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Cesar Duenas

Business 1050
Dec. 10, 2016
My Renaissance
In Adam Smiths The Wealth of Nations, his focus is to display the five components of
a successful modern economy. The five components being: profit motive, the invisible hand,
free markets, laissez-faire and the right to privacy and private ownership. Smiths ideas along
with David Hume and Edward Gibbon were not all applied to the economy, but were critical in
influencing the way people thought. The books they each published were of great influence to
our founding fathers as they created the declaration of independence. My renaissance clarified
that recognizing influential historical events is essential for personal growth and decision
making, as learning from previous decisions and mistakes of others can help people make better
decisions of their own. In order to comprehend how my renaissance came about, it is important
to understand the philosophies of Adam Smith that stood out most to me. Smiths five
components of a successful modern economy and his unique point of view relating the way
businesses should be ran were key components that intrigued me towards his work.
The statement that struck me most by Adam Smith was when he said, People and
business should be greedy and ambitious because it is good for the economy which was the idea
he referred to as profit motive (Adam Smith). During his time, his statement contradicted
everything the churches taught; therefore, for his protection he explained his thinking through
examples in attempt to prove his point. An example he used was concerning individuals in an
industry. Smith states, By preferring the support of domestic to that of foreign industry, he
intends only his own security; and by directing that industry in such a manner as its produce may
be of the greatest value, he intends only his own gain. From this Smith is stating that
individuals will tend to search for work where they can acquire the most capital and be closest to
home for their own advantage. In working within their domestic countries, they will help create
money flow. Money flow spreads as individuals make a profit by selling their work and buying
necessities or desires with those profits. Smiths idea of greed being beneficial to society, though
influential in todays economy created a problem he was not expecting. Individuals who attain
greed do not stop selling product because there are regulations against large companies. As they
find success, motivation to make higher profits guides them to go through loopholes to do so.
This is an example of how greed has led modern economy to have such concentrated wealth.
Being a religious person, I pondered on whether or not greed is necessary in business. I
concluded that it is necessary. To have profit motivate does not mean all my decisions have to
benefit myself and only myself.
Smith profit motive leads to his hypothesis of the invisible hand. Assuming that
businesses are small and spread out, all individuals in society benefit indirectly (Engh). Edward
Engh describes Smiths idea in the following way. As successful businesses hire employees, they
will put money into banks, banks will lend it out, then consumers and businesses will borrow
money, and everyone in prosperity becomes lifted by an invisible hand, speaking

metaphorically (Engh). As Smith began to engrave the importance of profit motive in society,
using his explanation of the invisible hand, people began to feel more comfortable with the idea
that accumulating wealth wasnt a moral bad as it helped society develop as well. The invisible
hand is a good metaphor used to describe a strong economy. In modern economy, more spending
creates higher money flow, therefore a more efficient economy. When individuals take high
precautions, the economy is affected. The invisible hand is effective in enlightening me that
money flow is essential for an efficient economy.
A key component to Smiths successful market structure is his idea on free market. Smith
believed that within the market, businesses should only consist of small companies. His
mentality was that in avoiding the creation of large corporations or monopolies they would avoid
concentrated wealth. Having only small companies would raise competition, consequently
allowing only quality work at lower prices as businesses fight for sales. In order to avoid the
growth of successful businesses into what could become oligopolies or monopolies, Smith used a
term created by the French Physiocrats called laissez-faire. Considering profit motive and a free
market based economy the word laissez-faire represents the way government needs to be ran in
order for the economy to function efficiently. Laissez-faire implies a government that removes
barriers of trade, and useless laws. The reason behind having minimal regulation would be to
prevent the creation of monopolies and to have basic laws in order for communities to stay
civilized, but the benefit would be to allow businesses more room for profits. As creating
businesses would require less initial barriers of entry, individuals would be encouraged to create
inventions or innovations that they could turn into business. For me, free market and laissezfaire were of the most confusing ideas that Smith had. They were not hard to understand, but
understanding Smiths reasoning was. In modern society, free markets exist in some industries
making it convenient for consumers as prices go down, but in some cases, monopolies are
necessary for domestic efficiency. Having many small electricity and water companies would
create piping and electric line chaos. For those reasons, I am against the idea of free markets
and little regulation.
The final components to Adam Smiths five elements of a modern economy is the right to
privacy and private ownership. People are more likely to succeed as they obtain secrecy (Engh).
Secrecy can be beneficial in businesses when things such as technology can create an advantage
by keeping to themselves. Aside from that, privacy can be a comfort to individuals to keep their
belongings away from others. In order to have secrecy there must be the right to private
ownership. Generations back there were farmers who worked land, but did not own it, and when
individuals did purchase land, it included the workers (Engh). For this purpose, private property
is a critical idea meant to create enthusiasm to work hard. As individuals get the opportunity to
buy land, they will become motivated to pay it off in order to pass it on to their heirs. Modern
society has created this interesting misconception. Workers work hard their entire lives to create
enough wealth to pass on to their children. In doing so, people give up many things, but in
reality, few truly acquire enough wealth to pass on to their heirs. The process repeats itself as
young men and women get the same mentality for their future. Discussing this in class was a big
revelation as it related to my family. I come from a generation of immigrant parents who gave
up living in their homeland to give my siblings and me an opportunity for a better life. Entering

the country empty-handed made it difficult for my parents to accumulate wealth. Today they
have mortgage and cars debt that will most likely still be around when they pass. Fortunately, I
do feel I got a better lifestyle in the U.S., but I will not benefit from any type of inheritance. This
section of the passion confirmed that only a select few acquire enough wealth to pass on to their
heirs.
Astonished by Smiths reading I realized that our society is ran far different from his
philosophical ideas. Smiths ideas do not relate to modern society, but they did influence our
founding fathers decision making and for that reason, Smiths ideas are of value in considering
how the reasoning behind the decisions our founding fathers made, influenced the declaration of
independence. During a class discussion we concluded that Smiths teachings on free markets
were never proven to work and never been applied. With the conclusion that understanding
history is necessary for growth, my renaissance came as I realized that understanding what
moves people to make decisions is just as important as the decisions they make. As I examined
Smiths ideas, I was able to form my own conclusions about his philosophies. Doing so helped
me appreciate the importance of history and that understanding it can lead to individual success.
As people learn about prior decisions, they can learn by trial and error. Because Smiths teaching
do not relate the modern style of economy his teachings are rarely taught today. I confirmed my
renaissance as I realized that historical decisions that influenced history are important to
understand, whether true or not, using Smiths example. In reading Smiths passage I answered
questions I hadnt asked myself before and pondered on solutions to problems I was facing.