In the book The Worldly Philosophers Book, Chapter 3 The Wonderful World of Adam Smith discusses in great detail Smith’s various works. It particularly made mention of Adam Smith’s masterpiece “The Wealth of Nations”. In it, he delineated the four laws which govern the economy. Smith mentioned in this book four enduring laws which until now are still being considered acceptable. It is important to note that despite the fact that centuries engulfed between our time and Smith, still his claims remain true to this day.
Smith showed strong leaning towards the concept of “laissez faire” or unregulated economy as the backbone of capitalism. He got this idea from French physiocrat Francois Quesnay. From this theory, Smith came up with the four economic laws of the market.
His first law of the market is self –interest or profit motive. This first law is important because from it stems all the economic activities man is willing to do in exchange of money. Pursuing self-interest may appear self-serving but “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from our regard to their self-interest.”
The second law of the market is the law of competition. In an unregulated economy like capitalism, competition makes it possible for individual businessmen to operate within the boundaries of decency or what is fair to all. A certain amount of competition among businessmen help spurs the economy and protects interest of the working group.
As the demand for a product grows, self-interest sets in. Individual businessmen shift to the business with higher demand to be able to earn more. Thus, competition guarantees that there will be no exploitation of workers and the goods delivered are of the best quality.
The third law according to Smith is the law of accumulation which refers to the accumulation of profits or what is aptly called retained earnings meant for business projects such as acquisition of more machinery and raw materials. This in turn is deemed to earn more profits.
The fourth law is the law of population. As more machinery are purchased, the demand for workers grows. As more workers compete for jobs, wages come down because there is more supply than demand of labor which results in more profits for the capitalist.
According to Adam Smith, demand and supply plays a major role in the market especially for a self-regulated economy evident in laissez-faire. As the demand rises, supply tends to rise in proportion to the demand. This is the theory behind competition. Competition may pose as a threat to businesses but it does serve its helpful purpose.
Competition prevents monopoly and ruthless profiteering. With more and more business competing for a growing market of consumers, the quality of goods is also getting better.
We can see that the economic environment is, more than ever, alive and vibrant today. Great strides have been achieved in the capitalistic world. We see the rise of huge multinational corporations and massive labor unions which was virtually non-existent before.
Current business trends are leaning towards technology particularly computers, internet and mobile phone devices. Every business as a matter of fact cannot do without computers these days. With the advent of the internet age, competition becomes more prominent.
Competition has become stiffer through the years. Competition is more complicated than ever. Businesses are learning more and better ways to cope with the challenges competition poses. Management must come up with various strategies to keep afloat in an ever-changing business environment.
Strategic management helps make the business stay competitive. The survival of the business depends to a large extent on its ability to address specific problems to the organization effectively. This is where strategy in business management comes in.
Strategy provides the direction in which the business should take. Delineating company objectives clearly, establishing policies and plans and implementing plans by using resources are all parts of an effective strategy. Knowing the strategy that works then is essential for the growth of the company.
The competition scenario during Smith’s time may not be as cutthroat as it is today. Competition is no longer contained in a single community or locality but to the world. With the aid of computers and internet technology, the world is becoming smaller and smaller. Globalization becomes the new thrust for multinational companies. Along with the new technology also rise new challenges to business.