Gross Domestic Product (GDP)

The ideas in "The wealth of nations"(Adam Smith) provided the seed for the concept of GDP and altered the importing and exporting business.

Before, countries declared their wealth based on the value of their gold and silver. Smith argued that countries should instead be evaluated based on their levels of production and commerce. This concept was the foundation for creating the GDP metric for measuring the wealth of a country.

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Adam Smith: The Father of Economics

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MORE IDEAS FROM THE ARTICLE

  • In his first book, "The Theory of Moral Sentiments", Smith proposed the idea of an invisible hand - the tendency of free markets to regulate themselves through competition, supply and demand, and self-interest.
  • He is known for creating the gross domestic product (GDP) concept and his theory of compensating wage differentials.
  • In 1776, Smith published "An inquiry into the nature and causes of the wealth of nations" shortened to "The wealth of nations."
  • In "The Wealth of Nations", Smith popularised many ideas that form the basis for classical economics.

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Adam Smith: the father of modern economics

Adam Smith was an 18th-century Scottish economist, philosopher, and author. He is considered the father of modern economics.

  • Smith was born in 1723 in Scotland. He studied moral philosophy at the University of Glasgow and enrolled in postgraduate studies at the Balliol College at Oxford University.
  • After returning to Scotland, Smith held a series of public lectures at the University of Edinburgh and earned a professorship at Glasgow University in 1751. Later he earned the position of Chair of Moral Philosophy.
  • In 1763, he accepted a more remunerative position in France. There, Smith counted philosophers David Hume and Voltaire as contemporaries.

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  • Adam Smith advocated for reducing the role of government intervention and taxation in free markets, but he saw the government as responsible for a country's education and defence sectors.
  • From Smith comes the idea of the "invisible hand" that guides the forces of supply and demand and competition in an economy.
  • For Smith, an institutional framework is necessary to steer humans toward productive pursuits that benefit society. The framework consists of institutions like a justice system that protect and promote free and fair competition.

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Adam Smiths' ideas in "The wealth of nations" were a motivating factor in the evolution from land-based wealth to wealth created by assembly-line production methods that included labour division.

Smith argued that the division of labour and the associated specialisation creates prosperity.

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Adam Smith's work discusses the evolution of human society.

  • First, he presents the hunter stage without property rights or fixed residences to nomadic agriculture with shifting residences.
  • The next stage is a feudal society where laws and property rights are established to guard privileged classes.
  • Finally, modern society is characterised by free markets where new organisations conduct market transactions.

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Contagion In Economics

Contagion, in financial terms, refers to the diffusion of economic booms, and can occur both domestically and globally. It is basically a spread of an economic crisis from one region to another, and spreads on an international level due to the global market interdependence.

The term contagion was coined during the 1997 Asian financial crisis, but it was occurring namelessly even during the Great Depression in the 1930s.

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Management of Common Pool Resources

Political science professor Elinor Ostrom showed that common-pool resources, such as water supplies or fish, can be effectively managed collectively without government or private control.

But this is only possible if those using the resource are physically close to it and have a relationship with each other. They will self-police to ensure community rules are followed.

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