Adam Smith and the history of economic thought

Economic thought goes back thousands of years. The ancient Greek, Xenophon, used the word oikonomikos (from oikos, meaning family, household, estate, and nomos, for usage, law). He was talking about skilful or clever ways to manage land and households. We could call many of Aristotle’s political writings economics, although he did not use the word. The English word economics first appeared in the 19th century – two and a half thousand years after Xenophon.

At this time, thinkers like Adam Smith wrote down ideas that are still important today. His work «Enquiry into Nature and Causes of the Wealth of Nations», which was published in 1776, was a great event in economic science and won him world recognition. Adam Smith is often called the Father of Modern Economics, although the science was called political economy then. Smith realized that a nation’s wealth depended on its ability to produce goods. The value of these goods depended on the cost of production. The cost of production depended on the cost of workers, raw materials and land. This was really the first example of macroeconomics.

In his understanding the economic development is guided by objective laws and is independent of the volition of an individual. He called those laws “natural” and tried to deduce them from the nature of the human being. “The natural properties of man” upon which Smith proceeded were characteristic features of the capitalism of his time.

Smith and other classical economists were writing at a time of great change. The industrial revolution had begun. Paper money began to replace precious metals. The middle classes were growing stronger. Economists’ theories echoed these changes. They wrote about the division of labour (each worker taking their part in the production process). They discussed the problems of population growth. They influenced thinking about social classes.

· SPEAKING

3. Answer the following questions:

1. What was Adam Smith?

2. What helped him to win the world recognition? Why?

3. What is the real source of a nation’s wealth?

4. What are the features of the capitalism of his time?

5. How can you characterize the period of classical economists?

Now read the text again and decide whether these statements are true or false.

1. Aristotle did not use the word economics, but he did write about economic ideas.

2. Modern Economics was called political economy then.

3. Adam Smith gave the first example of microeconomics.

4. The economic development is guided by “natural” laws.