Contributions Of Adam Smith: Founder Of Classical Economics

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Adam Smith
1. Known as founder of Classical economics, regarded as starting point of classical economics.
2. Described as Father of Political economics
3. He most noted for his work ‘An Enquiry into the Nature and Causes of the Wealth of the Nations’ (1776).
4. He is first economist to deal economic problem in systemic manner , hence heis also known as first academic economist.
5. Smith gives the idea “labour is the source of wealth of the nations”,
6. Adam Smith propounded the labour theory of value according to which the value in exchange of any product is measured in terms of the number of man hours that the labour has spent in building / manufacturing that product.
7. According to Adam Smith, wages are the payment for the factor of production
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Rent is the payment for the factor of production that is land. As per Adam Smith, there exists a Harmony of Interests between that of the landlords and that of the society. Rents arose only when the economy was doing well. Hence, prosperity of landlords is a barometer to measure the health of the economy.
9. Adam Smith gave the theory of Laissez - Faire which believed in individual freedom. Adam Smith propounded that the individuals, in doing good for themselves would also end up doing good for the society as they would be guided by an ‘invisible hand’. Smith viewed the Government as wasteful, spend - thrift and corrupt and wanted least intervention by them in the economic affairs of a country. He also believed in a harmony of interests that existed between different sections of the society.
10. Both Adam Smith and David Ricardo believed in free foreign trade. Smith relied on the theory of Absolute Advantage to govern foreign trade. This meant that a country should produce and export only those goods in which it has an absolute monetary advantage over other countries and it should import those goods in which other countries have an absolute advantage in
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Ricardo was one of the first people to give a complete and comprehensive theory of rent. According to him rent was a payment made to landlords for using the original and indestructible properties of soil. He believed in perfect competition, applied the Law of Diminishing Returns to the output derived from land and understood rent as arising from the differential fertility of land. He also propagated that rent arose from the differential situational advantages one piece of land had over another (nearness to market, water sources, etc.). He saw rent as a value determined by price and not as a price determinant.
9. Ricardo also believed on Laissez – Faire and least intervention by the Government, although, he did not believe that a harmony of interests existed between different section of the society (for instance, he believed in a conflict of interests between the landlords and the workers).
10. Ricardo, on the other hand, believed in the theory of Comparative Advantage to govern foreign trade. As per this, even if a country has an Absolute Advantage in producing goods over another country, it should produce and export only those goods in which it has a comparative advantage over other countries or a least comparative disadvantage with respect to other countries. And it should import those goods in which other countries have a

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