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Capitalist ideology is an economic theory presented by Adam
Smith, which separates the state affairs from the economic policies of
a state. At the same time it distributes the labor according to their
skills in the market. These principle points of Smiths economic theory
are also followed in the present order of international political
economy i.e. globalization.
Introduction
Globalization has changed the traditional trends of international
relations. Now states are struggling to gain more and more economic
power. This economic power is related to their social, political as
well as technological development. However, the means to develop
economically with a faster speed is the capitalist ideology. Capitalism
is such an economic system where the state affairs and market trends
has nothing to do with each other. According to the capitalist
ideology, markets are enough efficient and do not need any interference
of the state for its proper function.
Adam Smith and Capitalism
Adam Smith was a Scottish economist and the founder of the classical
economics and the first to complete a comprehensive theory of political
economy. According to him, labor is the soul source to measure the
economic value of a state. He believed that the value of good is
determined by their exchange value instead of the value of usage of
these goods. Therefore, the market price needs to be adjusted by the
cost price, which is only possible with out the intervention of state
and adoption of a free trade policy. Though his theory of free trade
symbolized the working class against the orthodox feudalists and
aristocrats of that time, but later on his theory became famous to
verify the wealth of nations.
Therefore, he introduced a new economic model predicting the wealth
of nations. He presented the theory to divide the labor and organize
them with in the markets that are driven by coherent self-interest.
According to him, only those nations can be wealthier who let the
market forces to generate economic growth instead of following the
traditional mercantile economic model for trade.
Capitalism and The Wealth Of Nations
The capitalist theory presented by Smith long ago was not much
famous and recognized during his time though the present economic
trends of globalization are an extension of his theory presented in his
work, “The Wealth Of Nations” the contemporary economic trends are
formulated on the roots of capitalism as every state is heading towards
regional economic integration and following the policies of free trade,
market liberalization, privatization. All these approaches are an
adaptation from Smith’s work of wealth of nation. However, smith has
presented a systematic analysis regarding the behavior of individuals.
These individuals if taken with in the domestic sphere are the various
business merchants and business organizations, while in the
international market are the countries. Therefore, every individual and
country perusing its self-interest and national interest are facing the
various challenges in the competition of economic development.
Therefore, now the foreign policy of states and the political dominance
of any state have nothing to do with the business policies of any
business company. Another instance that makes us realize the
authenticity of Smith’s economic policy is the increasing rates of MNCs
in various countries. Now to mobilize the resources, keeping in mind
the skills of the labors, the developed countries are introducing their
multinational companies in the developing countries to mobilize their
resources and help them develop side-by-side. Yet it is generation so
many negative repercussions at the same time, like increasing the gap
b/w have and have not instead of bridging. Therefore, according to the
economic theory of capitalism, a nation can be wealthier only when the
state does not interfere in the economic polices and the labor is
divided in to the market where there skills are mobilized in a
systematic order.
Furthermore, Smith evaluated the role of government into three basic
areas. According to him the legitimate activities of a states revolves
around the defense against external threats or insecurities, making of
law and norms that restrict the people for doing a wrongful act or
hurting the rights of another person living in the society and lastly
the government provides certain condition for public goods that the
market will not supply. Though smith has done a great job in making the
first comprehensive economic theory, there are many critics who do not
favor capitalism as it restricts the role of government. At the same
time all the countries of the globe are adopting the capitalist
ideology. Even the countries that use to cherish communism they are
also influenced with the economic model presented by Adam Smith. For
instance, China is still politically a communist while it follows the
capitalist ideology and presently China’s market is overwhelming
globally as it is the only market dominating the world economy, which
is also threatening the global economic power America.
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