ME 273 Lecture Notes - Lecture 11: Profit Maximization, Invisible Hand
2 May 2018
School
Department
Course
Professor
Ruig Head: Lieral Capitalist Eooy, a reiterpretatio of Ada Sith’s ie o arket praties
Abstract
This paper discusses the concept of economy understood in the Age of Enlightenment in
comparison to the modern day economy by taking Adam Smith’s work an Inquiry into the
Nature and the Causes of the Wealth of Nations as a primary source of understanding of the
economy. In Formations of Modernity, Vivienne Brown’s study of Adam Smith’s book The
Wealth of Nations along with Brown’s study of the philosopher’s prior writing, the theory of
Moral Sentiments, has reformed the way Smith’s argument is understood. In addition to this, the
critiques on Smith’s work by other philosophers has provided a revisionist perspective on the
way people in contemporary times perceive liberal capitalist economy. Brown’s detailed study of
Smith’s work also shows that the contemporary economy is based upon incomplete
understanding of Smith’s argument of liberal capitalism. Modern economists have chosen some
parts of Smith’s work to justify the practices of modern economy. The question arises, what has
made the understanding of Adam Smith’s work to be misinterpreted and seen in isolation from
his prior writings and other similar works of the time? This paper aims to answer this question
through analyzing a case study presented by Vivienne Brown regarding the idea of an economy
which was understood in eighteenth century and Smith himself.
The modern understanding of capitalist economy is claimed to be taken from Adam Smith’s
work The wealth of Nations. According to Porter, Smith is regarded as the ‘that high priest of
capitalism’, as Smith was the one to put forward the classic view of economics as being the
science of wealth (Brown, 1992, p.146). Smith presented the model of a free market that
regulates itself through an invisible hand; a system where the State has no role in regulation of
the market but the market is maintained through the forces of demand and supply. (Brown, 1992,
p.146). A market is a place where competitive buyers and sellers come together to increase the
find more resources at oneclass.com
find more resources at oneclass.com
Lieral Capitalist Eooy, a reiterpretatio of Ada Sith’s ie o arket praties
profits. According to the view held by Smith, this competition is driven by a self-interest; people
do not buy goods to satisfy their needs and wants but it is the pleasure that is derived out of
having a commodity of any importance (Brown, 1992, p.152). These are more or less major
principles that are understood from Smith’s work that govern today’s economy that is in its
nature exploitative. The credit of this economy is given to Adam Smith, as it is commonly
thought that he is the initial proposer of this system. In the contemporary world, capitalism is
seen as maximizing one's own profits and revenues. It is based upon self-interest where
competition determines the survival of the fittest in the market. Modern economy solely deals
with revenue generation and profit maximization. Countries around the world are divided into
categories such as developed and developing or underdeveloped majorly on the basis of the
amount of wealth they can generate.
The concepts of morality and sentiments are foreign to modern day economics, because emotions
do not generate revenues. According to Brown, the modern economists, are true in claiming that
the presence of an invisible hand and free market trade was proposed by Adam Smith but it is not
the complete reality as the understanding of economy in the Age of Enlightenment was
immensely different. The people at the time of Smith were living in consumer society where the
consumption of goods and services was seen as an end in itself that is in essence an embryonic
version of modern consumer economy (Brown, 1992, p.132). The time when Adam Smith wrote
his book The wealth of Nations the Industrial Revolution was in its initial stages. In order to end
with the consumer behaviour Smith presented his understanding of economy which strived to
achieve the greater common good of a society. This explains Brown’s claim that Smith never put
forward an argument of sheer competition and excessive profits that effected the general good of
a society in The wealth of Nations. Another difference is that the time when Smith wrote The
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Ru(cid:374)(cid:374)i(cid:374)g head: li(cid:271)eral capitalist e(cid:272)o(cid:374)o(cid:373)y, a rei(cid:374)terpretatio(cid:374) of ada(cid:373) s(cid:373)ith"s (cid:448)ie(cid:449) o(cid:374) (cid:373)arket pra(cid:272)ti(cid:272)es. This paper discusses the concept of economy understood in the age of enlightenment in comparison to the modern day economy by taking adam smith"s work an inquiry into the. Nature and the causes of the wealth of nations as a primary source of understanding of the economy. In formations of modernity, vivienne brown"s study of adam smith"s book the. Wealth of nations along with brown"s study of the philosopher"s prior writing, the theory of. Moral sentiments, has reformed the way smith"s argument is understood. In addition to this, the critiques on smith"s work by other philosophers has provided a revisionist perspective on the way people in contemporary times perceive liberal capitalist economy. Smith"s work also shows that the contemporary economy is based upon incomplete understanding of smith"s argument of liberal capitalism.
