A diagram can perhaps portray Smiths belief best: if the existing price is Pworld then tariff increase will see the Quantity produced domestically increase from s1 to s2 while reducing the amount imported from C1 to C2, this is a modern day diagram but is intrinsic to what Smith was saying. The pink triangles show that a tariff creates a societal loss and that this protectionist policy is not beneficial which is exactly what Smith was saying. Out of all of Smiths key theories it seems this one has been most adhered to. Organisations like the EU, EFTA and NAFTA show us this.
The Wealth of Nations also discussed the capitalist society Smith thought should take-over from the outdated mercantilism and this is indeed what happened. Smith’s capitalism was built on the grounds of the points I have already discussed, if everybody is out to benefit themselves the free hand of the free market economy with little regulation shall determine price, quantity, distribution, income etc. Although Smith was not very keen on the capitalist idealism of no regulation at all and although he was not a contemporary capitalist (somebody who invested in capital) he was the first to present capitalism as a workable model.
However it was not until after his death that people started taking notice of his work on the matter and at first it seems 19th century capitalists only took notice of his view of little government activity but seemed little interested in what activity was needed. Smith recognises three circumstances in which government intervention is needed, as corruption is always possible. The three acceptable areas of intervention are: defence against internal/external security threats, forming laws stopping individuals from oppressing one another and providing public goods the market will not supply. Of course back in the 19th century it would have been a lot easier for capitalists to oppress workers and suppliers etc, thus it was not quite the capitalism society Smith had envisioned.
However if you look at today’s world economy I think Smith would have been a lot happier, his own form of capitalism has evolved through the ages and this form of government activity is in place. The best example of this being China, although still technically Communist in 1978 they created a much more open market economy with much less intervention and by 2000 their GDP had quadrupled.
The final main area I think Smith managed to imprint on a future world is his growth model. Smith put forward a growth model that relied on supply-side factors. He used the function Y=f(L,K,T) where Y is output, L is labour, K is capital and T is land to suggest that output will be effected by these variables. He also states that output growth is given by gy = f(gf,gl,gk,gt) with gl being population growth, gk being investment and gf increase in overall productivity.
Population growth being reliant on ability to accommodate an increasing workforce and investment relying on the rate of savings and land growth being limited and relying on conquest of foreign lands these are endogenous. As these are not always produced in the working of the market economy we are brought back to Smiths belief that Government needs to be active to assure long run growth. This model of growth remains the main model of classical growth.
To summarise I think to even to question Adam Smith as influential would be a mistake. The man is surely one of if not the most influential economists that have walked this earth. Many have described him as the “father” of modern-day economics and his influence upon brilliant economists that have followed him speaks for itself. All the major economic and political powers of today’s world are influenced by if not built upon Smiths idea of Capitalism and free trade. His image has been placed on the ï¿½20 note and rightly so I believe. The truths of his predictions and models are clear for everybody to see and his ability to create ideologies well in advance of the time he lived in was quite remarkable.