Economics in three laws

Scottish economist Adam Smith (17231790) writes in his landmark Wealth of Nations (1776) about the nature of economics in three laws: first, that people work more productively when they have self-interest; second, that competition leads to a balanced marketplace; and third, that true supply and demand are a product of free trade.

His laws, especially the first, could be applied back then and can still be today. Studies have been done on how we get affected by work and school. If you like your job you are more likely not to be stressed, at least not in a negative way, this may result in a better health. Secondly if you like what you're doing you are more likely to put a bigger effort into it and probably be more effective. Students are well aware of that studying something that is in your own interest makes you more interested and also make you want to be good at it, rather than studying a subject that to you are not interested in at all. First of all you wouldn’t put an effort into the work if you don’t understand and secondly would you really care if you understood it?

The second law is what we today call “free competition”. If there are several companies selling the same products or services, they will have to compete about who has the lowest price and the best products. This will lead to, as he says, a balanced marketplace. The companies would have to put an effort into making people wanting to buy there products or services. In Sweden today we have at least two industries which are monopolies, systembolaget and SF. The thing is that they have the ability to keep high prices. For alcohol, I understand why we have decided to have a monopoly, but why for films? Imagine how much cheaper it could be if it wasn't a monopoly, but we had a free competition. There is one thing that recently has changed though, to the better. Medicine like aspirin is now available on supermarkets and there is now fee competition between pharmacies. This has lead to lower prices on OTC medicines and better service on pharmacies which would prove that he was right about that law!

The third law is also something we use today. It simply means that when you have the supply to create a product, if people want it, you can sell it! And today when we live in a global society, world, we import and export things in big amounts. For example in Sweden we can't grow rice, neither can we grow exotic fruit like melons and bananas. Since we today are aware of those things existing, would we manage to get around life without them today? Some would probably, but far too many households consume those things monthly. There is, simply, a demand for it and they are exported here to satisfy our needs. Free trade is “invented”!

Adam Smith is a very important man and he is in a way the father of free trade. Looking from how our economic system is today we can see that his three laws are used all the time when we talk about economics. His idea of these laws is according to me one of the biggest improvements that have been done in economics.



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