Term: ADAM SMITH

The first person to study and write about economics. Adam Smith (1723 – 1790) is regarded as the father of the discipline of economics. His book “An Inquiry into the Nature and Causes of the Wealth of Nations”, published in 1776, remains as a key reference in economics to this day. He observed what he described as the “invisible hand” which seemed to guide the allocation of scarce resources through the price mechanism within an economy where all participants were acting in their own best interests. This is the basis of the capitalist system. Prices are the mechanism used by people who want a particular product to communicate with people who supply it. If the price rises it is a signal for additional production and vice versa – but prices only go up if there is rising demand, or a shortage of supply. One of Smith’s great understandings was that “the least government is the best government” – by which he meant that because governments are generally less efficient than the private sector, they should curtail their activities to those which can only be performed by the collective and leave private enterprise to do everything else.

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