Determining Cause and Effect: Adam Smith and Thomas Malthus Adam Smith’s The Wealth of Nations

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Determining Cause and Effect: Adam Smith and Thomas Malthus

Adam Smith’s The Wealth of Nations and Thomas Malthus’ An Essay on the Principle of Population develop economic ideas that depend on cause-and-effect relationships.

“Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can demand … First, every individual endeavors to employ his capital as near home as he can … and as much as he can in the support of domestic industry; provided always that he can thereby the ordinary profits of stock…

Secondly, every individual who … supports domestic industry … endeavors so to direct that industry, that its produce may be of the greatest possible value … But it is only for the sake of profit that any man employs a capital in the support of industry … and he will always, therefore, endeavor to employ it in support of the industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods …

… He generally … neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security …his own gain, and he is in this … led by an invisible hand to promote an end which was no part of his attention.”

--Adam Smith

“The power of population is indefinitely greater than the power in the earth to produce subsistence for man. Population, where unchecked, increases in a geometric ratio. Subsistence increases only in an arithmetical ratio … By the law of our nature which makes food necessary … the effects of these two unequal powers must be kept equal. This implies a strong and constantly operating check on population from the difficulty of subsistence …

The checks to population, which are constantly operating … in every society, and keep down the number to the level of the means of subsistence, may be classed under two general heads: the preventive, and the positive checks … The constant effort towards population … increases the number of people before the means of subsistence are increased. The food therefore which before supported eleven millions, must now be divided among eleven millions and a half. The poor … must live worse, and many of them reduced to severe distress. The number of laborers also being above the proportion of work in the market, the price of labor must tend to fall; while the price of provisions would … tend to rise… The cheapness of labor, the plenty of laborers, and the necessity of increased industry among them … encourages cultivators to employ more labor on the land … till the means of subsistence increase…

--Thomas Malthus

  1. According to Adam Smith, what is the cause of the prosperity of a nation?

  2. How does Smith’s “invisible hand” work?

  3. How is Adam Smith’s theory of prosperity a cause-and-effect relationship?

  4. According to Thomas Malthus, what is the cause of worker poverty?

  5. How does a nation’s economic growth and the situation of the worker reflect a cause-and-effect relationship?

  6. How would Smith and Malthus feel about government intervention in the economy? Why?

  7. According to Smith, where does the individual investor prefer to invest his capital?

  8. What guides the investor’s choice of a domestic industry in which to invest his capital?

  9. Malthus argues that the human population increases geometrically, and subsistence [food production] increases arithmetically. What does this mean for mankind?

  10. Do Malthus’ theories suggest that the lives of workers will inevitably get worse, get better, or fluctuate between better and worse?

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