Adam Smith, 'Wealth Of Nations', Free-Market Capitalism

ADAM SMITH, 'WEALTH OF NATIONS', FREE-MARKET CAPITALISM

Today is the 299th birth anniversary of the greatest thinker of all time - Adam Smith.

In the 1700s the science of economics (ie, the scientific study of the economy) was not yet born. But there was no shortage of schools of thought on the economy. The most dominant school of thought was mercantilism - which had two main beliefs:

1. A country's wealth is its gold/silver.

2. Exports are good and imports are bad.

Adam Smith was a professor of philosophy at Glasgow University in Scotland. His logical mind realised that mercantilism was wrong.  So he decided to write a book to disprove mercantilism. The result was 'Wealth Of Nations' in 1776. In it, he logically proved that:

1. A country's wealth is its farms and factories.

2. Exports and imports are two sides of the same coin.

But 'Wealth Of Nations' did not stop there. It was much more ambitious in scope. It went on to logically prove that the best economic system is the free, natural, efficient economic system. Later this economic system would come to be called as 'capitalism'.

'Wealth Of Nations' soon became popular and brought an end to mercantilism. But its real mission was just about to begin. In 1848, a German philosopher called Karl Marx wrote a book called 'Communist Manifesto' in which he designed a government-controlled economic system called 'socialism'. Socialism soon became the official economic ideology of the Communists. In 1917, Communists seized power in Russia, turned it into 'Soviet Union' and imposed socialism. When World War 2 ended in 1945, Soviet Union got control over East Europe and imposed socialism there. In 1947, India became free and its first Prime Minister Jawaharlal Nehru imposed socialism. In 1949, Communists seized power in China and imposed socialism. Half the world was under socialism.

Countries that were lucky to adopt capitalism (like East Asia and South East Asia) grew fast and lifted their people out of poverty. Countries that were unlucky to adopt socialism grew slowly and struggled to lift their people out of poverty. In 1978, China changed its economic system from socialism to capitalism. In 1991, Soviet Union collapsed and broke up into 15 countries - which adopted capitalism. East Europe became free and adopted capitalism. Also in 1991, India started changing its economic system from socialism to capitalism under Prime Minister P V Narasimha Rao.

From 1917 to 1991, that is for three-quarters of a century, half of mankind fell under the evil of socialism - and remained in poverty. India is still fighting the war against the evil of socialism - and trying to come out of poverty. Adam Smith logically proved almost 250 years ago how the free, natural, efficient economic system (capitalism) is the best economic system. May his wisdom always be with us . . .