Analysis of Adam smith, David Ricardo Theory of Capitalism
ANALYSIS ADAM SMITH, DAVID RECARDO THEORY OF CAPITALISM
Adam Smith (1723-1790), the father modern economic, published The Wealth of Nation, in which his ideas focus on economic argument inspired by classic liberal doctrine. Smith argued that mercantilism actually work to improve the national economy rather than for enrich it. Anticipation mass-production economics, Smith suggest that the wealth of nation is properly assessed by measuring the value of producing goods rather than the treaty (Third edition of political ideologies by Leon P. Baradat ,P 68. David Ricardo (1772-1823) is English economist, he became capitalism’ leading intellectual light
Do the wealth of nation is really depending on producing goods rather than the treaty?
Of cause, producing the goods with variety of demands can cause the economic growth in the country by measuring the value of goods in the circumstance whether what to produce, how to produce, and to whom? With kinds of these questions can help the producers have the opportunities to catch their consumers. Producing in their home countries can serve a lot of services like formal sectors and informal sectors and that types of these sectors are the root of individual growth. As a nation is combined from community which having a lot of people live in. When people having opportunities to serve the services for consumers for their needs and wants, consumers willing to buy and pay for services. When demand increase, producers will produce more and more. So, the circle of the services as well as economy will work for the whole country.
Therefore, the wealth of nation should be increase. Even though, the wealth is important for people live and eat but the nation still needs the law or treaty. The nation cannot exist without the law or treaty because if not having the law every body will fight to live as John Locke philosophizes in State of Nature in which if someone strong they are the king (Fundamental of Political Science, by Bothumrooth Lebum, P.198).
Adam Smith also advocated of the free market theory in which every people can enter or leave the economic freely. He argued that, by having free market they can compete with each other and when they having competition the price will decrease, when the price decrease low living standard can afford to purchase and when demand increase the producers will produce more, however competition theory is good for some market it is also impact to some situations. For example, when government use free market theory by allowing firms to compete with each other the small firms will bankrupt, many unemployment will increase and when having too many unemployment there will be have revolution in society. Therefore, government should balance whether use completion theory in which ways.
Although, Adam Smith encourages the inventions and the application of machinery to production promise to expend the availability of the goods, if only people could be persuaded to invest enough capital to make use of them. It is true that in order to increase the capital we need to produce more, by using modern technology the out come should be increase. Machinery plays importance role in private sectors to gain double profit. In contrary, ideology of using machinery to produce is also impact to the development because when increasing modern technology the less labor forces are used and the rate of labor forces in firms are low. So when unwanted labor forces increase unemployment also go up and when big amount of unemployment cannot access to machinery, the productivity of labor decrease and also the labor will get low pay job and at the same time unskilled people are hired. Therefore, we see that human labors are also very important for develop the nation because before we use machinery we need the resource to create the machine and by not having the brain machine also cannot work.
So that why Ricardo assumed that while human labor create value, it was perfectly appropriate for those who controlled capital to force labor to surrender a large part of the of the value it created. Otherwise, additional capital would not be forth coming. On this assumption Ricardo developed the theory of the Iron Law of Wages, in which he suggest that the owner of factory and the machine would be driven by the profit motive to pay the workers only enough to bring them to the factory to work another day (Political Ideologies, Their Origins and Impact by LEON P.BARADAT). Though this process might be perceived as cruel, Ricardo argued that only in this way would enough capital be created to fund future production. The theory Iron Law of Wages is very affective to the developing country, especially Cambodia in which it first starts to develop because many people willing to work in order to survive and create a new skills, however, the labor get the first low paid job in beginning but in other days they will be better in position as well as the pay. For instance, garment workers in Cambodia who get the pay forty –fifty dollars a month they still try to work; however, some of the amount pays back for commodities because when they work in that position for a long period of time, they will create an experience and knowledge and with that knowledge they will find a better job as well as the pay.
Another example of this theory was happen in Cambodia. Mr.Sok who lived in province when he graduated from high school in the year 1999. He moved to city to find a job, his first job was a water in Cambodian restaurant and he got the pay twenty dollars a month and at the same time he saves some money for studying English language. Eight months later, he worked as a water in foreign restaurant and he got the pay eighty dollars a month and also at the same time he saved some money for paying at university, four years latter he became a manager in private company and he got the pay six hundreds us dollars a moth. So we see that the Iron Law of Wages of David Ricardo theory is very vital for human labor who the first starting the job.
Even though, David Ricardo theory of Iron Law of Wages is essential of some developing countries of human labor, it is also having some paradoxes of his theory such as providing only small amount of paying to the labor is enough for them for working in another day. Dictators or employers take this advantage to interpret the theory by forcing the workers to work hard and long hours but get the pay is too low. This kind of thing cause the richer become richer and poor become poorer and also having the big interval and discrimination between people and people, especially the discrimination between countryside people and city. For example, in Cambodia there are eighty percent of populations who live in countryside working as agriculture sector. They earn small of pay a day not enough for supporting their families which most of them have three to nine people to eat and earn only 0.80 dollars a day. By not enough for daily spending in their families they decide to ask a loan from Non-Government Organization or rich people ( Ms. Srey Touch a villagers at Bati district Kriangtong Commune Takeo province said). Interest rate is paid by poor people. Therefore, we see those people suppose to be poor and poorer and the rich become richer.
Even though we have different paradoxes we should have theory rather than not having the theory because theory is a plan for doing thing. Theory not always correct but it also works when we apply it the right thing.