Final answer:
Adam Smith in 'The Wealth of Nations' described how the invisible hand guides a free market economy, argued for laissez-faire economic policies with minimal government intervention, and highlighted the role of division of labor in wealth creation.
Step-by-step explanation:
Adam Smith, a seminal figure in the development of economic thought, made several key observations in his work The Wealth of Nations. Firstly, he introduced the concept of the invisible hand, a metaphor for the unseen forces that move the free market economy through competition and individual self-interest. Smith argued that individuals seeking to maximize their own gain would naturally contribute to the economic development and welfare of society as a whole, as if guided by an invisible hand.
Smith also criticized mercantilist policies and advocated for a laissez-faire economic policy, suggesting that government intervention in the economy should be minimal. He believed free markets were more efficient and would lead to the production of more goods at lower prices, making them affordable to all and not just the upper class. According to Smith, government interference, such as tariffs and regulations, should be reduced to allow the invisible hand to operate effectively.
Furthermore, Smith emphasized the importance of the division of labor and improving worker productivity as the cornerstones for wealth creation in societies. His broad analysis on this subject laid the foundation for the industrial capitalism that emerged afterward.