Adam Smith’s book The Wealth of Nations was published in 1776. His book focused on
five key ingredients of mercantilism. These five ingredients include profit-motive, private
wealth, free markets, laissez-faire, and the invisible hand. These ideas were all a great basis for
the start of economic growth. It is important to keep in mind that Adam Smith did not consider
corporations. He believed that corporations would lead to a monopoly. Smith had a huge impact
on the economic revolution. If the society did not have the foundation set by Smith then there
would be no telling where the world of business would be. However, with all this said, John
Nash proved this theory wrong. He won a Nobel Prize for doing so.
The profit-motive is the idea that the ultimate goal of a business is to make money. The
reason that business’s not only exist, but thrive as well, is to make a profit. The profit motive
functions based on the theory that it is acceptable for individuals to survive well, and go after
what is in their best interests and what will benefit them the most. Relating that to the business
world, businesses are out to find what’s in their best interests, in hopes of increasing and
maximizing profits.
A free market is a system in which the prices of goods and services are set freely by the
producers and consumers. This involves laissez-faire, because it should not be interfered by the
government. Each exchange of goods or services would be a voluntary agreement between a
consumer and producer. It was created in order to liberalize standards. It came with the
assumption that no harm will come to the society. The market system used in modern day
business is not necessarily a free market. The government has set price floors, and price ceilings
to control minimum wages, prices on goods and services, and a few others.
Laissez-fair means “let it be.” Meaning that the government will not interfere with the
market system. This policy received strong support in past economics. However, modern day
business has come to terms that this is no longer the case. The government interferes quite a bit.
Especially during recessions. The government interferes by spending more, and by reducing
taxes to expand the economy, or do the opposite to contract the economy.
The invisible hand is a metaphor, a justification, or excuse. It is an ideology that if
someone succeeds and gets rich doing so, the wealth will spread across the entire economy and
help the society as a whole. Smith assumed that any government intervention would be irrelevant
because the economy would be better off with the invisible hand. John Nash won a Nobel Prize
for proving this theory incorrect. John Nash came up with the idea that economics is more of a
game and less of a science. He called it the “Game Theory.” Nash placed structure around how
players in a game can optimize their outcomes. In summary, the “Game Theory” states that two
individuals working together will achieve much more than a sole individual competing against
another sole individual.
These five ingredients are not scientific principles. They are only principles, or
ideologies. Scientific principles are self-correcting. For example, gravity is a scientific principle.
Smith’s ideas have been corrected, however, not by itself. Others have corrected it for him.
Adam Smith’s motives were to aid in the economic revolution. He wanted to have a more
efficient economy. Although, it could be said that he wanted more wealth without feeling guilty
or being accused of greed, which back then would have been considered a serious sin. He did not
want to be stuck in the same position as his father, the one he was granted because of the way
things were. He wanted to grow, become successful, and make money like many others. In order
for him to achieve this, he put together these ideas as a tool to help achieve his wealth without
being blasphemous.
Adam Smith’s ideas, although many have been proven wrong, were great stepping stones
for modern day economics. Business surrounds society by every corner. There is no escaping it.
It is important for individuals to know where it all began, especially those who have a desire to
pursue a career in business. People in business still go back to the ideas set by Smith. Before the
economic revolution, things were controlled by the whip of authority. Things were done with
stability over profit. After the revolution, the market system was created and opened an immense
opportunity for change in business and in lifestyles.