Adam Smith: Self-interest and The Wealth of Nations
In Adam Smith’s monumental work, The Wealth of Nations, he explains how it is generally the inherent human nature of self-love that is pushing the economy to flourish, and a system that allows for people to liberally seek their best interests would actually end up increasing the wealth of the entire nation (Smith). The premise that Adam Smith bases this on is that when people are given the opportunity to do so, their primary instinct is to do what hey perceive is the best action for them (Smith).
However, in committing these actions, the person is often found contributing unintentionally as it may be to the benefit of other people (Smith). When a grocer attempts to gain more customers by lowering his prices below those of his competitor, the lower prices benefit his customers. However, there is no altruism in the grocer’s action because his main intention is to gain a better market share than his competitor. As a reaction, the competitor would also lower prices and this creates a system which in the end benefits the consumers the most.
Adam Smith then expands this explanation to the scale of an entire nation, where corporations, wanting to create more and more merchandise for its consumers so that it can gain greater revenue, would establish more factories and hire more workers and would divide labor among its workers such that specific groups will only do specific tasks, thereby increasing the production total (Smith).
Over time, these actions would create infrastructure, generate jobs, and make the economy run to greater heights, thus increasing the nation’s wealth (Smith). Without the incentive of gain, people would not want to form companies. It is the possibility to gain that drives people to create companies that in turn generate extensive production of goods. What would prevent the capitalists from taking advantage of the freedom is “invisible hand” (Smith) that guides the market, if the capitalist make a product too expensive, not many would be willing buy it and the incentive to create an alternative for it would increase, eventually forcing the capitalist to lower the prices to acceptable levels.