Overview
A cornerstone of classical economics laying the groundwork for modern capitalism. Critiques mercantilism and advocates for free markets, specialization, and limited government intervention.
Core Ideas
Division of Labor
Specialization increases productivity. Famous pin factory example shows task division exponentially boosts output.
The “Invisible Hand”
Self-interested individuals unintentionally benefit society through efficient resource allocation via supply/demand.
Free Markets & Anti-Mercantilism
Criticizes wealth-through-trade-surpluses. Advocates free trade, competition, and open markets for innovation.
Role of Government
- Maintain law and order
- Provide public goods (infrastructure, education)
- Enforce contracts
- Oppose excessive intervention (tariffs, monopolies)
Labor Theory of Value
Goods’ value derives from production labor. Later refined by Marx.
Legacy
- Foundational Text: Shaped classical economics (Ricardo, Mill, Keynes)
- Modern Capitalism: Underpins free trade and globalization
- Critiques: Warned against monopolies and unchecked greed
Quote:
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
In Short: Smith champions economic freedom, specialization, and decentralized markets – ideas central to modern economic policy debates.
