Adam Smith—The Father of Economics | Economic Game Changers | PragerU

Economics. Whether it's on the television, around the campfire, or even in classic films, it's a topic as common as your favorite beverage. But how did we get here? The way we talk about things like unemployment, trade, and value. The answer is actually a story involving the game changers of economic history and how they wrote the book on how we discuss economics today. Our story begins in the late 18th century with an old empire faltering The British Empire was the most powerful force on Earth at the time. Its ships dominated global trade and had established colonies across North America, the Caribbean, Asia, and Africa. That power rested on an economic system called mercantilism, in which Britain imported its colony's resources back home and sold finished goods to the colonies. This made the highest classes of society very wealthy, but it required extreme trade restrictions and heavy taxes imposed by governing authorities. By the second half of the 18th century, rising discontent in the colonies and shifting political structures at home began to put pressure on this system. One observer during all this was a Scottish philosopher named Adam Smith. These trade restrictions benefit the upper class at the expense of the lower class and are highly inefficient. Take the Navigation Acts. The Navigation Acts were laws enforced by the British that required resources from their colonies to be carried on English ships and delivered to British ports. This essentially forced colonial territories to sell their resources to mainland Britain and Britain only. This left colonists, including American colonists, with an extremely restricted market. But the world was changing. The development of the steam engine in 1769 sparked the beginnings of the Industrial Revolution. Society began to industrialize, using machines to scale production, leading to goods being made faster and more cheaply. The old way of generating wealth started to falter. Smith was highly critical of the mercantilist system and deeply sympathetic to the grievances of the colonies. Serendipitously, he published his Observations, Critiques, and Solutions in 1776, the same year as the American Declaration of Independence. An inquiry into the nature and causes of the wealth of nations. Wealth of nations, for short. In this foundational work, he argued that economic freedom, not coercion, was essential to human flourishing. He introduced a number of important ideas, including three that radically transformed how people thought about wealth and trade. First, a nation's wealth does not come from holding gold or silver, but from productivity. Blimey, what do you mean? Ah, take this simple pen. What pen? Take this simple pen. It's quite a process to make. You gotta cut it, straighten it, sharpen it. If you're fast, you might be able to make one a day. But give ten men the job, each handling one or two steps, and suddenly, thousands of pens a day. This is called division of labor. Smith believed that breaking down production into specialized tasks would allow each person to focus on what they do best, making production more efficient. Increased efficiency leads to more production, and more production means lower prices for consumers. It's a win for everyone. Pens for your clothes. Pens for your bonnets. Pens for your wee baby's diaper. Second, Smith observed that prices emerge from supply and demand, rather than government decree. Sounds obvious now, but at the time, it was a radical idea. It's not up to the government, or even individual merchants to decide on a price. Rather, it's the choices of all the players in the marketplace that determines the price. Each buyer decides what they're willing to pay, and each seller what they're willing to accept. And through millions of these voluntary exchanges, a market price emerges. What do you mean? No one group or individual is in charge then? Aye, now you're getting it. Smith called the process the invisible hand, a metaphor for the spontaneous, ongoing cooperation between everyone in the market. Everyone benefits because each person makes economic choices based on self-interest, since only individuals can know what they need or want most. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interests. So greed is good? Profit is good. It drives the market, and everybody benefits. But it wasn't just about the individual. Which brings us to his third idea, the proper role of government. Smith supported government-provided public projects such as infrastructure, education, and national defense, which individuals or businesses can't easily provide. But on the other hand, he rejected both heavy-handed control and laissez-faire attitudes, which is the complete abdication of economic control. The government must establish a proper legal system that prevents merchants from manipulating markets at the public's expense. Smith's ideas were just the beginning of the conversation. As the wealth of nations reached the public, the American Revolution was underway. The colonists fight. An eventual victory over the British marked the first major challenge to the old mercantile systems of Europe. More was to come. Next time, we enter the age of the machines. The Industrial Revolution was full steam ahead, rapidly offending entire nations and ways of life. In the midst of the soot-stained factories and smoke-filled skies, we'll meet the man who continued Smith's ideas about free trade to a world in transition. The Corn Laws are ruining everything. Everything. They are ruining it. There's nothing. 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