Adam smith and the invisible hand (1)

A second assault on mercantilist ideas came in the writing of a dam smith .smith perceived that nation is wealth was reflected in it productive capacity not in its holdings of precious metals .Attention thus turned from acquiring specie to enlarging the production of goods and services.smith believed that growth in productive capacity was fostered best in an environment where people were free to pursue their own interests.self-interest would lead individuals to specialize in and exchange goods and services based on their own special abilities.the natural tendency "to truck,barter ,and exchange" goods and services would generate productivity gains through the increased division and specialization of labor.self-interest was the catalyst and competition was the automatic regulation mechanism .smith saw little need for government control of the economy .he stressed that a government policy of laissez faire (allowing individuals to pursue their own activities within the bounds of law and order and respect for property rights) would best provide the environment for increasing a nation is wealth .the proper role of government was to see that the market was free to function in an unconstrained manner by removing the barriers to effective operation of the "invisible hand" of the market