Thread: Adam Smith's paradox

I thought about this paradox myself and later found that Adam Smith already
thought about the same.Although I don't know to what conclusions he came.

For example in some country all businessmen combined pay to all workers combined one trillion of dollars as salaries a year.After that businessmen sell their
goods to workers and expect to receive profit.(Lets don't take import-export in account.)And expect to received profits.But all worker combined could return to all businessmen only what they being paid-exactly one trillion of dollars.Where profits come from?Could somebody explain in details how this issue regulated in
modern developed countries?

Debts.
And you forgot that businessmen need to buy things too. But yes, all businessmen's (and other) savings must be counterweighted by debts of someone else.

And you forgot that businessmen need to buy things too

Probably this is right answer,but why do you think that debts are important?
And what will happen if people will have almost no debts?

Originally Posted by Stanley514

I thought about this paradox myself and later found that Adam Smith already
thought about the same.Although I don't know to what conclusions he came.

For example in some country all businessmen combined pay to all workers combined one trillion of dollars as salaries a year.After that businessmen sell their
goods to workers and expect to receive profit.(Lets don't take import-export in account.)And expect to received profits.But all worker combined could return to all businessmen only what they being paid-exactly one trillion of dollars.Where profits come from?Could somebody explain in details how this issue regulated in
modern developed countries?

Don't forget that the businessmen themselves are going to be paying themselves and buying some of those goods.

However, it is important to remember that, in Adam Smith's ideal model, nobody makes a net profit. Everybody just breaks even.

Originally Posted by Stanley514

Where profits come from?Could somebody explain in details how this issue regulated in
modern developed countries?

My guess would be natural resources. If we lived in this situation, and I found a piece of gold, that is presumably worth something to someone, on the side of the road, then I've added to the resources without having to pay an equal amount. The paradox only works if the only things sold and bought are what are produced and used by what is already available.

and thus the economic law goes that in a market economy where profit is the motive, resources must continuously be drained from the world.

and, another thing is important. the gross wages of all people is equal to the gross income of all goods and service companies, as the OP pointed out. this means that in order for people to demand more than the debts of the producers, the economy as a whole must grow.

so it is a fair conjecture that in a market economy, the only way for it to function is to continuously draw resources from the earth and continuously grow in both capital and population.

of course one needs only to consult any highschool or college level biology textbook and look into the ecology section to see that no population(including the high and mighty human race) can continue exponential growth indefinately. this economic system is bound to fail. but i doubt that will happen for many thousands of years for any reason other than its vast social failures.

I think the myth that makes people believe that to be sustainable is the "technology will grow to fill in the gaps" myth. It's also the reason people seem to think you can have unlimited population growth.


As far as paying off loans, I the system sustains itself by allowing a certain percentage of those loans to routinely go into default and never get paid back. That's the "risk" aspect of the money lending industry.