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Adam Smith

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Adam Smith
Era18th-century philosophy
(Modern Philosophy)
RegionWestern Philosophers
SchoolClassical economics
Main interests
Political philosophy, ethics, economics
For other people named Adam Smith, see Adam Smith (disambiguation).

Adam Smith, FRS (Baptised June 5, 1723 – July 17, 1790) was a Scottish political economist and moral philosopher. His Inquiry into the Nature and Causes of the Wealth of Nations was one of the earliest attempts to study the historical development of industry and commerce in Europe. That work helped to create the modern academic discipline of economics and provided one of the best-known intellectual rationales for free trade and capitalism.

Biography

Smith was the son of the controller of the customs at Kirkcaldy, Fife, Scotland. The exact date of his birth is unknown, but he was baptized at Kirkcaldy on June 5, 1723, his father having died some six months previously. At around the age of 4, he was kidnapped by a band of Roma people, but he was quickly rescued by his uncle and returned to his mother. Smith's biographer, John Rae, commented wryly that he feared Smith would have made "a poor Gypsy."

At the age of about fifteen, Smith proceeded to the University of Glasgow, studying moral philosophy under "the never-to-be-forgotten" (as Smith called him) Francis Hutcheson. Here Smith developed his strong passion for liberty, reason and free speech. In 1740 he entered Balliol College, Oxford, but as William Robert Scott has said, "the Oxford of his time gave little if any help towards what was to be his lifework," and he left the university in 1746. In 1748 he began delivering public lectures in Edinburgh under the patronage of Lord Kames. Some of these dealt with rhetoric and belles-lettres, but later he took up the subject of "the progress of opulence," and it was then, in his middle or late 20s, that he first expounded the economic philosophy of "the obvious and simple system of natural liberty" which he was later to proclaim to the world in his Inquiry into the Nature and Causes of the Wealth of Nations. About 1750 he met David Hume, who became one of the closest of his many friends.

In 1751 Smith was appointed professor on logic at the University of Glasgow, transferring in 1752 to the chair of moral philosophy. His lectures covered the fields of ethics, rhetoric, jurisprudence, political economy, and "police and revenue." In 1759 he published his The Theory of Moral Sentiments, embodying some of his Glasgow lectures. This work, which established Smith's reputation in his day, was concerned with how human communication depends on sympathy between agent and spectator (that is, the individual and other members of society). His capacity for fluent, persuasive, if rather rhetorical argument is much in evidence. He bases his explanation, not as the third Lord Shaftesbury and Hutcheson had done, on a special "moral sense", nor (like Hume) on utility, but on sympathy.

Smith now began to give more attention to jurisprudence and economics in his lecture and less to his theories of morals. An impression can be obtained as to the development of his ideas on political economy from the notes of his lectures taken down by a student in about 1763 which were later edited by E. Cannan (Lectures on Justice, Police, Revenue and Arms, 1896), and from what Scott, its discoverer and publisher, describes as "An Early Draft of Part of The Wealth of Nations", which he dates about 1763.

At the end of 1763 Smith obtained a lucrative post as tutor to the young Duke of Buccleuch and resigned his professorship. From 1764-66 he traveled with his pupil, mostly in France, where he came to know such intellectual leaders as Turgot, Jean D'Alembert, André Morellet, Helvétius and, in particular, Francois Quesnay, the head of the Physiocratic school whose work he much respected. On returning home to Kirkcaldy he devoted much of the next ten years to his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations, which appeared in 1776. It was very well-received and popular, and Smith became famous. In 1778 he was appointed to a comfortable post as commissioner of customs in Scotland and went to live with his mother in Edinburgh. He died there on July 17, 1790, after a painful illness. He had apparently devoted a considerable part of his income to numerous secret acts of charity.

Works

Shortly before his death Smith had nearly all his manuscripts destroyed. In his last years he seemed to have been planning two major treatises, one on the theory and history of law and one on the sciences and arts. The posthumously published Essays on Philosophical Subjects (1795) probably contain parts of what would have been the latter treatise.

The Wealth of Nations was influential since it did so much to create the field of economics and develop it into an autonomous systematic discipline. In the Western world, it is arguably the most influential book on the subject ever published. When the book, which has become a classic manifesto against mercantilism (the theory that large reserves of bullion are essential for economic success), appeared in 1776, there was a strong sentiment for free trade in both Britain and America. This new feeling had been born out of the economic hardships and poverty caused by the war. However, at the time of publication, not everybody was immediately convinced of the advantages of free trade: the British public and Parliament still clung to mercantilism for many years to come.

The Wealth of Nations also rejects the Physiocratic school's emphasis on the importance of land; instead, Smith believed labour was paramount, and that a division of labour would effect a great increase in production. Nations was so successful, in fact, that it led to the abandonment of earlier economic schools, and later economists, such as Thomas Malthus and David Ricardo, focused on refining Smith's theory into what is now known as classical economics. (Modern economics evolved from this.) Malthus expanded Smith's ruminations on overpopulation, while Ricardo believed in the "iron law of wages" — that overpopulation would prevent wages from topping the subsistence level. Smith postulated an increase of wages with an increase in production, a view considered more accurate today.

One of the main points of The Wealth of Nations is that the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called "invisible hand". If a product shortage occurs, for instance, its price rises, creating a profit margin that creates an incentive for others to enter production, eventually curing the shortage. If too many producers enter the market, the increased competition among manufacturers and increased supply would lower the price of the product to its production cost, the "natural price". Even as profits are zeroed out at the "natural price," there would be incentives to produce goods and services, as all costs of production, including compensation for the owner's labour, are also built into the price of the goods. If prices dipped below a zero profit, producers would drop out of the market; if they were above a zero profit, producers would enter the market. Smith believed that while human motives are often selfish and greedy, the competition in the free market would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services. Nevertheless, he was wary of businessmen and argued against the formation of monopolies.

Smith vigourously attacked the antiquated government restrictions which he thought were hindering industrial expansion. In fact, he attacked most forms of government interference in the economic process, including tariffs, arguing that this creates inefficiency and high prices in the long run. This theory, now referred to as "laissez-faire", influenced government legislation in later years, especially during the 19th century. Two of the most famous and oft-quoted passages in the Wealth of Nations are:

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 own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual value of society as great as he can. 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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of 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. It is an affectation, indeed, not very common among merchants, and very few words need by employed in dissuading them from it.

"Das Adam-Smith-Problem"

There has been considerable controversy as to whether there is a contradiction between Smith's emphasis on sympathy in his Theory of Moral Sentiments and the key role of self-interest in The Wealth of Nations. Economist Joseph Schumpeter referred to this in German as das Adam Smith Problem.[1] In his Moral Sentiments Smith seems to emphasize the broad synchronization of human intention and behavior under a beneficent Providence, while in The Wealth of Nations, in spite of the general theme of "the invisible hand" creating harmony out of conflicting self-interests, he finds many more occasions for pointing out cases of conflict and of the narrow selfishness of human motives. Yet it would be inaccurate to describe the Adam Smith of the Moral Sentiments as disbelieving of an essential selfishness of most human motives, for he writes that:

Thus self-preservation, and the propagation of the species, are the great ends which Nature seems to have proposed in the formation of all animals. Mankind are endowed with a desire of those ends, and an aversion to the contrary; with a love of life, and a dread of dissolution; with a desire of the continuance and perpetuity of the species, and with an aversion to the thoughts of its intire extinction. But though we are in this manner endowed with a very strong desire of those ends, it has not been intrusted to the slow and uncertain determinations of our reason, to find out the proper means of bringing them about. Nature has directed us to the greater part of these by original and immediate instincts. Hunger, thirst, the passion which unites the two sexes, the love of pleasure, and the dread of pain, prompt us to apply those means for their own sakes, and without any consideration of their tendency to those beneficent ends which the great Director of nature intended to produce by them.

Influence

The Wealth of Nations, and to a lesser extent The Theory of Moral Sentiments, have become the starting point for any defence or critique of forms of capitalism, most influentially in the writings of Marx and Humanist economists. Because capitalism is so often associated with unbridled selfishness, there is a recent movement to emphasize the moral philosophy of Smith, with its focus on sympathy with one's fellows.

There has been some controversy over the extent of Smith's originality in The Wealth of Nations; some argue that the work added modestly to the already established ideas of thinkers such as Anders Chydenius, David Hume and the Baron de Montesquieu. Indeed, many of the theories Smith sets out simply describe historical trends away from mercantilism, towards free-trade, that had been developing for many decades, and had already had significant influence on governmental policy. Nevertheless, it organizes their ideas comprehensively, and remains one of the most influential and important books in the field today.

Smith was ranked #30 in Michael H. Hart's list of the most influential figures in history.

See also

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Adam Smith
General

Adam Smith is buried in Canongate Churchyard, Royal Mile, Edinburgh

Works
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