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The paper is devoted to the discussion of the ideas of Adam Smith, their relevance at present time and the application which his ideas and theories find in modern world. It is known that the system of economic organization, founded by Smith, has never been as relevant as it is today. Thus, it is necessary to look at his theory from the modern viewpoint and to see the examples where this theory finds regular application and use in present day economy. Adam Smith and the Invisible Hand Adam Smith died on the 17 th of July, 1890, but never in this life has his system of economic organization felt better than it feels now. It is interesting, that in fact, Smith has not created new economic science, as his book does not contain any apolitical ideas, principles or methods, which would be absolutely new. The Smiths achievement lied in the fact, that he had gathered all encyclopedic variety of deep researches, informational data and separate episodes of practice and had invented a revolutionary study out of all this.
The most surprising is that some questions, described in the book, have not lost their relevance even at present time. The system in which the invisible hand is most often assumed to work is the free market. Adam Smith assumed that consumers choose for the lowest price, and that entrepreneurs choose for the highest rate of profit. He asserted that by thus making their excess or insufficient demand known through market prices, consumers "directed" entrepreneurs' investment money to the most profitable industry.
Remember that this is the industry producing the goods most highly valued by consumers, so in general economic well-being is increased. (web) The modern economy is brought into movement not by the numerous small producers, but by the groups of the gigantic enterprises and monopolistic professional trade unions; but it only means, that the world more than ever needs the knowledge, which has been created and discovered by Smith. Despite the triumph of the market economy, the role of the state is acknowledged almost everywhere, and it happened not because the theory of market inefficiency has won, but because people have got so accustomed to the omnipotent interference of the state, that they dont notice it anymore. Many have forgotten that every advantage given by the state to one part of its economy puts the rest of it into the unfavorable position. Thus Smith was speaking not about interference, but about advantages and limitations. Lets consider a small but very bright example of the Smith invisible hand influence. The example has its origin in pro-market Great Britain, and is connected with the case when the representatives of the British cinema industry came to Margaret Thatcher to ask for a subsidy.
They have brought several arguments for the necessity of this subsidy: the subsidy will be ploughed back due to the taxes, which will be paid by the industry out of the acquired profits, the workplace will be saved, and Britain must stay among the leaders of cinema industry in the world. According to the theory of Adam Smith the following conclusions could be made: the subsidies are not ploughed back, but are financed by the tax payers, who have to pay the money for the movies they dont want and thus will have to buy less other products than they want to. As a result other manufacturers will produce and sell less, and will hire less workers, thus the consumers dont need to be told that they need cinema production in their country. The role of the invisible hand is underestimated in this situation which finally leads to the mis balance in the whole economy of the country. (Ulman-Malgalit, 1997) Smith was sure that the only means which does not allow the manufacturers to raise the prices up to the level when the consumers cant pay for their products was rivalry.
Rivalry calms down selfishness and allows regulating the prices. If the consumers want more bread and less cheese their demand will allow the bread producers making their prices higher; thus the profits of cheese manufacturers will decrease and the capital flow will be directed from one branch into another. Despite the unique character and knowledge, which the invisible hand brings, many governments underestimate its role, making the state the main player on the market and thus turning economy from the market into the command one. However it should be remembered, that even according to the simplest laws of nature, the economy will return back to its balance state and the way it will happen will be determined by the actions of the state and the manufacturers Thus, to make this process less painful for the simple tax payers and consumers, the invisible hand of Adam Smith should always be taken into account.
References Joyce, Helen. (Accessed on the 17 th, July, 2006) Adam Smith and the invisible hand. < web > Ulman-Malgalit, Edna. (1997). The invisible hand and the cunning of reason. Social Research, vol. 64, issue 2, 181.
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Research essay sample on Adam Smith Invisible Hand
