Adam Smith ' Theory of Trade and Government Intervention into Free Trade
Adam Smith, also known as the Father of Economics, was born in Scotland. Two of his books 'The Theory of the Moral Sentiment' and 'The Wealth of Nations' have made a tremendous impact on the economic behavior of the countries in the world. At the time when Mercantilist had the government completely woven under their spell, Adam Smith appeared as an imperialist through the promotion of Internationalism and the anti-England of policy and thought. In his book 'The Wealth of Nations,' Smith discussed the issues of production of labor, the theory of division of labor, the changes in price, capital, profit accumulation and the nature of market economy. In discussing the above, he explicitly refuted against mercantilism, and promoted free trade. The thesis of my paper talks about Adam Smith's view on mercantilism and trade, government intervention, and his rationalization into free trade.
In order to understand Smith's opinion about trade, one must understand the basic ideas of mercantilist view of his time. Mercantilists viewed the wealth of the nation to be fixed. Hence, any increase in wealth and economic power of one nation resulted at the expense of the other. Therefore, they believed that the government should regulate the economy so that the workers would get a low wage for a cheaper production. The domestic consumption should be minimized so that more goods could be exported to collect gold and silver. About this, Smith wrote:
'In the meantime one of the principal effects of those discoveries (America and of the sea route to the East Indies) has been to raise the mercantile system to a degree of splendour and glory which it could have never otherwise have attained to. It is the object of that system to enrich a great nation rather by trade and manufactures than by the improvement and cultivation of land, rather by the industry of the towns than by that of the country.'