Smith believed that capitalism gives workers freedom to choose their preferred trade. Function of capitalistsĬapitalists are entrepreneurs who create goods and services so as to sell in the market thus increasing their wealth. Smith summarizes benefits of markets by saying that a market society leads to improved productivity through division of labor and specialization, it is affluent to all people and it leads to ultimate reduction of difference in class among the citizens of a country. He claimed that in some circumstances, it is probably unwise and foolish to spend much money on domestic goods which can be cheaply imported from other countries. With the market regulating prices and quantities of products, it ends up regulating income of people collaborating to create those goods.Īdam Smith had fair comments regarding importation market. Through market mechanism, society changes its allocation and distribution of production elements to fulfill its needs. This is the driving force of competition. Smith asserts that increase in demand leads to a proportional increase in supply, that is, if demand for a product is high, producers will be compelled to produce and supply more to satisfy consumers. In his opinion, supply and demand play significant role in markets within an unregulated economy. Smith’s view inclined towards an economy which is not regulated. In addition, it should act as a regulator in case of unfair competition. To encourage innovation among entrepreneurs, the government should grant patents and facilitate enforcement of contracts. According to Smith, the government should be responsible in ensuring that there is fair trade in the markets. He believed that the government has a major role to play in an economy. It is possible for one to view Smith’s idea as being anti-government. According to Adam Smith, development and prosperity of an economy can only be achieved via an environment where competition occurs freely and in accordance with the natural laws of the universe. In unregulated markets, fair competition is very important in that it eliminates existence of monopolies. In an unregulated economy which is characterized by capitalism, competition enables both the entrepreneur and capitalist to operate fairly. Smith argues that competition is vital in attainment of a productive society (Fusfeld, 2002, p.13). However, it may be for the benefit of the entire society. When an individual is pursuing self interests, the act can be perceived as being self serving. According to this law, individuals engage in various activities so long as they involve exchange of money. The law is crucial in explaining market roles. This law postulates that individuals engage in trade for monetary purposes. Smith argument on the role of marketsĪdam Smith’s formulated the law of profit motive. It also analyzes the role played by the state. This paper seeks to provide the process through which social harmony is resolved in an era of individualistic chaos according to Adam Smith. He further postulates that no regulation is required to enable exchange of goods and services. This concept describes natural forces which propel free market capitalism through competition for scarce resources. He also developed the concept of invisible hand.
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