Adam Smith :: Biography

Adam Smith The accumulation of capital and the division of perseverance are what Adam Smith believed to be the driving forces of frugal process in both nation. Smith found that when the division of mash had blue down the harvestion of almost any commodity into a serial of saucer-eyed ope dimensionns it was more natural for tools and machinery to be invented that replace bridge player comminute and expedite the entire production process, thereby increasing worker productivity. This accessiond productivity combines with the growing capital stock to increse national outfit which enables society enjoy higher levels of consumption, constituting a genuine rise in the wealth of the nation according to Smith. Smiths theory of economic growth can be formulated in a simple algerbraic equality. Where G equals the growth rate, K equals the ratio of productive to unproductive labor, P equals the productivity rate and W equals the concrete wage G= KPWFrom this equation it becomes clear that for growth to occur, the product of the ratio of productive to unproductive labor and the productivity rate must increase more than the real wage. It would attend obvious that an easy way to do this would be to avoid any increase in the real wage, and indeed this view was accepted by many later classical economists who assumed that the nation had nothing to garner from an increase in salary. This was not Smiths view at all. If an increase in capital enlarges the wages fund from which workers workers are paid, and if this increase is greater than the increase in the number of laborers, than it is only natural for the real wage to increase. On top of that Smith was a believer in what modern economists call the efficiency wage theories which hold that higher wages both enhance the vitality of the workers and reduce employee slacking and labor turnover, the last mentioned two of which lower productivity and profitability. In the equation above it the product of K and P that is responsible for economic growth. It would appear then that K, the ratio of productive to unproductive labor, and P, the productivity rate are equally strategic factors in this determinance. However, Smith says that this is not so. The ratio of productive to unproductive labor does not change much over time, says Smith.