Adam Smith’s GDP Concept
Adam Smith as the father of the world economy is responsible for popularizing many ideas that support the school of thought which came to be known as the classical economy.
Another economist built Smith’s work to reinforce classical economic theory, which would become the dominant school of economic thinking through Great Depreciation.
Finally, through the ideas presented at “The Wealth of Nations,” Smith changed the import / export business, creating a concept of what is now known as gross domestic product (GDP) and arguing for free exchange.
Before the release of “The Wealth of Nations”, states declared their wealth based on the value of their gold and silver deposits. However, Smith’s work is very critical of mercantilism; He argues that instead of the state should be evaluated based on their level of production and trade. This sentiment creates the basis for measuring the prosperity of a country based on a metric called GDP.
Prior to Smith’s book, the state hesitated to trade with other countries, unless it was to their advantage. However, Smith argues that free exchange should be created, as both sides are traded for the better. This leads to an increase in imports and exports and the country judges its value accordingly. Smith also debated a limited government. He wants to see a hands-off government and a conducive law opening the free market. Smith does see governments accountable for several sectors, however, including education and defense.
This promoted idea generates international attention and helps drive the movement of land-based wealth into riches created by assembly-driven production methods driven by the division of labor.
These ideas reflect the concept that everyone, by looking at themselves, inadvertently helps to create the best outcome for everyone.
The current GDP calculation is a measure of inflation of a country that embraces the economy of capitalism. This data is a consideration for the central bank in determining its monetary policy. Also, as a measure of progress of a country.