to increase productivity. As all this is taking place the country is growing and producing a richer society. Through the technical progress of economics and the division of labor, we are inadvertently creating a better society.