Adam Smith (1723-July 17, 1790) was a Scottish economist and moral philosopher. His Inquiry into the Nature and Causes of the Wealth of Nations was the first serious attempt to study the historical development of industry and commerce in Europe. It helped to create the modern academic discipline of economics and provided one of the best-known intellectual rationales for capitalism.
Smith was the son of the comptroller 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 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. In 1740 he entered the Balliol College of the University of 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 relinquished his exhibition 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 the how human communication depends on sympathy between speaker and listener. His capacity for fluent, persuasive, if rather rhetorical argument is much in evidence. He bases his explanation, not as the third Lord Shaftsbury and Hutcheson had done, on a special “moral sense”, nor (like Hume) to any decisive extent on utility, but on sympathy. There has been considerable controversy as how far there is contradiction or contrast between Smith’s emphasis in the Moral Sentiments on sympathy as a fundamental human motive, and, on the other hand, the key role of self-interest in The Wealth of Nations. Self-interest played a more prominent role in the revised version of the Theory of Moral Sentiments (TMS) which appeared in 1783. In TMS he seems to position further prominence on the broad synchronization of human intention and behavior under a beneficent Providence, while in the latter, in spite of the general theme of “the invisible hand” promoting the harmony of interests, Smith finds many more occasions for pointing out cases of conflict and of the narrow selfishness of human motives. Even so, in the “Theory of Moral Sentiments” Smith puts forward a conception of Man that is not far different from the lower beasts:
“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 entire extinction. But though we are in this manner endowed with a very strong desire of those ends, it has not been entrusted 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.”
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. Cannon (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 Anne Turgot, Jean D’Alembert, Andre Morellet, Helvetius 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. He neither married nor fathered children.
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 convinced of the advantages of free trade right away: 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 tantamount, 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 (and Karl Marx) 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 incentive for its production, and eventually curing the shortage. The increased competition among manufacturers and increased supply would also lower the price of the product to its production cost, the “natural price.”
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 anyway. Nevertheless, he was wary of businessmen and argued against the formation of monopolies.
Smith vigorously 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.
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 laissez-faire capitalism is so often associated with unbridled selfishness, there is a recent movement to emphasize the sentimentalist 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 little to the already established ideas of thinkers such as 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.