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Posted on May 4th, 2014, by

The economic world, being studied as a vast workshop, created by the division of labor, the phenomena of wealth, consolidated to a higher unity in the desired psychological effect of the engine; desire of people to improve their economic situation, and finally, economic policy, the first based on the interest of not a certain class (manufacturers and farmers), but on considerations of a more general interest of the nation as a whole – are the guiding principles that spread throughout the entire Smith’s work.

Adam Smith put the idea of ”‹”‹natural order on the basis of his views. He proceeded from the fact that people, providing services to each other, exchanging labor and its products, are guided by a desire for personal gain. Smith also believed that every person, pursuing the personal gain, promotes the interests of the society – the growth of productive forces. In this regard, he wrote about the “invisible hand”¯ that manages the complex interaction of economic activity of individuals. Thinking about society, Smith treated it as a collection of individuals, the nature of the specific properties endowed for life. If Adam Smith argued that a feeling of sympathy is natural to any human in the doctrine of morals, then he defended the idea that selfishness is inherent to any person by nature in his economic doctrine. According to Smith, who emanated from the idea of ”‹”‹natural order, people are motivated by selfishness and always think of their benefits, and act in accordance with their selfish nature.

In such a way, Adam Smith recognized that the main motive of human action is self-interest. But the person is able to pursue the own interest, according to Smith, only offering the own products and services to others for the purpose to exchange with others. And therefore, the natural tendency of people to improve their situation is so powerful incentive that it is able to lead society to prosperity. The policy of laissez faire, or “natural liberty”¯ appeared from the concept of selfish interest. After all, if the economic activity of each is ultimately for the good of society, it is impossible to embarrass this activity.

It is possible to emphasize on the fact that such an arrangement is almost ideal, since it allows to balance and harmonize the interests of participants in the economic process. If the transaction took place, then it means that the buyer and seller met their needs.

In addition, Helburn & Bramhall (1986), describing Smith’s classical optimism stated that “the Optimistic Theory (Adam Smith): According to Smith, the process of development never comes to an end. Capital accumulation has two favorable effects. On one hand, it facilitates technological progress by making division of labor possible. On the other, it expands markets by increasing wages. Thus, economic growth continues forever.”¯

But if a society is cemented and balanced by the relationships in the exchange process, the question arises: what is the basis of exchangeability? A. Smith after the close of his predecessors put forward the proposition that the basis for the exchange of goods is the labor expended on their production and generating value. Making a deal, people are, in fact, share bunches of labor, and each must receive equal value embodied in it the amount of labor from each other for their goods, i.e., the exchange should be equivalent. In the course of this exchange the distribution of wealth is established. Everyone gets the equivalent of the own share of labor costs, and so all parties are interested in the growth of social wealth, as the increase owed them money. The economic world of Adam Smith is optimistic: the wealth of society increases, for all parties interested in this production and exchange, and with them grows, and the wealth of everyone. A serious injustice can not take place in Smith’s world because the equivalence of exchange excludes the possibility to use a large amount of labor expended by others.

Yet violations of the equivalence are obvious. When the owner of the means of production hires a worker, he buys his ability to work, paying a wage to the person. If this occurred during an exchange of equivalents, as required by the market mechanism, there would be no profit. But then it makes no sense to organize the company. If there is a profit, and it is obvious in any organization, then it violates the principle of equivalence. Adam Smith was not able to explain this paradox, and tried to ignore it. The question of the ultimate basis of exchangeability, he replaced by the question of the main components of any price, when the component parts of prices are the cost of production and profit, which he proposed to consider the cost of the goods.

Thus, a person, being driven by selfish motives and pursuing the own economic interest, constantly chooses the most advantageous variant of solutions conducive to material prosperity. At the same time, a person is forced to consider the interests and aspirations of the own partners and contractors for commercial transactions. In this case, according to Adam Smith, the person is sent to the target, which is not a part of his intention, by the “invisible hand.”¯ As a result, people can serve the interests of society in more efficient way in pursuing their own interests.

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