Which values does the market promote and how exactly does it encourage them? How are these values defined and how do they interrelate? For Smith, how and by whom are these values most often violated? Do you think they are still violated today? If so, how and by whom? If not, why not?
Adam Smith in the book “Wealth of Nations” explores the function and role of a free market in an economy. Smith argues that a country prospers in an environment of competition. Furthermore, he examined the dynamics of business ethics required to create economic growth for a state as compared to an increase of wealth among a few selfish business entities. Smith observed that in a free market individuals pursue own business interests in a manner as if controlled by invisible hand and this usually help benefit the whole society. For a free market and equitable resource distribution in a market, competition is unavoidable however he noted other pre-requisite factors include protection and respect of private property rights, an introduction of low tariffs to boost international trade, and reduced government expenditures and taxes. In a nutshell, Smith explained that the economy grows and prospers if the market environment is steady and well maintained. Again, he emphasized on the need for the governments among other relevant authorities to regulate and inculcate business ethics in the market in the market environment to deter scrupulous entities from tilting the system to favor them.
Free market economy potentially promotes the country economy. For example, free trade allows a nation to import goods that happen to be very expensive within the borders; therefore they export commodities that are cheap to produce. Again, when a country opens borders for free trade for an extended period, the cost of providing goods reduced. Economy system is hurt when citizens are not restricted from accessing cheaper and better products, and also by not associating with trade relationships that eventually benefit a nation. Competition is the pillar of argument in the market environment. Competition is the driver of high-quality production among various individual and actors in the economy, and it became better through cross border trade. Also, when a country interferes with free trade or competition through trade restriction or regulation, the invisible hand becomes impaired to balance the system.
Adam Smith’s objective in the book “Wealth of Nations” is to elaborate on the reasons why some nations are wealthier than others, emphasizing that the wealth is not a product of hard work nor better resources but a product of free trade. Smith explores how barriers of barter trade are removed, and business made more accessible through the introduction of money. Therefore he suggests that with the regulation of the money in the economy the system becomes smoother.
One of the primary principles of treatise according to Smith is “the invisible hand.” The element of pricing and valuation as done by the government of various authorities’ impact the market directly and indirectly with huge ramifications on the economy of a country. Pricing and valuation scenario interact are interdependent in such a manner that when one element influences another. Buying and selling should occur naturally and regulating bodies should not interfere. For instance when the government does not restrict the elements the people involved in the production of a commodity will automatically work hard to make huge profits. In other words, owners of the means of production will do their best. For example if a butcher sells bad meat to his clients, they cannot come back and even though the butcher may make some profit in the short term, but in the long run the butcher suffer loses, therefore it advisable to sell good quality meat at a price of a price that willing customer can pay and buy. Again pricing and valuation should not be controlled by an authority not involved in the business to understand the dynamics. Business ethics dictates that both the seller and buyer of goods and services subjected to fair and just treatment.
Adam Smith postulated that the invisible hand in the market environment allows market system success for the benefit of the majority. Even though in the free trade economy can create a wide gap between rich and poor, Smith agrees that logical price and valuation in the economy done by the business owner for the growth of the economy. Smith adds that for free trade, the public should be allowed to achieve their own goals and satisfaction; thus a system should let a bit of inequality to prevail in the order, arguing that disparity serves as a motivator of a system. Smith pays less attention to inputs in the economic system but recognizes the potential of the invisible hand to turn around market economy through ensuring instituting market freedom and guaranteeing effective resource allocation. When a conductive market environment created, there is no need to draft public policy to regulate the development of technology, skilled labor and production of capital. Free trade will automatically attract investment and provide incentives to acquire the best marketable skills and embrace the most advanced technology.
Additionally, a conducive market environment attracts the best input for production, but the right input cannot bring a favorable market environment. A public policy promotes growth through advancing free economic environment, and this cause economic growth follows. Economic growth cannot occur without a conducive market environment.
Smith conducted the research and wrote the book on “wealth on Nations” and responded to the economic theory of the moment known as mercantilism. Mercantilism theory stated that an economy comprises of both losers and winners, therefore for a country to get wealthier another country must get poor. The theory further argued that resources are limited; it’s just and right for a state to benefit as another loses. According to mercantilism many nations brought resources and money and ensured it stayed and utilized within borders to growth, as they discouraged free exchange with other countries. Nations put heavy taxes on imported goods, and these scenarios eventually caused harm to their economies.
Smith outlined few of the system that should operate outside of the free trade, institutions such as police and schools should be regulated effectively due to the critical importance to the people, and because they are motivated for profit. Generally, public goods should be controlled by the government for equitable distribution to the public. Smith clearly outlines the tenets of creating wealth and making a prosperous economy. The government should not interfere with the free market, and thus producers and consumers make appropriate decisions concerning their goods. If the government regulates the market system, it deprives the producer the responsibility of pursuing the best of their commodity. Consequently, the economy is robbed of stability and high-quality goods.
Violation of Values
Government regulation and management of the economy increased due to emphasis and focused on input, and the less developed countries quickly embraced central planning to create economic growth. According to proponents, central planning ensures an economy invested sufficiently in more valuable sectors of the economy. Again when the government is involved in planning, it provides the investment embraces most appropriate technology. For example, the government offers investment in manufacturing, a shift from the traditional natural resources and agriculture.
Furthermore, international institutions such as the International Monetary Fund and World Bank advocated central planning for developing countries, and also provided financial support to less developed nations to embrace modern technology and capital investment. Ironically, some free-market democracies encouraged the creation of such policies in less developed countries. A country like U.S.A supported the policies but it’s deplorable many less developed countries that followed the policy path experienced adverse outcomes, and this is after ignoring advises from economists who agreed with Adam Smith school of thought.
Both the input and conducive policy perspective sounds good, but the two are combined it appears a better market output obtained. First inputs are critical to getting production, but when incentives are absent, it can result in the creation of less valuable outputs as compared with input. There is an assumption in the market economy that production results to wealth creation and that manufacturer that produce less valuable output than their input eliminated out of business due to losses they incur. Hence in a free market economy, most producers strive to deliver more valuable output to beat the competition and achieve its business objective. For government regulated economy a government can direct enormous resources into inefficient production and investment, and also if there are economists to advise on the utilization of resources it may lead to waste of public funds. The proponents of the production-function economic policy approach did not realize the path only factored the proper allocation of resources within a specified market economy. Smith provided an example of how Scotland failed to produce wine because the market economy prepared in the sense that its economy does not recognize the importance of competition. Scotland thought the importation of French wine as something that could hurt the economy without knowing it could have helped provide competition to its local wine and also eliminate economic waste of investing in economically unviable projects. Violation of free market economy causes far-reaching impacts that affect the economy of the country both directly and indirectly.
When free market values violated, it hurts the public and consumers. For example, the consumer has deprived a right to variety as government compels citizens to consume what produced within borders. Again the government regulation of free-market causes economic decadence in the sense that people suffer as they get poor quality goods and pay taxes for products they don’t prefer. I belief violation of free market values is not today due to advanced technology and globalization that has resulted in closing interdependence of nations for growth. As a result, the most developed countries benefit more from trade relationships as they export most of their products to less developed nations. In other words, there are unequal market relationships that cannot be avoided. In conclusion, the free market economy has given to free-market capitalism in contemporary society.