Adam Smith | Wikipedia audio article

Adam Smith | Wikipedia audio article


Adam Smith (16 June [O.S. 5 June] 1723 – 17
July 1790) was a Scottish economist, philosopher and author as well as a moral philosopher,
a pioneer of political economy and a key figure during the Scottish Enlightenment. Smith is
best known for two classic works, The Theory of Moral Sentiments (1759) and An Inquiry
into the Nature and Causes of the Wealth of Nations (1776). The latter, often abbreviated
as The Wealth of Nations, is considered his magnum opus and the first modern work of economics.
Smith studied social philosophy at the University of Glasgow and at Balliol College, Oxford,
where he was one of the first students to benefit from scholarships set up by fellow
Scot John Snell. 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, 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 laid the foundations of classical free
market economic theory. The Wealth of Nations was a precursor to the modern academic discipline
of economics. In this and other works, he developed the concept of division of labour
and expounded upon how rational self-interest and competition can lead to economic prosperity.
Smith was controversial in his own day and his general approach and writing style were
often satirised by Tory writers in the moralising tradition of William Hogarth and Jonathan
Swift. In 2005, The Wealth of Nations was named among the 100 best Scottish books of
all time.==Biography=====Early life===
Smith was born in Kirkcaldy, in the County of Fife, Scotland. His father, also Adam Smith,
was a Scottish Writer to the Signet (senior solicitor), advocate and prosecutor (judge
advocate) and also served as comptroller of the customs in Kirkcaldy. In 1720, he married
Margaret Douglas, daughter of the landed Robert Douglas of Strathendry, also in Fife. His
father died two months after he was born, leaving his mother a widow. The date of Smith’s
baptism into the Church of Scotland at Kirkcaldy was 5 June 1723 and this has often been treated
as if it were also his date of birth, which is unknown. Although few events in Smith’s
early childhood are known, the Scottish journalist John Rae, Smith’s biographer, recorded that
Smith was abducted by gypsies at the age of three and released when others went to rescue
him. Smith was close to his mother, who probably encouraged him to pursue his scholarly ambitions.
He attended the Burgh School of Kirkcaldy—characterised by Rae as “one of the best secondary schools
of Scotland at that period”—from 1729 to 1737, he learned Latin, mathematics, history,
and writing.===Formal education===
Smith entered the University of Glasgow when he was 14 and studied moral philosophy under
Francis Hutcheson. Here, Smith developed his passion for liberty, reason, and free speech.
In 1740, Smith was the graduate scholar presented to undertake postgraduate studies at Balliol
College, Oxford, under the Snell Exhibition.Smith considered the teaching at Glasgow to be far
superior to that at Oxford, which he found intellectually stifling. In Book V, Chapter
II of The Wealth of Nations, Smith wrote: “In the University of Oxford, the greater
part of the public professors have, for these many years, given up altogether even the pretence
of teaching.” Smith is also reported to have complained
to friends that Oxford officials once discovered him reading a copy of David Hume’s A Treatise
of Human Nature, and they subsequently confiscated his book and punished him severely for reading
it. According to William Robert Scott, “The Oxford of [Smith’s] time gave little if any
help towards what was to be his lifework.” Nevertheless, Smith took the opportunity while
at Oxford to teach himself several subjects by reading many books from the shelves of
the large Bodleian Library. When Smith was not studying on his own, his time at Oxford
was not a happy one, according to his letters. Near the end of his time there, Smith began
suffering from shaking fits, probably the symptoms of a nervous breakdown. He left Oxford
University in 1746, before his scholarship ended.In Book V of The Wealth of Nations,
Smith comments on the low quality of instruction and the meager intellectual activity at English
universities, when compared to their Scottish counterparts. He attributes this both to the
rich endowments of the colleges at Oxford and Cambridge, which made the income of professors
independent of their ability to attract students, and to the fact that distinguished men of
letters could make an even more comfortable living as ministers of the Church of England.Smith’s
discontent at Oxford might be in part due to the absence of his beloved teacher in Glasgow,
Francis Hutcheson, who was well regarded as one of the most prominent lecturers at the
University of Glasgow in his day and earned the approbation of students, colleagues, and
even ordinary residents with the fervor and earnestness of his orations (which he sometimes
opened to the public). His lectures endeavoured not merely to teach philosophy, but also to
make his students embody that philosophy in their lives, appropriately acquiring the epithet,
the preacher of philosophy. Unlike Smith, Hutcheson was not a system builder; rather,
his magnetic personality and method of lecturing so influenced his students and caused the
greatest of those to reverentially refer to him as “the never to be forgotten Hutcheson”—a
title that Smith in all his correspondence used to describe only two people, his good
friend David Hume and influential mentor Francis Hutcheson.===Teaching career===
Smith 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, Smith 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, he 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 in Glasgow died the next year, Smith took over the position. He worked as
an academic for the next 13 years, which he characterised 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 “mutual sympathy” as the basis
of moral sentiments. He based 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 mutual sympathy,
a term best captured in modern parlance by the 20th-century concept of empathy, the capacity
to recognise feelings that are being experienced by another being. 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 labour, 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 resigned from his professorship in 1764
to take the tutoring position. He subsequently attempted to return the fees he had collected
from his students because he had resigned partway through the term, but his students
refused.===Tutoring and travels===
Smith’s tutoring job entailed touring Europe with Scott, during which time he educated
Scott on a variety of subjects, such as etiquette and manners. He was paid £300 per year (plus
expenses) along with a £300 per year pension; roughly twice his former income as a teacher.
Smith first travelled as a tutor to Toulouse, France, where he stayed for a year and a half.
According to his own account, he found Toulouse to be somewhat boring, having written to Hume
that he “had begun to write a book to pass away the time”. After touring the south of
France, the group moved to Geneva, where Smith met with the philosopher Voltaire. From Geneva, the party moved to Paris. Here,
Smith met Benjamin Franklin, and discovered the Physiocracy school founded by François
Quesnay. Physiocrats were opposed to mercantilism, the dominating economic theory of the time,
illustrated in their motto Laissez faire et laissez passer, le monde va de lui même!
(Let do and let pass, the world goes on by itself!).
The wealth of France had been virtually depleted by Louis XIV and Louis XV in ruinous wars,
and was further exhausted in aiding the American insurgents against the British. The excessive
consumption of goods and services deemed to have no economic contribution was considered
a source of unproductive labour, with France’s agriculture the only economic sector maintaining
the wealth of the nation. Given that the English economy of the day yielded an income distribution
that stood in contrast to that which existed in France, Smith concluded that “with all
its imperfections, [the Physiocratic school] is perhaps the nearest approximation to the
truth that has yet been published upon the subject of political economy.” The distinction
between productive versus unproductive labour—the physiocratic classe steril—was a predominant
issue in the development and understanding of what would become classical economic theory.===Later years===
In 1766, Henry Scott’s younger brother died in Paris, and Smith’s tour as a tutor ended
shortly thereafter. Smith returned home that year to Kirkcaldy, and he devoted much of
the next decade to writing his magnum opus. There, he befriended Henry Moyes, a young
blind man who showed precocious aptitude. Smith secured the patronage of David Hume
and Thomas Reid in the young man’s education. In May 1773, Smith was elected fellow of the
Royal Society of London, and was elected a member of the Literary Club in 1775. The Wealth
of Nations was published in 1776 and was an instant success, selling out its first edition
in only six months.In 1778, Smith was appointed to a post as commissioner of customs in Scotland
and went to live with his mother (who died in 1784) in Panmure House in Edinburgh’s Canongate.
Five years later, as a member of the Philosophical Society of Edinburgh when it received its
royal charter, he automatically became one of the founding members of the Royal Society
of Edinburgh. From 1787 to 1789, he occupied the honorary position of Lord Rector of the
University of Glasgow.===Death===Smith died in the northern wing of Panmure
House in Edinburgh on 17 July 1790 after a painful illness. His body was buried in the
Canongate Kirkyard. On his deathbed, Smith expressed disappointment that he had not achieved
more.Smith’s literary executors were two friends from the Scottish academic world: the physicist
and chemist Joseph Black and the pioneering geologist James Hutton. Smith left behind
many notes and some unpublished material, but gave instructions to destroy anything
that was not fit for publication. He mentioned an early unpublished History of Astronomy
as probably suitable, and it duly appeared in 1795, along with other material such as
Essays on Philosophical Subjects.Smith’s library went by his will to David Douglas, Lord Reston
(son of his cousin Colonel Robert Douglas of Strathendry, Fife), who lived with Smith.
It was eventually divided between his two surviving children, Cecilia Margaret (Mrs.
Cunningham) and David Anne (Mrs. Bannerman). On the death of her husband, the Reverend
W. B. Cunningham of Prestonpans in 1878, Mrs. Cunningham sold some of the books. The remainder
passed to her son, Professor Robert Oliver Cunningham of Queen’s College, Belfast, who
presented a part to the library of Queen’s College. After his death, the remaining books
were sold. On the death of Mrs. Bannerman in 1879, her portion of the library went intact
to the New College (of the Free Church) in Edinburgh and the collection was transferred
to the University of Edinburgh Main Library in 1972.==Personality and beliefs=====Character===Not much is known about Smith’s personal views
beyond what can be deduced from his published articles. His personal papers were destroyed
after his death at his request. He never married, and seems to have maintained a close relationship
with his mother, with whom he lived after his return from France and who died six years
before him.Smith was described by several of his contemporaries and biographers as comically
absent-minded, with peculiar habits of speech and gait, and a smile of “inexpressible benignity”.
He was known to talk to himself, a habit that began during his childhood when he would smile
in rapt conversation with invisible companions. He also had occasional spells of imaginary
illness, and he is reported to have had books and papers placed in tall stacks in his study.
According to one story, Smith took Charles Townshend on a tour of a tanning factory,
and while discussing free trade, Smith walked into a huge tanning pit from which he needed
help to escape. He is also said to have put bread and butter into a teapot, drunk the
concoction, and declared it to be the worst cup of tea he ever had. According to another
account, Smith distractedly went out walking in his nightgown and ended up 15 miles (24
km) outside of town, before nearby church bells brought him back to reality.James Boswell,
who was a student of Smith’s at Glasgow University, and later knew him at the Literary Club, says
that Smith thought that speaking about his ideas in conversation might reduce the sale
of his books, so his conversation was unimpressive. According to Boswell, he once told Sir Joshua
Reynolds, that ‘he made it a rule when in company never to talk of what he understood’. Smith has been alternately described as someone
who “had a large nose, bulging eyes, a protruding lower lip, a nervous twitch, and a speech
impediment” and one whose “countenance was manly and agreeable.” Smith is said to have
acknowledged his looks at one point, saying, “I am a beau in nothing but my books.” Smith
rarely sat for portraits, so almost all depictions of him created during his lifetime were drawn
from memory. The best-known portraits of Smith are the profile by James Tassie and two etchings
by John Kay. The line engravings produced for the covers of 19th-century reprints of
The Wealth of Nations were based largely on Tassie’s medallion.===Religious views===
Considerable scholarly debate has occurred about the nature of Smith’s religious views.
Smith’s father had shown a strong interest in Christianity and belonged to the moderate
wing of the Church of Scotland. The fact that Adam Smith received the Snell Exhibition suggests
that he may have gone to Oxford with the intention of pursuing a career in the Church of England.Anglo-American
economist Ronald Coase has challenged the view that Smith was a deist, based on the
fact that Smith’s writings never explicitly invoke God as an explanation of the harmonies
of the natural or the human worlds. According to Coase, though Smith does sometimes refer
to the “Great Architect of the Universe”, later scholars such as Jacob Viner have “very
much exaggerated the extent to which Adam Smith was committed to a belief in a personal
God”, a belief for which Coase finds little evidence in passages such as the one in the
Wealth of Nations in which Smith writes that the curiosity of mankind about the “great
phenomena of nature”, such as “the generation, the life, growth, and dissolution of plants
and animals”, has led men to “enquire into their causes”, and that “superstition first
attempted to satisfy this curiosity, by referring all those wonderful appearances to the immediate
agency of the gods. Philosophy afterwards endeavoured to account for them, from more
familiar causes, or from such as mankind were better acquainted with than the agency of
the gods”.Some other authors argue that Smith’s social and economic philosophy is inherently
theological and that his entire model of social order is logically dependent on the notion
of God’s action in nature.Smith was also a close friend and later the executor of David
Hume, who was commonly characterised in his own time as an atheist. The publication in
1777 of Smith’s letter to William Strahan, in which he described Hume’s courage in the
face of death in spite of his irreligiosity, attracted considerable controversy.==Published works=====The Theory of Moral Sentiments===In 1759, Smith published his first work, The
Theory of Moral Sentiments, sold by co-publishers Andrew Millar of London and Alexander Kincaid
of Edinburgh. Smith continued making extensive revisions to the book until his death. Although
The Wealth of Nations is widely regarded as Smith’s most influential work, Smith himself
is believed to have considered The Theory of Moral Sentiments to be a superior work.In
the work, Smith critically examines the moral thinking of his time, and suggests that conscience
arises from dynamic and interactive social relationships through which people seek “mutual
sympathy of sentiments.” His goal in writing the work was to explain the source of mankind’s
ability to form moral judgement, given that people begin life with no moral sentiments
at all. Smith proposes a theory of sympathy, in which the act of observing others and seeing
the judgements they form of both others and oneself makes people aware of themselves and
how others perceive their behaviour. The feedback we receive from perceiving (or imagining)
others’ judgements creates an incentive to achieve “mutual sympathy of sentiments” with
them and leads people to develop habits, and then principles, of behaviour, which come
to constitute one’s conscience.Some scholars have perceived a conflict between The Theory
of Moral Sentiments and The Wealth of Nations; the former emphasises sympathy for others,
while the latter focuses on the role of self-interest. In recent years, however, some scholars of
Smith’s work have argued that no contradiction exists. They claim that in The Theory of Moral
Sentiments, Smith develops a theory of psychology in which individuals seek the approval of
the “impartial spectator” as a result of a natural desire to have outside observers sympathise
with their sentiments. Rather than viewing The Theory of Moral Sentiments and The Wealth
of Nations as presenting incompatible views of human nature, some Smith scholars regard
the works as emphasising different aspects of human nature that vary depending on the
situation. Otteson argues that both books are Newtonian in their methodology and deploy
a similar “market model” for explaining the creation and development of large-scale human
social orders, including morality, economics, as well as language. Ekelund and Hebert offer
a differing view, observing that self-interest is present in both works and that “in the
former, sympathy is the moral faculty that holds self-interest in check, whereas in the
latter, competition is the economic faculty that restrains self-interest.”===
The Wealth of Nations===Disagreement exists between classical and
neoclassical economists about the central message of Smith’s most influential work:
An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Neoclassical economists
emphasise Smith’s invisible hand, a concept mentioned in the middle of his work – Book
IV, Chapter II – and classical economists believe that Smith stated his programme for
promoting the “wealth of nations” in the first sentences, which attributes the growth of
wealth and prosperity to the division of labour. Smith used the term “the invisible hand” in
“History of Astronomy” referring to “the invisible hand of Jupiter”, and once in each of his
The Theory of Moral Sentiments (1759) and The Wealth of Nations (1776). This last statement
about “an invisible hand” has been interpreted in numerous ways. 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 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. 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 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. It is an affectation, indeed, not very common among merchants, and
very few words need be employed in dissuading them from it.
Those who regard that statement as Smith’s central message also quote frequently Smith’s
dictum: 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. Smith’s statement about the benefits of “an
invisible hand” may be meant to answer Mandeville’s contention that “Private Vices … may be
turned into Public Benefits”. It shows Smith’s belief that when an individual pursues his
self-interest under conditions of justice, he unintentionally promotes the good of society.
Self-interested competition in the free market, he argued, 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 warned of their “conspiracy
against the public or in some other contrivance to raise prices”. Again and again, Smith warned
of the collusive nature of business interests, which may form cabals or monopolies, fixing
the highest price “which can be squeezed out of the buyers”. Smith also warned that a business-dominated
political system would allow a conspiracy of businesses and industry against consumers,
with the former scheming to influence politics and legislation. Smith states that the interest
of manufacturers and merchants “in any particular branch of trade or manufactures, is always
in some respects different from, and even opposite to, that of the public … The proposal
of any new law or regulation of commerce which comes from this order, ought always to be
listened to with great precaution, and ought never be adopted till after having been long
and carefully examined, not only with the most scrupulous, but with the most suspicious
attention.” Thus Smith’s chief worry seems to be when business is given special protections
or privileges from government; by contrast, in the absence of such special political favours,
he believed that business activities were generally beneficial to the whole society: It is the great multiplication of the production
of all the different arts, in consequence of the division of labour, which occasions,
in a well-governed society, that universal opulence which extends itself to the lowest
ranks of the people. Every workman has a great quantity of his own work to dispose of beyond
what he himself has occasion for; and every other workman being exactly in the same situation,
he is enabled to exchange a great quantity of his own goods for a great quantity, or,
what comes to the same thing, for the price of a great quantity of theirs. He supplies
them abundantly with what they have occasion for, and they accommodate him as amply with
what he has occasion for, and a general plenty diffuses itself through all the different
ranks of society. (The Wealth of Nations, I.i.10)
The neoclassical interest in Smith’s statement about “an invisible hand” originates in the
possibility of seeing it as a precursor of neoclassical economics and its concept of
general equilibrium – Samuelson’s “Economics” refers six times to Smith’s “invisible hand”.
To emphasise this connection, Samuelson quotes Smith’s “invisible hand” statement substituting
“general interest” for “public interest”. Samuelson concludes: “Smith was unable to
prove the essence of his invisible-hand doctrine. Indeed, until the 1940s, no one knew how to
prove, even to state properly, the kernel of truth in this proposition about perfectly
competitive market.” Very differently, classical economists see
in Smith’s first sentences his programme to promote “The Wealth of Nations”. Using the
physiocratical concept of the economy as a circular process, to secure growth the inputs
of Period 2 must exceed the inputs of Period 1. Therefore, those outputs of Period 1 which
are not used or usable as inputs of Period 2 are regarded as unproductive labour, as
they do not contribute to growth. This is what Smith had heard in France from, among
others, François Quesnay, whose ideas Smith was so impressed by that he might have dedicated
The Wealth of Nations to him had he not died beforehand. To this French insight that unproductive
labour should be reduced to use labour more productively, Smith added his own proposal,
that productive labour should be made even more productive by deepening the division
of labour. Smith argued that deepening the division of labour under competition leads
to greater productivity, which leads to lower prices and thus an increasing standard of
living—”general plenty” and “universal opulence”—for all. Extended markets and increased production
lead to the continuous reorganisation of production and the invention of new ways of producing,
which in turn lead to further increased production, lower prices, and improved standards of living.
Smith’s central message is, therefore, that under dynamic competition, a growth machine
secures “The Wealth of Nations”. Smith’s argument predicted Britain’s evolution as the workshop
of the world, underselling and outproducing all its competitors. The opening sentences
of the “Wealth of Nations” summarise this policy: The annual labour of every nation is the fund
which originally supplies it with all the necessaries and conveniences of life which
it annually consumes … . [T]his produce … bears a greater or smaller proportion
to the number of those who are to consume it … .[B]ut this proportion must in every
nation be regulated by two different circumstances; first, by the skill, dexterity, and judgment
with which its labour is generally applied; and,
secondly, by the proportion between the number of those who are employed in useful labour,
and that of those who are not so employed [emphasis added].
However, Smith added that the “abundance or scantiness of this supply too seems to depend
more upon the former of those two circumstances than upon the latter.”===Criticism and dissent===
Alfred Marshall criticised Smith’s definition of the economy on several points. He argued
that man should be equally important as money, services are as important as goods, and that
there must be an emphasis on human welfare, instead of just wealth. The “invisible hand”
only works well when both production and consumption operates in free markets, with small (“atomistic”)
producers and consumers allowing supply and demand to fluctuate and equilibrate. In conditions
of monopoly and oligopoly, the “invisible hand” fails. Nobel Prize-winning economist
Joseph E. Stiglitz says, on the topic of one of Smith’s better-known ideas: “the reason
that the invisible hand often seems invisible is that it is often not there.”===Other 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, a history of astronomy down to Smith’s
own era, plus some thoughts on ancient physics and metaphysics, probably contain parts of
what would have been the latter treatise. Lectures on Jurisprudence were notes taken
from Smith’s early lectures, plus an early draft of The Wealth of Nations, published
as part of the 1976 Glasgow Edition of the works and correspondence of Smith. Other works,
including some published posthumously, include Lectures on Justice, Police, Revenue, and
Arms (1763) (first published in 1896); and Essays on Philosophical Subjects (1795).==Legacy=====In economics and moral philosophy===
The Wealth of Nations was a precursor to the modern academic discipline of economics. In
this and other works, Smith expounded how rational self-interest and competition can
lead to economic prosperity. Smith was controversial in his own day and his general approach and
writing style were often satirised by Tory writers in the moralising tradition of Hogarth
and Swift, as a discussion at the University of Winchester suggests. In 2005, The Wealth
of Nations was named among the 100 Best Scottish Books of all time.In light of the arguments
put forward by Smith and other economic theorists in Britain, academic belief in mercantilism
began to decline in Britain in the late 18th century. During the Industrial Revolution,
Britain embraced free trade and Smith’s laissez-faire economics, and via the British Empire, used
its power to spread a broadly liberal economic model around the world, characterised by open
markets, and relatively barrier-free domestic and international trade.George Stigler attributes
to Smith “the most important substantive proposition in all of economics”. It is that, under competition,
owners of resources (for example labour, land, and capital) will use them most profitably,
resulting in an equal rate of return in equilibrium for all uses, adjusted for apparent differences
arising from such factors as training, trust, hardship, and unemployment.Paul Samuelson
finds in Smith’s pluralist use of supply and demand as applied to wages, rents, and profit
a valid and valuable anticipation of the general equilibrium modelling of Walras a century
later. Smith’s allowance for wage increases in the short and intermediate term from capital
accumulation and invention contrasted with Malthus, Ricardo, and Karl Marx in their propounding
a rigid subsistence–wage theory of labour supply.Joseph Schumpeter criticised Smith
for a lack of technical rigour, yet he argued that this enabled Smith’s writings to appeal
to wider audiences: “His very limitation made for success. Had he been more brilliant, he
would not have been taken so seriously. Had he dug more deeply, had he unearthed more
recondite truth, had he used more difficult and ingenious methods, he would not have been
understood. But he had no such ambitions; in fact he disliked whatever went beyond plain
common sense. He never moved above the heads of even the dullest readers. He led them on
gently, encouraging them by trivialities and homely observations, making them feel comfortable
all along.”Classical economists presented competing theories of those of Smith, termed
the “labour theory of value”. Later Marxian economics descending from classical economics
also use Smith’s labour theories, in part. The first volume of Karl Marx’s major work,
Capital, was published in German in 1867. In it, Marx focused on the labour theory of
value and what he considered to be the exploitation of labour by capital. The labour theory of
value held that the value of a thing was determined by the labour that went into its production.
This contrasts with the modern contention of neoclassical economics, that the value
of a thing is determined by what one is willing to give up to obtain the thing. The body of theory later termed “neoclassical
economics” or “marginalism” formed from about 1870 to 1910. The term “economics” was popularised
by such neoclassical economists as Alfred Marshall as a concise synonym for “economic
science” and a substitute for the earlier, broader term “political economy” used by Smith.
This corresponded to the influence on the subject of mathematical methods used in the
natural sciences. Neoclassical economics systematised supply and demand as joint determinants of
price and quantity in market equilibrium, affecting both the allocation of output and
the distribution of income. It dispensed with the labour theory of value of which Smith
was most famously identified with in classical economics, in favour of a marginal utility
theory of value on the demand side and a more general theory of costs on the supply side.The
bicentennial anniversary of the publication of The Wealth of Nations was celebrated in
1976, resulting in increased interest for The Theory of Moral Sentiments and his other
works throughout academia. After 1976, Smith was more likely to be represented as the author
of both The Wealth of Nations and The Theory of Moral Sentiments, and thereby as the founder
of a moral philosophy and the science of economics. His homo economicus or “economic man” was
also more often represented as a moral person. Additionally, economists David Levy and Sandra
Peart in “The Secret History of the Dismal Science” point to his opposition to hierarchy
and beliefs in inequality, including racial inequality, and provide additional support
for those who point to Smith’s opposition to slavery, colonialism, and empire. They
show the caricatures of Smith drawn by the opponents of views on hierarchy and inequality
in this online article. Emphasised also are Smith’s statements of the need for high wages
for the poor, and the efforts to keep wages low. In The “Vanity of the Philosopher: From
Equality to Hierarchy in Postclassical Economics”, Peart and Levy also cite Smith’s view that
a common street porter was not intellectually inferior to a philosopher, and point to the
need for greater appreciation of the public views in discussions of science and other
subjects now considered to be technical. They also cite Smith’s opposition to the often
expressed view that science is superior to common sense.Smith also explained the relationship
between growth of private property and civil government: Men may live together in society with some
tolerable degree of security, though there is no civil magistrate to protect them from
the injustice of those passions. But avarice and ambition in the rich, in the poor the
hatred of labour and the love of present ease and enjoyment, are the passions which prompt
to invade property, passions much more steady in their operation, and much more universal
in their influence. Wherever there is great property there is great inequality. For one
very rich man there must be at least five hundred poor, and the affluence of the few
supposes the indigence of the many. The affluence of the rich excites the indignation of the
poor, who are often both driven by want, and prompted by envy, to invade his possessions.
It is only under the shelter of the civil magistrate that the owner of that valuable
property, which is acquired by the labour of many years, or perhaps of many successive
generations, can sleep a single night in security. He is at all times surrounded by unknown enemies,
whom, though he never provoked, he can never appease, and from whose injustice he can be
protected only by the powerful arm of the civil magistrate continually held up to chastise
it. The acquisition of valuable and extensive property, therefore, necessarily requires
the establishment of civil government. Where there is no property, or at least none that
exceeds the value of two or three days’ labour, civil government is not so necessary. Civil
government supposes a certain subordination. But as the necessity of civil government gradually
grows up with the acquisition of valuable property, so the principal causes which naturally
introduce subordination gradually grow up with the growth of that valuable property.
(…) Men of inferior wealth combine to defend those of superior wealth in the possession
of their property, in order that men of superior wealth may combine to defend them in the possession
of theirs. All the inferior shepherds and herdsmen feel that the security of their own
herds and flocks depends upon the security of those of the great shepherd or herdsman;
that the maintenance of their lesser authority depends upon that of his greater authority,
and that upon their subordination to him depends his power of keeping their inferiors in subordination
to them. They constitute a sort of little nobility, who feel themselves interested to
defend the property and to support the authority of their own little sovereign in order that
he may be able to defend their property and to support their authority. Civil government,
so far as it is instituted for the security of property, is in reality instituted for
the defence of the rich against the poor, or of those who have some property against
those who have none at all. (Source: The Wealth of Nations, Book 5, Chapter 1, Part 2)===In British Imperial debates===
Smith’s chapter on colonies, in turn, would help shape British imperial debates from the
mid-19th century onward. The Wealth of Nations would become an ambiguous text regarding the
imperial question. In his chapter on colonies, Smith pondered how to solve the crisis developing
across the Atlantic among the empire’s 13 American colonies. He offered two different
proposals for easing tensions. The first proposal called for giving the colonies their independence,
and by thus parting on a friendly basis, Britain would be able to develop and maintain a free-trade
relationship with them, and possibly even an informal military alliance. Smith’s second
proposal called for a theoretical imperial federation that would bring the colonies and
the metropole closer together through an imperial parliamentary system and imperial free trade.Smith’s
most prominent disciple in 19th-century Britain, peace advocate Richard Cobden, preferred the
first proposal. Cobden would lead the Anti-Corn Law League in overturning the Corn Laws in
1846, shifting Britain to a policy of free trade and empire “on the cheap” for decades
to come. This hands-off approach toward the British Empire would become known as Cobdenism
or the Manchester School. By the turn of the century, however, advocates of Smith’s second
proposal such as Joseph Shield Nicholson would become ever more vocal in opposing Cobdenism,
calling instead for imperial federation. As Marc-William Palen notes: “On the one hand,
Adam Smith’s late nineteenth and early twentieth-century Cobdenite adherents used his theories to argue
for gradual imperial devolution and empire ‘on the cheap’. On the other, various
proponents of imperial federation throughout the British World sought to use Smith’s
theories to overturn the predominant Cobdenite hands-off imperial approach and instead, with
a firm grip, bring the empire closer than ever before.” Smith’s ideas thus played an
important part in subsequent debates over the British Empire.===Portraits, monuments, and banknotes===Smith has been commemorated in the UK on banknotes
printed by two different banks; his portrait has appeared since 1981 on the £50 notes
issued by the Clydesdale Bank in Scotland, and in March 2007 Smith’s image also appeared
on the new series of £20 notes issued by the Bank of England, making him the first
Scotsman to feature on an English banknote. A large-scale memorial of Smith by Alexander
Stoddart was unveiled on 4 July 2008 in Edinburgh. It is a 10-foot (3.0 m)-tall bronze sculpture
and it stands above the Royal Mile outside St Giles’ Cathedral in Parliament Square,
near the Mercat cross. 20th-century sculptor Jim Sanborn (best known for the Kryptos sculpture
at the United States Central Intelligence Agency) has created multiple pieces which
feature Smith’s work. At Central Connecticut State University is Circulating Capital, a
tall cylinder which features an extract from The Wealth of Nations on the lower half, and
on the upper half, some of the same text, but represented in binary code. At the University
of North Carolina at Charlotte, outside the Belk College of Business Administration, is
Adam Smith’s Spinning Top. Another Smith sculpture is at Cleveland State University. He also
appears as the narrator in the 2013 play The Low Road, centred on a proponent on laissez-faire
economics in the late 18th century, but dealing obliquely with the financial crisis of 2007–2008
and the recession which followed; in the premiere production, he was portrayed by Bill Paterson.
A bust of Smith is in the Hall of Heroes of the National Wallace Monument in Stirling.===Residence===
Adam Smith resided at Panmure House from 1778 to 1790. This residence has now been purchased
by the Edinburgh Business School at Heriot Watt University and fundraising has begun
to restore it. Part of the Northern end of the original building appears to have been
demolished in the 19th century to make way for an iron foundry.===As a symbol of free-market economics===Smith has been celebrated by advocates of
free-market policies as the founder of free-market economics, a view reflected in the naming
of bodies such as the Adam Smith Institute in London, the Adam Smith Society and the
Australian Adam Smith Club, and in terms such as the Adam Smith necktie.Alan Greenspan argues
that, while Smith did not coin the term laissez-faire, “it was left to Adam Smith to identify the
more-general set of principles that brought conceptual clarity to the seeming chaos of
market transactions”. Greenspan continues that The Wealth of Nations was “one of the
great achievements in human intellectual history”. P. J. O’Rourke describes Smith as the “founder
of free market economics”.Other writers have argued that Smith’s support for laissez-faire
(which in French means leave alone) has been overstated. Herbert Stein wrote that the people
who “wear an Adam Smith necktie” do it to “make a statement of their devotion to the
idea of free markets and limited government”, and that this misrepresents Smith’s ideas.
Stein writes that Smith “was not pure or doctrinaire about this idea. He viewed government intervention
in the market with great skepticism…yet he was prepared to accept or propose qualifications
to that policy in the specific cases where he judged that their net effect would be beneficial
and would not undermine the basically free character of the system. He did not wear the
Adam Smith necktie.” In Stein’s reading, The Wealth of Nations could justify the Food and
Drug Administration, the Consumer Product Safety Commission, mandatory employer health
benefits, environmentalism, and “discriminatory taxation to deter improper or luxurious behavior”.Similarly,
Vivienne Brown stated in The Economic Journal that in the 20th-century United States, Reaganomics
supporters, the Wall Street Journal, and other similar sources have spread among the general
public a partial and misleading vision of Smith, portraying him as an “extreme dogmatic
defender of laissez-faire capitalism and supply-side economics”. In fact, The Wealth of Nations
includes the following statement on the payment of taxes: The subjects of every state ought to contribute
towards the support of the government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which they respectively enjoy
under the protection of the state. Some commentators have argued that Smith’s
works show support for a progressive, not flat, income tax and that he specifically
named taxes that he thought should be required by the state, among them luxury-goods taxes
and tax on rent. Yet Smith argued for the “impossibility of taxing the people, in proportion
to their economic revenue, by any capitation” (The Wealth of Nations, V.ii.k.1). Smith argued
that taxes should principally go toward protecting “justice” and “certain publick institutions”
that were necessary for the benefit of all of society, but that could not be provided
by private enterprise (The Wealth of Nations, IV.ix.51).
Additionally, Smith outlined the proper expenses of the government in The Wealth of Nations,
Book V, Ch. I. Included in his requirements of a government is to enforce contracts and
provide justice system, grant patents and copy rights, provide public goods such as
infrastructure, provide national defence, and regulate banking. The role of the government
was to provide goods “of such a nature that the profit could never repay the expense to
any individual” such as roads, bridges, canals, and harbours. He also encouraged invention
and new ideas through his patent enforcement and support of infant industry monopolies.
He supported partial public subsidies for elementary education, and he believed that
competition among religious institutions would provide general benefit to the society. In
such cases, however, Smith argued for local rather than centralised control: “Even those
publick works which are of such a nature that they cannot afford any revenue for maintaining
themselves . . . are always better maintained by a local or provincial revenue, under the
management of a local and provincial administration, than by the general revenue of the state”
(Wealth of Nations, V.i.d.18). Finally, he outlined how the government should support
the dignity of the monarch or chief magistrate, such that they are equal or above the public
in fashion. He even states that monarchs should be provided for in a greater fashion than
magistrates of a republic because “we naturally expect more splendor in the court of a king
than in the mansion-house of a doge”. In addition, he allowed that in some specific circumstances,
retaliatory tariffs may be beneficial: The recovery of a great foreign market will
generally more than compensate the transitory inconvenience of paying dearer during a short
time for some sorts of goods. However, he added that in general, a retaliatory
tariff “seems a bad method of compensating the injury done to certain classes of our
people, to do another injury ourselves, not only to those classes, but to almost all the
other classes of them” (The Wealth of Nations, IV.ii.39).
Economic historians such as Jacob Viner regard Smith as a strong advocate of free markets
and limited government (what Smith called “natural liberty”), but not as a dogmatic
supporter of laissez-faire.Economist Daniel Klein believes using the term “free-market
economics” or “free-market economist” to identify the ideas of Smith is too general and slightly
misleading. Klein offers six characteristics central to the identity of Smith’s economic
thought and argues that a new name is needed to give a more accurate depiction of the “Smithian”
identity. Economist David Ricardo set straight some of the misunderstandings about Smith’s
thoughts on free market. Most people still fall victim to the thinking that Smith was
a free-market economist without exception, though he was not. Ricardo pointed out that
Smith was in support of helping infant industries. Smith believed that the government should
subsidise newly formed industry, but he did fear that when the infant industry grew into
adulthood, it would be unwilling to surrender the government help. Smith also supported
tariffs on imported goods to counteract an internal tax on the same good. Smith also
fell to pressure in supporting some tariffs in support for national defence.Some have
also claimed, Emma Rothschild among them, that Smith would have supported a minimum
wage, although no direct textual evidence supports the claim. Indeed, Smith wrote: The price of labour, it must be observed,
cannot be ascertained very accurately anywhere, different prices being often paid at the same
place and for the same sort of labour, not only according to the different abilities
of the workmen, but according to the easiness or hardness of the masters. Where wages are
not regulated by law, all that we can pretend to determine is what are the most usual; and
experience seems to show that law can never regulate them properly, though it has often
pretended to do so. (The Wealth of Nations, Book 1, Chapter 8)
However, Smith also noted, to the contrary, the existence of an imbalanced, inequality
of bargaining power: A landlord, a farmer, a master manufacturer,
a merchant, though they did not employ a single workman, could generally live a year or two
upon the stocks which they have already acquired. Many workmen could not subsist a week, few
could subsist a month, and scarce any a year without employment. In the long run, the workman
may be as necessary to his master as his master is to him, but the necessity is not so immediate.==See also==
Adam Smith portal Organizational capital
List of abolitionist forerunners List of Fellows of the Royal Society of Arts
People on Scottish banknotes==References==
Informational notes Citations Bibliography Robert L. Helbroner. The Essential Adam Smith.
ISBN 0-393-95530-3 Benians, E. A (1925). “Adam Smith’s Project
of an Empire.” Cambridge Historical Journal 1 (3): 249–83.
Bonar, James, ed. (1894). A Catalogue of the Library of Adam Smith. London: Macmillan.
OCLC 2320634 – via Internet Archive. Buchan, James (2006). The Authentic Adam Smith:
His Life and Ideas. W. W. Norton & Company. ISBN 0-393-06121-3.
Buchholz, Todd (1999). New Ideas from Dead Economists: An Introduction to Modern Economic
Thought. Penguin Books. ISBN 0-14-028313-7. Bussing-Burks, Marie (2003). Influential Economists.
Minneapolis: The Oliver Press. ISBN 1-881508-72-2. Campbell, R. H.; Skinner, Andrew S. (1985).
Adam Smith. Routledge. ISBN 0-7099-3473-4. Coase, R.H. (October 1976). “Adam Smith’s
View of Man”. The Journal of Law and Economics. 19 (3): 529–46. doi:10.1086/466886.
Nicholson, Joseph Shield (1909). A Project of Empire: A Critical Study of the Economics
of Imperialism, with Special Reference to the Ideas of Adam Smith. London.
Otteson, James R. (2002). Adam Smith’s Marketplace of Life. Cambridge: Cambridge University Press.
ISBN 0521016568 Palen, Marc-William (March 2014). “Adam Smith
as Advocate of Empire, c. 1870–1932.” Historical Journal 57 (1): 179–98.
Rae, John (1895). Life of Adam Smith. London & New York: Macmillan. ISBN 0-7222-2658-6.
Retrieved 14 May 2018 – via Internet Archive. Ross, Ian Simpson (1995). The Life of Adam
Smith. Oxford University Press. ISBN 0-19-828821-2. Ross, Ian Simpson (2010). The Life of Adam
Smith (2 ed.). Oxford University Press. Skousen, Mark (2001). The Making of Modern
Economics: The Lives and Ideas of Great Thinkers. M.E. Sharpe. ISBN 0-7656-0480-9.
Smith, Adam (1977) [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations.
University of Chicago Press. ISBN 0-226-76374-9. Smith, Adam (1982) [1759]. D. D. Raphael and
A.L. Macfie, ed. The Theory of Moral Sentiments. Liberty Fund. ISBN 0-86597-012-2.
Smith, Adam (2002) [1759]. Knud Haakonssen, ed. The Theory of Moral Sentiments. Cambridge
University Press. ISBN 0-521-59847-8. Smith, Vernon L. (July 1998). “The Two Faces
of Adam Smith”. Southern Economic Journal. 65 (1): 2–19. doi:10.2307/1061349. JSTOR
1061349. Tribe, Keith; Mizuta, Hiroshi (2002). A Critical
Bibliography of Adam Smith. Pickering & Chatto. ISBN 978-1-85196-741-4.
Viner, Jacob (1991). Douglas A. Irwin, ed. Essays on the Intellectual History of Economics.
Princeton, New Jersey: Princeton University Press. ISBN 0-691-04266-7.==Further reading==
Butler, Eamonn (March 2007). Adam Smith – A Primer. Institute of Economic Affairs. ISBN
0-255-36608-6. Culture & Political Economy: Adam Smith & Alfred
Marshall. Tabur. 2012. Copley, Stephen (March 1995). Adam Smith’s
Wealth of Nations: New Interdisciplinary Essays. Manchester University Press. ISBN 0-7190-3943-6.
Glahe, F. (June 1977). Adam Smith and the Wealth of Nations: 1776–1976. University
Press of Colorado. ISBN 0-87081-082-0. Haakonssen, Knud (6 March 2006). The Cambridge
Companion to Adam Smith. Cambridge University Press. ISBN 0-521-77924-3.
Hardwick, D., and Marsh, L. (2014). Propriety and Prosperity: New Studies on the Philosophy
of Adam Smith. Palgrave Macmillan Hamowy, Ronald (2008). “Smith, Adam (1732–1790)”.
The Encyclopedia of Libertarianism. Thousand Oaks, CA: SAGE; Cato Institute. pp. 470–72.
doi:10.4135/9781412965811.n287. ISBN 978-1-4129-6580-4. LCCN 2008009151. OCLC 750831024.
Hollander, Samuel (June 1973). Economics of Adam Smith. University of Toronto Press. ISBN
0-8020-6302-0. Iain McLean (2006). Adam Smith, Radical and
Egalitarian: An Interpretation for the 21st Century. Edinburgh University Press. ISBN
0-7486-2352-3. Milgate, Murray & Stimson, Shannon. (August
2009). After Adam Smith: A Century of Transformation in Politics and Political Economy. Princeton
University Press. ISBN 0-691-14037-5. Muller, Jerry Z. (3 July 1995). Adam Smith
in His Time and Ours. Princeton University Press. ISBN 0-691-00161-8.
Norman, Jesse (2018). Adam Smith: What He Thought, and Why It Matters. Allen Lane.
O’Rourke, P. J. (4 December 2006). On The Wealth of Nations. Grove/Atlantic Inc. ISBN
0-87113-949-9. Otteson, James (2002). Adam Smith’s Marketplace
of Life. Cambridge University Press. ISBN 0-521-01656-8.
Otteson, James (2013). Adam Smith. Bloomsbury. ISBN 978-1441190130.
Phillipson Nicholas: Adam Smith: An Enlightened Life, Yale University Press, 2010 ISBN 978-0-300-16927-0,
352 pages; scholarly biography Iain McLean, Adam Smith, Radical and Egalitarian:
An Interpretation for the 21st Century (Edinburgh University Press, 2004)
Éric Pichet, (2004), Adam Smith, je connais !, French biography.
Vianello, F. [1999], “Social accounting in Adam Smith”, in: Mongiovi, G. and Petri F.
(eds.), Value, Distribution and capital. Essays in honour of Pierangelo Garegnani, London,
Routledge, ISBN 0-415-14277-6. Winch, Donald (2007) [2004]. “Smith, Adam”.
Oxford Dictionary of National Biography (online ed.). Oxford University Press. doi:10.1093/ref:odnb/25767.
(Subscription or UK public library membership required.)
Wolloch, N. (2015). “Symposium on Jack Russell Weinstein’s Adam Smith’s Pluralism: Rationality,
Education And The Moral Sentiments”. Cosmos + Taxis
“Adam Smith and Empire: A New Talking Empire Podcast,” Imperial & Global Forum, 12 March
2014.==External links==
“Adam Smith”. Archived from the original on 17 May 2009. Retrieved 17 May 2009. at the
Adam Smith Institute Works by Adam Smith at Open Library
Works by Adam Smith at Project Gutenberg Works by or about Adam Smith at Internet Archive
Works by Adam Smith at LibriVox (public domain audiobooks)
References to Adam Smith in historic European newspapers

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