Adam Smith and Capitalism

Adam Smith and Capitalism is a term that goes together. He is credited for inventing capitalism. This paper will detail how Adam Smith arrived at the concept that capitalism is the best economic theory. It will illustrate how the concept of capitalism always existed, Adam Smith gave a name to and described attributes. Although Adam Smith did not use the word capitalism, the spirit of the word and certainly the concept is accurately attributed to him.

Adam Smith held strong beliefs on the makeup of human beings. Similar to all living things, humans instinctually take actions to survive and reproduce. This basic concept is necessary for all living things to survive.

Theory on Moral Sentiments

Adam Smith wrote the book the Theory on Moral Sentiments in 1759. This was 17 years before he wrote The Wealth of Nations, the book that identified Adam Smith as the creator of capitalism. The theory of Moral Sentiments details the characteristics of humans. The basic theme of his theory is that humans are instinctively wired to take care of themselves.

The Theory on Moral Sentiments is a book about human nature. Adam Smith believed that each person is programmed to look out for their own best interest first. Without first taking care of yourself, a person cannot survive. He furthered argued that after a taking care of oneself, it is than possible to look out for others. This theory can be extended to one’s family and then society as a whole.

How people are wired

He argued that the concept that people natural take care of others first is contrary to how we are programmed.

This seems like a realistic view of humans. Generally, everyone first looks after themselves. Similar to the birds and squirrels, parents initially help and guide their offspring, but eventually they must care for themselves. For birds and squirrels, this happens rather quickly. For humans, the period when self-reliance begins and has increased over time.

Self Reliance, Adam Smith and Capitalism

The concept that people must take care of themselves is a truism that has been prevalent throughout history. There are very few examples of a society takes care of its population. No historian, philosopher, politician or any other person can cite any meaningful examples. The reason is the concept is not realistic and does not and never has existed. Any example cited will be an isolated and unique situation. It will involve a relatively small amount of people and include a funding source that is not realistic and cannot be duplicated.

The concept that all individuals in a society take can be taken care of is a Utopian concept. It is an idea we can agree with but is not realistic. Again, there are no examples in history of this occurring. The concept of communism credited to Marx and Engels is often referred to as an example. First, there has never been a country that communism evolved in a way that Marx and Engels detailed, never. Every country that portends to practice communism has a strong ruler along with a low standard of living. Furthermore, the businesses in these countries and certainly successful run business are operated in a capitalist fashion in these communistic countries.

The Theory behind Adam Smith and Capitalism

The theory behind capitalism as an economic model, is consistent with human nature since recorded history over 5000 years ago. Regardless of the period of time in history, the civilization structure or location this is factual.

The concept of a socialist country is also a Utopian concept that does not exist. Many countries in Europe are referred to as socialist. Almost 100% of businesses in Europe operate under a capitalist structure. Companies are owned by individuals and not the government. Public companies have an obligation to maximize value for its shareholders.

Many countries in Europe do have government programs that all individuals can be part of. Certainly, socialized medicine is the best example. The money necessary to finance this concept is obtained from taxes. The concept of socialism refers to the government offering services to its citizens that society deems appropriate. It has nothing to do with the structure of business. With few exceptions, the government does not operate or run a business.

Adam Smith and Capitalism and the effects

Smith did not use the word capitalism. He believed “every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men.” It is important to emphasize that Smith believed the government should stay out of the process.

Freedom is important component when considering capitalism. The United States Constitution is a symbol of freedom for a society. It is the first country to be founded on this concept. This freedom plays an important role in the process and increases outcomes. Freedom, when partnered with capitalism as illustrated by the United States, lead to a significant increase in the standard of living of all its citizens.

Those who object to capitalism will point to exploitation that occurs. The unfairness that a relatively few can accumulate so much. These business owners will exploit the workers (This is the essence of Marx and Engels theory). Yes, the criticisms are all true. Human beings are not perfect and there are many examples of exploitation that are well documented. The saying “do not let perfect be the enemy of good” is completely true. What are the alternatives to a capitalist structure. All humans have flaws, some quite significant, there is no way around this basic truth.

Other considerations on capitalism

Even in countries with more restrictive freedoms, the concept of capitalism, or individuals looking after themselves is prevalent. Today, China is probably the best example of a socialist society. Strong leader, major government intervention in both business and society. But generally, business is privately owned and run for a profit.

Adam Smith wrote the Wealth of Nations based upon his concept of human nature. He detailed the beliefs and although did not come up with the term capitalism, he is correctly credited with the concept. Finally, a concept that has always existed and will never go away.