Adam Smith In The Wealth Of Nations example essay topic

The new United States emerged from the Revolution sovereign but in a state of fiscal chaos. The Continental Congress had been forced to resort to printing fiat money, the so-called continentals that sank quickly into worthlessness. The various states had borrowed heavily to meet the demands of the war. The central government under the Articles of Confederation was financed solely by contributions from the various state governments (just as the United Nations is funded today) and had no power to tax or borrow on its own authority. Because the state governments had pressing needs of their own (as governments always do), their contributions were often late and sometimes nonexistent (Cummings). As a result, the central government had grave difficulties meeting even its current obligations.

It was this financial crisis that helped force the drafting of the new Constitution in 1787. The document that the Founding Fathers created that summer in Philadelphia-the desperate poverty of the old government all too fresh in their minds-put remarkably few restrictions on the new government's power to spend, tax, and borrow (McCarty). The federal government is required to maintain such things as the post office and the census, which necessarily require spending, and Congress may not make military appropriations extending more than two years. But it is empowered to appropriate money for the "general welfare", a term left undefined.

In the twentieth century it has come to be construed so broadly as to encompass a museum dedicated to the memory of Lawrence Welk (Cummings). Taxes merely had to be uniform throughout the United States and could not be laid on the exports of any state. The power to borrow, meanwhile, was entirely unlimited, one of the very few powers grant by the Constitution that had no checks or balances. What did limit the fiscal powers of the new government was the universal consensus, among ordinary citizens and the political elite as well, about the proper and prudent way for a government to act when it came to taxing, spending, and borrowing. This consensus was best summed up, as you might expect, by Adam Smith in THE WEALTH OF NATIONS. "What is prudence in the conduct of every private family", he writes, "can scarce be folly in that of a great kingdom".

In other words, governments should finance current expenditures out of current income, save for a rainy day (or, more properly, allow the people to do so by lowering taxes when the budget is in surplus), borrow only when inescapably necessary, and pay back borrowed money as quickly as possible. Alexander Hamilton, appointed by President Washington to be the first Secretary of the Treasury, moved swiftly to put the new government's fiscal house in order (McCarty). Taxes were laid. Mostly excise taxes on products like whiskey and duties on imports, these were intended both to fund the new government and provide a revenue stream to service and reduce the new national debt. This debt in turn funded the redemption of the old Revolutionary War debt on a sound basis.

At the beginning the national debt amounted to $80 million, something on the order of 40 percent of the gross national product of the day. But as the government found its fiscal feet after 1795, it ran a deficit only twice until the War of 1812 (McCarty). As the country's economy rapidly expanded, the debt declined in both relative and absolute terms. By 1811 the total debt was only a little more than half what it had been in 1795. The war, of course, sharply reversed matters.

Federal government outlays in 1811 were a little more than $8 million. By 1814 they were more than $34 million. Meanwhile revenues suffered as the ever-tightening British blockade cut sharply into import duties, the main source of government income at the time. In 1814 outlays exceeded revenues by 211 percent. Hamilton had intended that the Bank of the United States, which he established, should finance deficits incurred by the government, but its charter had expired in 1811, the victim of politics (McCarty). The government now found itself hard pressed to raise loans to finance the war, because the country's financial markets were still in their infancy and unable to handle the large sums required.

The country's affluent were approached directly, and many responded. John Jacob Astor, already America's richest citizen, subscribed to $2 million worth of government paper. (He drove a very hard bargain, buying the bonds only at a steep discount from their face value. The government, of course, had little choice but to go along with the demands of someone who could easily single-handedly fund 2 percent of the entire national debt.) The publication in 1776 of his book 'An Inquiry into the Nature and Causes of the Wealth of Nations' established Adam Smith as the single most influential figure in the development of modern economic theory. With exceptional clarity he described the workings of a market economy, the division of labor in production, the nature of wealth in relation to money, the inability of governments to manage economies, and the difference between productive and nonproductive labor.

Smith was probably born early in 1723 in Kirkcaldy, Scotland, since his baptismal date was June 5 of that year. In 1737 he entered the University of Glasgow and became a student of moral philosophy. Three years later he transferred to Balliol College, Oxford, and remained there until 1746. In 1748 he began delivering a series of public lectures in Edinburgh on wealth and its increase, or as he described it, "the progress of opulence". In 1751 Smith was appointed professor of logic at Glasgow, and the next year he became professor of moral philosophy. His subject matter included ethics, law, rhetoric, and political economy (now called economics).

His first book, 'The Theory of Moral Sentiments', was published in 1759. After this book he began to turn his attention toward law and economics. This is evident from student notes taken at his lectures about 1763. The silhouette proudly displayed on Joint Economic Committee (JEC) material is that of Adam Smith (1723-90), the Eighteenth Century economist who founded the classical economic school of thought (McLean).

Smith laid the intellectual framework that explained the free market and still holds true today as we approach the 21st Century. Adam Smith is most often recognized for the expression the invisible hand,' which he used to demonstrate how self-interest guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product. To underscore his laissez-faire convictions, Smith argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces. Born in Kirkcaldy, Scotland in 1723, Smith had a relatively normal childhood, with the exception of being taken by gypsies and returned with some difficulty at the age of three. As a young man, he went on to attend Oxford University and became a professor of moral philosophy at Glasgow University. Unlike many great thinkers, he gained wide recognition during his lifetime for a full gamut of lectures and, most importantly, the publication of two major works: Theory of Moral Sentiments (1759) and (the JEC's favorite) The Nature and Causes of the Wealth of Nations (1776).

In The Wealth of Nations, Smith argued against the mercantilist ideology of the day, suggesting that trade protectionism, high tariffs, and high taxes designed to lower trade deficits inhibited economic progress. Smith believed that the "wealth" of a nation was made up of the productive energies of its people. Two hundred years after his death, Adam Smith's principles of free markets, low taxes, respect for private property, and stable money serve as a linchpin for JEC initiatives in the 104th Congress. Adam Smith was born in Kirkcaldy, Fife, Scotland.

The exact date of his birth is unknown, however, he was baptized on June 5, 1723. Smith was the Scottish political economist and philosopher, who became famous for his influential book "The Wealth of Nations" written in 1776. In 1751 Smith was appointed professor of logic at Glasgow university, transferring in 1752 to the chair of moral philosophy. His lectures covered the field of ethics, rhetoric, jurisprudence and political economy, or "police and revenue". In 1759 he published his Theory of Moral Sentiments, embodying some of his Glasgow lectures. This work was about those standards of ethical conduct that hold society together, with emphasis on the general harmony of human motives and activities under a beneficent Providence.

Smith moved to London in 1776, where he published "An Inquiry into the Nature and Causes of the Wealth of Nations", which examined in detail the consequences of economic freedom. It covered such concepts as the role of self-interest, the division of labor, the function of markets, and the international implications of a laissez-faire economy. "Wealth of Nations" established economics as an autonomous subject and, launched the economic doctrine of free enterprise. In 1778 he was appointed to a post of commissioner of customs in Edinburgh, Scotland. He died there on July 17, 1790, after an illness. At the end it was discovered that Smith had devoted a considerable part of his income to numerous secret acts of charity.

In the 1760's he traveled in France, met some of the Physiocrats, and started to write his masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. Smith postulated the theory of the division of labor and emphasized that value arises from the labor used in production. He believed that in a laissez faire economy the impulse of self-interest would bring about the public welfare. Although opposed to monopoly and the concepts of mercantilism, he admitted that restrictions on free trade (such as the Navigation Acts) were sometimes necessary.

Although some of Smith's theories were voided by the experience of the Industrial Revolution, his influence on later economists has never been surpassed (Kates). He left Glasgow to become tutor to the duke of Buccleuch, with whom he traveled for two years on the Continent. There he met some of the more prominent theorists in politics and economics, including Jacques Turgot, Jean le Rond d'Alembert, and Francois Quesnay. Smith then returned home to England and spent most of the next ten years writing his book 'The Wealth of Nations'. In 1778, two years after its publication, he was appointed commissioner of customs and went to live in Edinburgh. He remained there until his death on July 17, 1790 (Kates).

Bibliography

Cummings, Jeanne. Wealth of a Nation, SIRS. 28 November 1993: A-27 Kates, Don and Napper, George.
Adam Smith U.S. News and World Report. 5 May 1989: Volume 4, A-29 McCarty, Pat.
Wealth of Nations, World Wide Web. web McLean, Jim. Joint Economic Committee. Capital Journal. 20 February 1997 Adam Smith Ronald Bunyip Economics Honors March 20, 1998 Period: 5th President of the United States of America Ty Thompson 31 c.