30 November 2012
How the Past Decided Our Future Our economic world is one constantly moving cycle of cash, products, and services. The way our system works is different than any other system out there. It is made of made up of many thoughts and ideas and people have tried to perfect it over the years. When it comes to thought of economics and how money changes hands and how to make sure that money retains the value it is supposed to have there are so many different ideas of how to handle it. Karl Marx, Milton Friedman, Adam Smith, and Thomas Malthus were all forward thinking people who thought they had to key to fully understanding our economic world and how to handle it regardless of the situation. Each one had their own thoughts and ideas varying in style and where we should put money and how we should spend it. With so many different ideas out there did anyone get it right?
Adam Smith Adam Smith is the first trailblazer of understanding the economic world and system that we live in today. Smith wrote the book “The Wealth of Nations” and it was this book that pioneered the thoughts and ideas that help us understand the world of trade, currency, and products. Smith opened us up to a world of economic thought that would help us even to this day in ways he probably never thought were possible. Adam explained the economy in one simple that he knew would make sense to most people at the time. He was the first to be able to explain the importance of the free-market economy. Smith discussed the ideas of how rational self-interest and the addition of the free market leads to general economic well-being (Buchholz 24). Smith was also the first to bring up the importance of labor and how important various skills can be. The more a group or organization can specialize its labor force, the more efficient they can become.
Smith talked about how the labor forces can be divided into groups and split up. The bottom line here is when the labor force is split up into different skills and talents one group often makes more than another. There are five steps that Smith discusses the labor force and the jobs or positions that may have. First, a job may entail disagreeable conditions, and thus few accept employment unless the wage compensates for the position, an example would be a window washer who gets paid the same to wash windows on a skyscraper that he gets paid to wash windows for storefronts. Second, some jobs require special training; a judge in a courtroom earns more than the bailiff. Third, an irregular or unstable job may get paid more for their work. Construction workers get paid more than ones with similar skills but they are never sure how many hours they will work in a week. Fourth, when there is a high degree of trust involved the position is likely to make more money. An example would be when it comes to diamonds people are more likely to buy from a trustworthy diamond selling that is well known than from a company that sells them at a discount. Finally, the principle that someone who takes a job that has a low probability of success will get paid much more when they are actually successful. The classic examples in this case are lawyers. They will often take cases on a contingency, which they will only get paid if they win (Buchholz 27). This is a risk but there is a high reward for being successful and lawyers can often make more than most of the people in that court more at a given moment.
Smith realized the power that the labor force had and how it can easily be split into groups that make a lot of money and groups whose income is not predictable on a month basis. It is this division of a group of people that increase the wealth of the nations. This is not the only piece of the puzzle; a nation also needs the free trade, free-market side of the equation. Smith saw the importance of being able to trade without restrictions because what good would be an organization that could produce