Mainstream Approaches to Economics

Abstract

Economic theories do not just appear in a void. They grow out of foundations laid in the past and reflect changing economic circumstances. Adam Smith, whom we met in Chapter 2 is often called the ‘father’ of economics. His great book The Wealth of Nations was written in 1776 at a time when Britain was experiencing the first industrial revolution. Although the country was still largely agricultural, new industries were developing, international trade was growing and there was a movement of people from village to town. These developments stimulated Smith and despite the passage of time, many of the ideas he developed then still have great relevance. For example, we have already discussed his view that international trade was beneficial. This idea was linked to another: that there were great advantages to be obtained if workers specialised — if there was extensive division of labour. In a famous passage he analysed a nail factory where one person was responsible for heating the metal, another for drawing out the wire, another for cutting it and so on. In this way a small group of workers could produce thousands of nails a day, far more than if numbers of workers attempted to do all the work themselves. The main reason for this high productivity was that when people specialised at a job they became experts at it.