RP216 An Extraordinary Economist

 RP216 An Extraordinary Economist

Capitalism is undoubtedly the dominant economic force in the world. Ideas such as having a free market, dividing labor into specializations, and measuring wealth by gross domestic product form the basis of many modern countries' economies. These central ideas of capitalism, however, can all be traced to one 18th century man—Adam Smith—and his book The Wealth of Nations.

Smith was born in Scotland in the early 1700s. A graduate of Oxford University, he became friends with some of the greatest moral, political, and economic thinkers of the age, such as David Hume and Benjamin Franklin.

In 1776, he wrote his book—An Inquery into the Nature and Causes of the Wealth of Nations (usually shortened to The Wealth of Nations)—the first work to focus on the relationship between economics and politics.

At the time, a country's wealth was measured by the amount of gold and silver it had. Smith argued that there was a better way to measure wealth. He suggested the total amount of goods and services a country produced. We now know this as a country's Gross Domestic Product (GDP).

To make a country's economy more efficient still, Smith argued, labor should be broken down into small tasks. Each task should also be performed by a specialist, thus upping productivity and creating even more wealth.

One important thing that Smith made clear was that in order to work, the system had to be free. Government interference had to be absolutely minimal. If so, the system would automatically create prosperity for all. If governments interfered granting monopolies or favors like tax breaks to certain producers, the poor would suffer.

Smith's ideas, based on the effects of the Industrial Revolution, effectively built our modern economy. But the world changes, and the 21st century has plenty of economic surprises in store. How relevant Smith's ideas will be in the future, then, remains to be seen.