1
$\begingroup$

Smith's insights are mainly relevant to the for-profit sector, which according to my knowledge, is the larger of the two sectors in most free market economies.

I'm wondering whether he had any insights for the non-profit sector. I'm aware of his skepticism of businessmen purporting to do good, but that's slightly different from what I'm trying to get at.

What I am trying to get at is: Since Smith spoke a lot about incentives, did he have any particular insights how this would play out in the non-profit model? Could his insights be used to "subsume" the non-profit model into the standard for-profit model, in any way?

$\endgroup$
4
  • $\begingroup$ Smith does not offer any new insights on how to run for profit business in his book. Smith was writing about political economy not business management/administration. His work had some description of division of labor in factories, but that was common practice he was just providing some economic explanation for it and then rest is policy discussion of things like trade theory, monetary economics or policy economics which offers insight into how to run country not a business. In fact for a business often opposite lessons would helpful (for example many businesses could earn larger profits $\endgroup$
    – 1muflon1
    Mar 25 at 7:41
  • $\begingroup$ under mercantilism at an expense to consumers) $\endgroup$
    – 1muflon1
    Mar 25 at 7:45
  • $\begingroup$ I guess I was trying to say that his ideas are more relevant for policies that make the for-profit model thrive (he talks about bakers, butchers, and brewers, etc). Given this, how does one frame policies to let non-profits thrive as well. Is there a sharp distinction between the two kinds of policies or does the same policy that supports for-profits be helpful to non-profits as well? (Sorry, I don't know which branch of economics this falls under, and also, I am looking for rather basic answers, not detailed studies -- that's why I wanted references from Smith). $\endgroup$
    – Joebevo
    Mar 25 at 8:38
  • $\begingroup$ he was talking about how to make country's economy thrive. He was actually focusing predominantly on what public sector (i.e. government) can do to make country's economy successful. There is very little to no business economics in the WoN, and the basic principles such as division of labor apply equally well to non-profits $\endgroup$
    – 1muflon1
    Mar 25 at 8:44

1 Answer 1

1
$\begingroup$

Adam Smith in his works like Wealth of Nations (WoN) talked predominantly about public sector which is non-profit although not private non-profit. Also Smith did not written much directly applicable to business management. He was writing an economics text, some of the economic insights could be applied in operation of business but he wasn't focusing on business administration at all.

In fact most of his work focused on the public sector. WoN consists of 5 books:

Book I: Of the Causes of Improvement in the productive Powers of Labour.

Book II: Of the Nature, Accumulation, and Employment of Stock.

Book III: Of the different Progress of Opulence in different Nations.

Book IV: Of Systems of political Economy.

Book V: Of the Revenue of the Sovereign or Commonwealth.

The books I - II lay out some basic economic principles. For example, book I talks about division of labor, origin of money, determinants of wages, profits and rents in the economy. Many of the insights discussed here are applicable to any organization (e.g. private non-profits and governments benefit from division of labor, and for planning its important to understand how wages or rents are determined in the economy since they have their own employees.

In the book II Smith discusses monetary economics and discusses the role of interest rates, capital accumulation and the distinction between productive and unproductive labor. The contents of book II can be again relevant to both for profit and non-profit organizations. Both for and non-profit organization accumulate capital and use loans. The discussions of monetary economics there were relevant for government institutions like central banks.

Book III is basically discussion of long-term economic growth that is mainly relevant for the public administration.

Book IV focuses on public policy with focus on trade. Here is where Smith critiques mercantilism and offers his trade policy prescriptions. Aside from the general concept of absolute advantage, which can be useful for any organization, this chapter is primarily about public policy.

Book V focuses on fiscal policy. In book V Smith discusses issues of taxation and government debt as well as some other matters of public administration.

Consequently, most of Smith's work (by my estimation about 3/5) is primarily useful or targeted at public sector, more specifically on how government should run country. Rest of the Smith's work is laying down some general economic principles that are equally applicable to any organization (e.g. division of labor). Some of the descriptions, such as how the rate of profit is determined will be inherently mostly applicable to for profit enterprises. However, only very small portion of WoN deals with a matters that are of interest only to businesses. Hence, most of what is written in WoN is applicable to public sector (which is part of the overall non-profit sector). However, aside from some timeless insights such as why division of labor is efficient or his repudiation of mercantilism, most the description of how the economy operate is out of date so it does not have that much insights for modern organizations, neither for or non-profit.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.