INTERNAL ASSESSMENT

MPS DSE: INDIAN POLITICAL ECONOMY

Topic: Adam Smith View’s On Political Economy

Submitted to:
DR RUOLKHUMZO
Department of Political Science

Submitted by:
Yambem Keshorchandra Singh
M.A 3rd Semester
Roll No: 60

Department of Political Science

Manipur University, Canchipur – 795003
 CONTENTS
SL No.1 Introduction
SL No.2 Adam Smith on Political Economy
SL No.3 Conclusion
SL No.4 References
Introduction
Political Economy is a multidisciplinary field that explores the intersection of
politics and economics, seeking to understand how political institutions and
economic systems interact and influence each other. This field of study delves
into the distribution of resources, power dynamics and the impact of
governmental policies on economic outcomes.
At its core, political economy examines the ways in which political processes
shape economic policies and how economic structures, in turn, affect political
decision-making. It considers the role of institutions, ideologies, and power
relationships in shaping economic systems and outcomes.
Adam Smith is generally regarded as the father of political economy and of
“classical” economics. The Wealth of Nations provides the earliest
comprehensive account of market society as a decentralized, “well-governed
system in which prices coordinate the efficient allocation of resources in a
competitive economy. It is a multi-faceted work of epic sweep, introducing
complex concepts such as the labor theory of value, the benefits of free trade,
productivity and the division of labor, categories of economic analysis and the
determination of prices, as well as the famous images of the “invisible hand”
and the pin factory while also delivering a history of money and of Europe since
the fall of Roman Empire.
Today Smith is still viewed as a crucial thinker in the field of economics
although plenty of economists these days never cracked open his magnum opus.
Adam Smith’s on Political Economy
The politicians and the thinkers of economy have debated economic issues, but
in fact they subordinated mostly to the centralized government or the attainment
of more territory. But the publication of The Wealth of Nations by Adam Smith
in 1776, brought a new look to the economics in the modern era. Smith and
others mainly stressed on the economy for its best efficiency, but they have not
regarded what moral goals the economy must serve. But Smith reasoned that the
best economy was the free-market economy with very little intervention of
government. When the theory of Smith put into practice in Britain, the economy
of the country expanded very rapidly and vast wealth was generated, though
economics has changed since his time, it is fair to say that we live in Adam
Smith’s world of economy. It is obvious that all the governments must have and
must implement sound economic policy for the nation’s development, in fact
there are no easy solutions for the issues of the economy. It is noted that
different parts of the world have different things and the one which generates
economy in one part may hurt the other part and at the same instance dealing
with one problem may cause another problem. In the process of democracy,
politicians who fails to repair economy- or even those who seem to be
performing nothing to solve economic problems would sometimes face very
angry voters. Hence it is necessary to have the attention towards the economy
by the politicians.
It is observed that the money and politics often interconnect, and this is called
as ‘intersection political economy’ by the political scientists, which means the
two areas interact and affect each other in complex ways, making it difficult to
tell where one starts and ends. It is expected by the country to play an important
part in influencing the economy, therefore, the country affects and modifies the
economy. But economy also affects the country: a country which cannot
generate economy, or distribute in reasonable manner would be in deep trouble
and the boom in the economy could save even incompetent or corrupt
politicians.
 Smith agrees that the arguments of ‘Physiocrats’, surplus arose due to the
production fairly than in exchange. He also stated that the maintenance of the
surplus product was not limited to agriculture; in fact the important role played
by the industry in the form of productive and unproductive labour. Not like
Marx, Smith recognized that the surplus of the economy is because of the
actions of the social labour, in fact not due to the reward from the nature. This
path Smith was considered as the ‘first economist’ to base theory of labour of
value clearly on a specific examination of the nature of social relation. He
continued to discover the backgrounds of property incomes in the growth of
capitalism: Smith initiated with the ideal of simple commodity production, by
which productivity actions were accepted on for exchange somewhat than to
gratify the personal consumption wants of the producer, but in which capitalist
class relations were inattentive. Smith also regarded the concerns of occurrence
of capitalist class relations inside that society. Ownership of the means the
production passes from the hands of producers to the possession of private
minority persons. At one point of time, Smith was evolving a labour theory
of value and also about the surplus value, which had airs to scientific rigor, and
next moment he was simply reflecting the appearance that the price of the
commodity merely the total of its cost of production.

There is a residing order on the Wealth of Nations, a model of the economy as a

system of power. Smith understood the deep forces of the organization and
control at work in economic system. He realized how market forces operate
only within and give effect to, the structure of power and especially how those
with access to and control over government use it. Market order is achieved
only within the structure of power. Both the markets are structured by power
and market solutions are power-structure specific. Smith’s realism and
fecundity includes both market exchange narrowly considered and the power
play over rights and other bases of access to and participation in the market,
including the complex economic role of government. Smith includes both
market and power models in his conception of how society works out
resolutions to the problem of order.
Smith viewed the market as a regulatory system, itself an institution of social
control. The invisible hand is supposed to control individual conflicts and the
excesses of competition and to safeguard the public group through healthy
competition. The invisible hand implies that the market, when left to its own
devices can regulate itself. This concepts aligns with the principles of political
economy that advocates for limited government intervention in the market. The
market above all is an institution mechanism to compel man to pursue self
interest in social rather than antisocial ways. The price system as Smith saw it,
was an intensely coercive mechanism which tied the dynamic and powerful
motive force of self-interest to the general. Smith emphasis is not solely or not
so much upon the self-regulatory character of the market as upon the regulation
of self-interest by the market. The regulatory function of the market is quite
neglected by the modern emphasis upon market solutions being a priori optimal
or upon an a priori free market. While the invisible hand theory is optimistic
about the efficiency of markets, political economy acknowledges that there are
instances that there are instances of market failures. These failures, such as
externalities, monopolies or information asymmetry may require government
intervention to correct and optimize outcomes.
Smith highlighted the benefits of the division of labor in increasing
productivity. The extent of the market must expand with the growth of
productivity and output. He argued that breaking down complex tasks into
simpler, specialized components would lead to greater efficiency and economic
growth. It is a central theme in political economy as it seen as mechanism for
enhancing economic efficiency. He argued that the division of labor is a
fundamental driver of wealth creation. Specialization allows workers to become
highly skilled in specific tasks, leading to higher production and consequently
greater wealth for individuals and the nation as a whole. It influences the job
market, shaping the demand for various skills and professions. Smith’s idea that
division of labour is limited by extent of market has been incorporated in the
theory of growth, particularly by A. Young and R. Nurkse. Political economy
examines how these dynamics impact employment patterns, wage structures and
the overall stability of the labor market.
Conclusions
Adam Smith’s contribution to political economy have left an indelible mark on
economic thought and policy. His seminal work, “An Inquiry into the Nature
and Causes of the Wealth of Nations,” has shaped the foundations of classical
economics and laid the groundwork for many principles still relevant today. His
‘Wealth of Nations’ analyses the dynamic forces that determine sustained
economic growth. In Smith analysis allocative problem occupies a subordinate
position. But he demonstrated that in a free market economy, the equilibrium
process will lead to an optimum allocation of resources. Free competition
according to Smith, can give rise to a number of advantage. He was mainly
concerned with the long run determinants of the rate of growth of social output.
Smith’s concept of the ‘Invisible Hand’ stands as a cornerstone in political
economy, illustrating the self-regulating nature of free markets when individuals
pursue their self-interest. This idea has implications for the role of government
emphasizing the potential efficiency of minimal intervention while
acknowledging the need for addressing market failures
There is no denying the fact that his theory of division of labour is relevant to
the problems of capital formation in less developed countries. The thesis that
division that division of labour is dependent on the extent of market is and
important clue to economic progress for an economy which is the midst of
underdevelopment equilibrium.
In essence, Adam Smith’s contributions have shaped the field of political
economy by providing insights into the functioning of markets, the relationship
between individual actions and societal outcomes and the appropriate role of
government in economic affairs.
References
1. Samuels, Warren J. “The Political Economy of Adam Smith.” Nebraska
Journal of Economics and Business 15, no. 3 (1976):3-24.
2. Adam Smith, “Wealth of Nations.” Oxford University Press, New York,
2008.
3. B N Ghosh, “Political Economy: A Marxist Approach.” Macmillan
Publishers India, 2000.