Adam Smith made his assertion that everyone, in the pursuit of his own interests, is "led by an invisible hand to an end for which he did not intend." His economic theory is based on this basic point of view and analyzes the economic process.

1. In terms of microeconomics, Smith's theory of value regards labor as the only source of value, and regards the amount of labor contained in each commodity as a measure of exchange value.

And based on this, by examining the relationship between natural prices and market prices. It analyzes the form of action of competition in constraining individual self-interested behavior and the movement process of price mechanism in allocating social resources.

His distribution theory analyzed the determination of wages, profits and land rent. And examined the interrelationship among the three.

2. From the macro perspective, Smith was concerned about the nature and dynamic change process of economic growth. He analyzed and concluded that "the market mechanism itself drives the continuous economic development of modern society."

According to his analysis, this is partly due to the market mechanism itself. Because, in the process of encouraging people to pursue their own interests, the market will naturally trigger their diligence, frugality and creative spirit, and through the power of competition, guide people to invest their resources in the most productive economic fields, thereby promoting social resources optimized configuration.

In addition, there are other basic forces, which are the increase in labor productivity based on the division of labor and the increase in productive employment driven by capital accumulation. Therefore, on the one hand, he analyzed in detail how division of labor leads to the improvement of workers' skills, time saving and technological progress, and then examined the conditions for the development of division of labor, proposing the argument that "division of labor is limited by market size".

Extended information:

1. Theory of division of labor

Adam Smith believed that the origin of division of labor is the natural difference in human talents, which is caused by the uniqueness of human beings. Some people tend to exchange and barter. Exchange and barter are self-interested behaviors, and their benefits are determined by the division of labor. Assuming that individuals are willing to specialize and increase productivity,

Through the exchange of surplus products, individuals can increase their wealth. , this process will expand social production, promote social prosperity, and achieve the reconciliation of private interests and public welfare. ?

2. Monetary Theory

The primary function of money is a means of circulation, and holders hold money to purchase other items. When barter exchange develops into currency-based exchange, the value of goods is measured in currency. At this time, another function of currency comes into being - the measure of value. Adam Smith also talked about the storage function and payment function of currency.

3. Theory of Value

When it comes to the issue of value, Adam Smith pointed out that value covers use value and exchange value. The former represents the utility of a specific commodity, and the latter represents the possession of this commodity. A good takes the purchasing power of another good.

It is further pointed out that goods with the greatest use value often have no exchange value, water and diamonds are famous examples

Baidu Encyclopedia - Adam Smith