Adam Smith (1723–1790) was a Scottish philosopher and economist who is renowned as the author of The Wealth Of Nations (1776), one of the most influential books on market economics ever written.[2] Adam Smith was born in 1723 on an unknown date. He studied moral philosophy at the University of Glasgow and Balliol College, but eventually left the latter and made a name for himself as a traveling lecturer. He later became a professor of logic, ethics, rhetoric, jurisprudence and political economy.[3]
[edit]Introduction
Adam Smith has not received as much recognition for his theory of growth as he has for his theory of value and rent, but the fact still remains that he does provide a consistent dynamic model.
Adam Smith identified three major sources of growth:
(i) growth in the labour force and stock of capital
(ii) improvement in the efficiency with which capital is used in labour through greater division of labour and technological progress
(iii) promotion of foreign trade that widens the market and reinforces the other two sources of growth.[citation needed]
To understand the final growth process as stated by Adam Smith in this theory, we first need to look into the individual components, which have laid the foundation of the theory. These are Adam Smith's Production Function, his views on the process of growth of labour force and capital accumulation in the economy.
[edit]The production function
Adam Smith recognized only three factors of production: land, labour and capital. Considering these three factors, his production function may be expressed as
Y=ʄ(K,L,N)
where,
K represents the capital
L denotes labour force
N stands for land
Adam Smith, in his theory, has not assumed his production function to have Diminishing marginal productivity. However, his production function is subject to increasing returns to scale (which means that, output increases