Born: 5 June 1723 Kirkcaldy, Scotland
Died: 17 July 1790 (aged 67) Edinburgh, Scotland
Era: Classical economics (Modern economics)
Main Interest: Political philosophy, ethics, economics
Notable Ideas: Classical economics, modern free market, division of labour, the "invisible hand"
Adam Smith (baptised 16 June 1723 – died 17 July 1790 ) was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations. The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. It earned him an enormous reputation and would become one of the most influential works on economics ever published. Smith is widely cited as the father of modern economics and capitalism.
Smith studied social philosophy at the University of Glasgow and the University of Oxford. After graduating, he delivered a successful series of public lectures at Edinburgh, leading him to collaborate with David Hume during the Scottish Enlightenment. Smith obtained a professorship at Glasgow teaching moral philosophy, and during this time he wrote and published The Theory of Moral Sentiments. In his later life, he took a tutoring position that allowed him to travel throughout Europe, where he met other intellectual leaders of his day. Smith returned home and spent the next ten years writing The Wealth of Nations, publishing it in 1776. He died in 1790.
Teaching careerSmith began delivering public lectures in 1748 in Edinburgh, sponsored by the Philosophical Society of Edinburgh under the patronage of Lord Kames. His lecture topics included rhetoric and belles-lettres, and later the subject of "the progress of opulence". On this latter topic he first expounded his economic philosophy of "the obvious and simple system of natural liberty". While Smith was not adept at public speaking, his lectures met with success.
In 1750, he met the philosopher David Hume, who was his senior by more than a decade. In their writings covering history, politics, philosophy, economics, and religion, Smith and Hume shared closer intellectual and personal bonds than with other important figures of the Scottish Enlightenment.
In 1751, Smith earned a professorship at Glasgow University teaching logic courses, and in 1752 Smith was elected a member of the Philosophical Society of Edinburgh, having been introduced to the society by Lord Kames. When the head of Moral Philosophy died the next year, Smith took over the position.He worked as an academic for the next thirteen years, which he characterized as "by far the most useful and therefore by far the happiest and most honorable period [of his life]".
Smith published The Theory of Moral Sentiments in 1759, embodying some of his Glasgow lectures. This work was concerned with how human morality depends on sympathy between agent and spectator, or the individual and other members of society. Smith defined "sympathy" as the feeling of moral sentiments. He bases his explanation not on a special "moral sense", as the third Lord Shaftesbury and Hutcheson had done, nor on utility as Hume did, but on sympathy. Following the publication of The Theory of Moral Sentiments, Smith became so popular that many wealthy students left their schools in other countries to enroll at Glasgow to learn under Smith. After the publication of The Theory of Moral Sentiments, Smith began to give more attention to jurisprudence and economics in his lectures and less to his theories of morals. For example, Smith lectured that the cause of increase in national wealth is labor, rather than the nation's quantity of gold or silver, which is the basis for mercantilism, the economic theory that dominated Western European economic policies at the time.
In 1762, the University of Glasgow conferred on Smith the title of Doctor of Laws (LL.D.). At the end of 1763, he obtained an offer from Charles Townshend—who had been introduced to Smith by David Hume—to tutor his stepson, Henry Scott, the young Duke of Buccleuch. Smith then resigned from his professorship to take the tutoring position, and he subsequently attempted to return the fees he had collected from his students because he resigned in the middle of the term, but his students refused.
The Wealth of Nations
Adam Smith was not the first to express the ideas as found in The Wealth of Nations, for example: see both works of Sir William Petty's A Treatise on Tax (1662) and Political Arithmetic (1691); and see, Sir Dudley North's Discourses upon Trade (1691). Also, see Turgot's Réflexions sur la formation et la distribution des richesses (1766) which, it is thought, anticipated Adam Smith.
Before dealing with Adam Smith's The Wealth of Nations, a few words would be in order on his earlier work, Theory of Moral Sentiments, published in 1759. It was Smith's view that the essence of moral sensibility was that which came about through sympathy, but sympathy as an impartial and well informed spectator. He became part of the school known as the "moral sense thinkers," a school which the utilitarians were to attack.
Though it has been shown that he was a most curious human being, Adam Smith displayed, in the writing of The Wealth of Nations, a "profound knowledge of the real occupations of mankind." How did he come across this knowledge? Undoubtedly it was because -- to the good fortunate of the rest of us through the ages -- he left the enviroment of the university in 1764 to become the tutor to the young Duke of Buccleuch, which resulted in a leisurely tour of France during the years 1764-1766. England and France had just finished their Seven Years War with one another, so unmolested travel was presumably possible: and so to Paris he and his charge went.
"Paris was then queen of two worlds: of that of politics by a tradition from the past, and of literature by a force and life vigorously evidenced in the present. France therefore thus attracted the main attention of all travellers who cared for the existing life of the time; Adam Smith and his pupil spent the greater part of their stay abroad there. And as a preparation for writing the 'Wealth of Nations' he could nowhere else have been placed so well. Macaulay says that 'ancient abuses and new theories' flourished together in France just before the meeting of the States-General in greater vigour than they had been seen to be combined before or since. And the description is quite as true economically as politically; on all economical matters the France of that time as a sort of museum stocked with the most important errors.
By nature, then, as now, France was fitted to be a great agricultural country, a great producer and exporter of corn and wine; but her legislators for several generations had endeavoured to counteract the aim of nature, and had tried to make her a manufacturing country and an exporter of her manufacturers. Like most persons in those times, they had been prodigiously impressed by the high position which the maritime powers, as they were then called (the comparatively little powers of England and Holland), were able to take in the politics of Europe. They saw that this influence came from wealth, that this wealth was made in trade and manufacture, and therefore they determined that France should not be behind, but should have as much trade and manufacture as possible. Accordingly, they imposed prohibitive or deterring duties on the importation of foreign manufacturers; they gave bounties to the corresponding home manufactures." It was in France that Adam Smith observed the results of "both the restraints upon the interior commerce of the country and the number of the revenue officers ..." The situation which Smith observed in France was one that was essentially brought on by taxation, a system that made the people "exceedingly miserable," a system, which, in years to come, would bring on the bloody French Revolution; and, to bring, in its wake, Napoleon.
Thus, Adam Smith, steeped in history and philosophy, is exposed to both the English and French political-economic systems of the day: "And side by side with this museum of economical errors there was a most vigorous political economy which exposed them." His experiences were capped as he met, as we have seen, the great French thinkers of the day, such as: Voltaire, Quesnay, Turgot, and Necker. And, so, it was during 1766, in France that Adam Smith began to write his great work, which he continued to write on his return to Kirkcaldy and Edinburgh, and right on to his time in London, when in 1776, he saw it through the press.
The Wealth of Nations, "the principia of politick operations," opens with a description of the specialization of labour in the manufacture of pins; the book covers a variety of subjects: from the professorships at Oxford to the statistics on the herring catch since 1771; from stamp duties to the coined money used by the Romans (just check out the 42 page index). The book is full of detail. It was not to be just a book on economics, such as, say, Ricardo was to write some 41 years later, in 1817, Principles of Political Economy & Taxation. Adam Smith had a grand vision of which The Wealth of Nations was to be only a part, this part, as a book was one of two that was ever polished up enough for publication during his lifetime. Previously, in 1758, he had written, as I have already mentioned, Theory of Moral Sentiments, in which "he builds up the whole moral nature of man out of a single primitive emotion -- sympathy, and in which he gives a history of ethical philosophy besides." Upon Smith's death, his executors advised, that, all along, Smith had worked on a plan to give "a connected history of the liberal and elegant arts." He wrote on Ancient Physics and Ancient Logic; and on the Imitative Arts, Painting, Poetry, and Music. He destroyed (which to me is a crying shame), just shortly before his death, his Lectures on Justice.
"... we are told by a student who heard them, 'he followed Montesquieu in endeavouring to trace the gradual progress of jurisprudence, both public and private, from the rudest to the most refined ages, and to point out the effects of those arts which contribute to subsistence and to the accumulation of property in producing correspondent alterations in law and government;' or, as he himself announces it at the conclusion of the 'Moral Sentiments,' 'another discourse' in which he designs 'to endeavour to give an account of the general principles of law and government, and of the different revolutions they have undergone in the different ages and periods of society, not only in what concerns justice, but in what concerns police, revenue, and arms, and whatever else is the subject of law.' Scarcely any philosopher has imagined a vaster dream." Smith's book was considered to be revolutionary, as it did not deal with the class structure of the age, and the eternal questions of who had what, - And why?
"... it is not his aim to espouse the interests of any class. He is concerned with promoting the wealth of the entire nation. And wealth, to Adam Smith, consists of the goods which all the people of society consume; note all - this is a democratic, and hence radical, philosophy of wealth. Gone is the notion of gold, treasures, kingly hoards; gone the prerogatives of merchants or farmers or working guilds. We are in the modern world where the flow of goods and services consumed by everyone constitutes the ultimate aim and end of economic life." And what drives this flow of goods and services: I quote Adam Smith from his The Wealth of Nations:
"Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society.
... "He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.
... "In civilized society he [man] stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons. In almost every other race of animals each individual, when it is grown up to maturity, is entirely independent, and in its natural state has occasion for the assistance of no other living creature. But man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their self-love, and never talk to them of our own necessities but of their advantages." What Adam Smith did in his book was to explain how self-interest was the engine of the economy and competition its governor.
"First, he [Adam Smith] has explained how prices are kept from ranging arbitrarily away from the actual cost of producing a good. Second, he has explained how society can induce its producers of commodities to provide it with what it wants. Third, he has pointed out why high prices are a self-curing disease, for they cause production in those lines to increase. And finally, he has accounted for a basic similarity of incomes at each level of the great producing strata of the nation. In a word, he has found in the mechanism of the market a self-regulating system which provides for society's orderly provision." (p. 49.) The difficulty I have with Robert Heilbroner, a most interesting man to read, is his assertion that the law of the market, is a man-made institution. The market is not something that we can choose to have or not to have, it exists and will exist no matter the political regime, and no matter the number of coercive laws we would like to pass. One cannot help coming to this conclusion as one expands the thoughts expressed in The Wealth of Nations.
ADAM SMITH QUOTES
"Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally indeed neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."(The Wealth of Nations).
"All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men. The sovereign [politician] is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient: the duty of superintending the industry of private people." (The Wealth of Nations, vol. II, bk. IV, ch. 9.)
"A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate."
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings by any law which either could be executed, or would be consistent with liberty and justice." (vol. I, bk. I, ch. 10.)
Nature of Man:-
"The propensity to truck, barter and exchange one thing for another is common to all men, and to be found in no other race of animals."
"It is the highest impertinence and presumption, therefore, in kings and ministers [read politicians] to pretend to watch over the economy of private people, and to restrain their expense. They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs." (vol. I, bk. II, ch. 3.)
"Science is the great antidote to the poison of enthusiasm and superstition." (The Wealth of Nations.)
"A system of natural philosophy [this is how they described science in those days] may appear very plausible, and be for a long time very generally received in the world, and yet have no foundation in nature, nor any sort of resemblance to the truth." (Theory of Moral Sentiments.)