Adam Smith’s Theory of Economic Development According to Hunt (2002), Smith’s introduction of his theory revolves around the fact that the manner in which humans produce and redistribute the material necessities of life determines the personal and class relationship within society. While there are several concepts that explain the progression of this theory, our attention is directed mainly to three aspects: the four stages of economic development, the division of labor, and the establishment of free trade.
The Four Stage Model of Economic Development According to Hunt (2002), Smith hypothesized that there were at least four stages of economic development: hunting, pasturage, agriculture, and commerce.
i. The Hunting Stage According to …show more content…
At the time, mercantilism was enforced largely in England, whereby the government significantly regulated foreign trade under the premise of promoting a favorable balance. Smith (2005) notes that a favorable balance of exports and imports under mercantilism depended on the misleading assumption that the wealth of a nation depended upon its capital holdings reflected in precious metals such as gold. However, according to Smith (2005) a non-regulated free trade essentially promoted the voluntary exchange of trade both domestically and internationally, which he apportioned as the primary reason for economic well-being. The concept of free trade, therefore, realizes the differences in individual abilities, promotes the specialization of labor, which ultimately increases efficiency and …show more content…
In regards to social impact, it is evident from the theory that population growth is directly related to the abundance of trade as described by commercialization. Therefore, reward of labor, according to Smith (2005), not only causes wealth, but increases population too. Like Smith, I am inclined to believe that all nations are essentially in one of any of the four stages of development, and that some nations already in transition, reflect the presence of more than one stage. As it pertains to the division of labor, my opinion is that labor specialization is necessary for the reduction of production costs because it breeds efficiency and saves the amount of time needed to manufacture a product. Free trade not only results in increased wealth, but it also results in good governance; the hallmarks of a democracy. Open markets are less susceptible to political turmoil than closed markets. The communist economy is an example of a closed and centralized market where government controlled trade, which explains why it eventually
The Four Stage Model of Economic Development According to Hunt (2002), Smith hypothesized that there were at least four stages of economic development: hunting, pasturage, agriculture, and commerce.
i. The Hunting Stage According to …show more content…
At the time, mercantilism was enforced largely in England, whereby the government significantly regulated foreign trade under the premise of promoting a favorable balance. Smith (2005) notes that a favorable balance of exports and imports under mercantilism depended on the misleading assumption that the wealth of a nation depended upon its capital holdings reflected in precious metals such as gold. However, according to Smith (2005) a non-regulated free trade essentially promoted the voluntary exchange of trade both domestically and internationally, which he apportioned as the primary reason for economic well-being. The concept of free trade, therefore, realizes the differences in individual abilities, promotes the specialization of labor, which ultimately increases efficiency and …show more content…
In regards to social impact, it is evident from the theory that population growth is directly related to the abundance of trade as described by commercialization. Therefore, reward of labor, according to Smith (2005), not only causes wealth, but increases population too. Like Smith, I am inclined to believe that all nations are essentially in one of any of the four stages of development, and that some nations already in transition, reflect the presence of more than one stage. As it pertains to the division of labor, my opinion is that labor specialization is necessary for the reduction of production costs because it breeds efficiency and saves the amount of time needed to manufacture a product. Free trade not only results in increased wealth, but it also results in good governance; the hallmarks of a democracy. Open markets are less susceptible to political turmoil than closed markets. The communist economy is an example of a closed and centralized market where government controlled trade, which explains why it eventually