HOW ADAM SMITH’S AND HEGEL’S ECONOMIC THEORIES COMPARE

Adam smith is one of the classical economists who contributed heavily on political and economic theories and philosophies. In his writings, Adam Smith (a Scott philosopher) contributed to the differences in economic and political ideologies of nations. He advanced theories to explain the differences in the productive and economy potentials of countries and the differences in the way countries and political authorities acquire high socio-economic classes. In his most famous writing “The Wealth of Nations”, Adam Smith is opposed to the concept of trade regulations and restrictions. He believed that trade restrictions and regulation are just but ill-founded and unproductive economic policies that should be eliminated. In his capitalism theory, smith asserts that in order for a country or an economy to maximize on its productive potential, trade liberalization and economic freedom is necessary in order to enhance the ease of access of essential capital resources. Adam Smith further emphasized that capital accumulation is only possible maximization on the returns, specialization and division of labor. Division of labor and specialization are the most efficient method of maximizing on the production potential of the economy as the process of breaking down labor into smaller specialized units results into surplus.

In his capital accumulation theory, Adam Smith asserts that any investment made in unsecured or unsafe environment is of no significance economic importance. Therefore, the success of accumulating capital resources would only make sense when the investments are well protected and secured. With theory was consistent with his theory on economic liberalization and freedom. The allocation of the limited resources at the disposal of the economy must be allocated using automatic allocating system that allows for perfect resource allocation for the best usage. The market forces and mechanisms should be allowed be dictate the process of resource allocation. Automatic system process of resource allocation is fairly competitive as opposed to managed allocation systems. According to Smith, the government must play a passive role in resource allocation in order to tame the influence and threat of monopoly and unfair competition through taxation policy. Smith summarized by dismissing the participation of the government in the economic process. The state should allow room for economic liberalization through the provision of sustainable economic environment and security. Through such liberalization, the economy ensures effective allocation and distribution of resources for the interest of the community at large as opposed to a controlled or managed economic system, characterized by inequality and influenced resources allocation.

In his “Theory of Moral Sentiments” Smith claimed that the main forces behind economic liberalization are individualistic convention, minimalism, and nomological selfhood notion. This theory of moral sentiment is consistent with the classical theory of capitalism. Finally, Smith advanced one of the classical economic theories of “invisible hand of capitalism”. Smith made an inquiry into human nature and the society from the business perspective. It is after this study that Smith made conclusion individuals in the society act in their own and to serve their personal interest. He referred to this mode of self-regulation as “invisible hands”. Although this theory of invisible hand was beyond his ability to prove, he gave examples on how these invisible forces were practical in the modern society. Such invisible hands a free market economy were created by the government forces in the market place, that plays a significant role in creating the invisible hands, to act as a guide for rational economic choices of individual consumers.

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