Adam Smith's Wealth Of The Nations Analysis

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Adam Smith with his remarkable writing of ‘Wealth of the Nations’ laid the foundation for a classical school of economics. The other economists, David Ricardo, Thomas Malthus, Karl Marx, John Stuart Mill, Jean Baptiste Say, and others enriched the classical thorough of economics. Smith in his notable book argued that the wealth of a nation based on trade, but not on gold. The total wealth of a nation would increase when engaging in trade because both parties expect a profit, hence it would cause to increase the total wealth. According to the classical economists, market seeks the equilibrium naturally when market forces are freely moved. This free movement or market forces were called an invisible hand. The competition would lead the market to the natural equilibrium, hence, the monopoly would distort the market forces. Smith emphasized the impact of capital accumulation on labor productivity in the process of economic growth. He did not see upper bounds of labor productivity. Hence, he focused on the factors which determine the growth of labor productivity. Labor productivity depends on the division of labor. Capital accumulation smooths the process of division of labor. Capital accumulation and division of labor effect on labor productivity which in turn economic growth. …show more content…
The equation 2.6 is the result of dividing both sides of equation 2.6. According to the equation 2.6, Ricardo’s model depends on capital, labor, land, and technology with respect to time. Land supply is fixed and it is considered as a gift of nature. Ricardo’s view on population growth was similar to Malthus’ idea. He pointed out two wage rates; market wage rate (w) and natural wage rate (w ̅). Population will increase if the market wage rate is higher than the natural wage rate and other way. Productivity of land and socio-cultural environment determine the natural wage rate. Hence, it can be written as shown in equation

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