Adam Smith (1723-1790) was a Scottish social philosopher and pioneer of classical economics. He is best known for his work ‘The Wealth of Nations‘ which laid down a framework for the basis of free-market economics. Though often considered a champion of capitalism and laissez-faire economics, he was also aware of the limitations of unbridled capitalism and considered his most important work to be “The Theory of Moral Sentiments”. In this work, Smith outlined the importance of sympathy for other people as a key element of human morality. He was good friends with David Hume and together they were a key element in the Scottish Enlightenment.
Short Biography of Adam Smith
Adam Smith was born 5 June 1723 in Kirkcaldy, Scotland.
After studying at the Burgh School of Kirkcaldy, he entered the University of Glasgow to study moral philosophy. He excelled and gained a scholarship to study at Balliol College, Oxford University. However, Smith found his time in Oxford disappointing; he was unimpressed by the standard of teaching, finding that most tutors had little interest in teaching. As a consequence, he returned to Scotland where he began giving lectures in Edinburgh before taking up a post at Glasgow University. From 1751, he was a professor of Moral philosophy at Glasgow University. His teaching and lectures became widely known and he attracted students from all over Europe.
Philosophy and moral sentiments
Around 1750, he met the philosopher David Hume. They shared a similarity of beliefs about liberty, free speech and philosophy. It became an important personal and intellectual friendship for Smith, and it played an important role in his own moral philosophy.
In 1759, he published The Theory of Moral Sentiments. This developed the idea that in human relations, sympathy for other people is a key element of morality and human behaviour.
“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. ” – The Theory of Moral Sentiments, Section I, Ch I.
This concentration on sympathy may sound contradictory to his later writings on economics, which emphasised how selfish actions can contribute to the greater good. However, Smith was aware that taking into account the welfare of others contributed to our own feeling of well-being. Also, different aspects of life brought out different sides to people. For example, in designing a factory, you would seek to make the most efficient decision (e.g. division of Labour). In deciding how to deal with the poor, human sympathy became an important element of individual choice.
Adam Smith and Economics
After moral philosophy, Smith became more interested in the subject of political economy. He wrote his groundbreaking book “The Wealth of Nations” in 1776. (the same year as the American Revolution)
Smith was particularly interested in the concept of ‘division of labour’ and how workers specialising in a particular task could increase the productivity of labour and improve living standards. He used the example of a pin factory, to explain how the division of labour could work in practice.
“The greatest improvement in the productive powers of labour, and the greatest part of skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labour.” – Adam Smith, Wealth of Nations, Book I, Ch 1, p7
The invisible hand
Smith clarified some existing ideas on economics and helped popularise the concept of an ‘invisible hand’ in production. He stated that if people seek to maximise their own self-interests it would lead to an efficient outcome for the whole of society. This suggested there was no conflict between pursuing selfish ends and the whole society benefiting. He also produced a theory suggesting free trade was in everyone’s interest, even when it involved importing cheap goods from abroad. Milton Friedman stated that the greatest contribution of Adam Smith was to show that trade and economic interactions could be mutually beneficial – making everyone better off. This contrasted with the existing view (known as the Mercantilist View) that the economic pie was fixed and so becoming rich meant having to take off other people. This was significant as Smith lived in an age of Empire, where countries wanted to exploit the wealth of other nations. Smith’s new understanding of economics showed you could increase welfare – not by conquest and theft, but through mutually beneficial trade.
Limitations of free markets
Despite offering a justification for capitalist society and the workings of the market, Smith was also aware private business could end up exploiting consumers if they were not checked. In particular, he was concerned about the growth of monopoly power. He also supported the imposition of progressive ‘fair’ taxes which took proportionately more from the rich than poor.
“It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.” – Adam Smith, Wealth of Nations, Ch II, p. 911
Outside of economics, Smith opposed imperialism, slavery and vast inequality.
“No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable. ”
His biggest legacy was perhaps in the development of modern economics. His work would later be expanded upon by economists who developed his models of supply and demand, such as Walras (general equilibrium) and Paul Samuelson (supply and demand in wages and rent). Smith’s theory of labour was also used in part by Karl Marx during his work Capital. Smith was also an important influence on the free trade movement of the 19th Century and hastened the demise of mercantilism as the prevailing ideology of political economy.
Smith is best remembered for his support of free markets, though his work suggests it is more complicated and not so black and white. It would be unfair to label him as an unbridled supporter of laissez-faire (no government intervention). Smith was a clear thinker unbridled with dogmatism.
“The first thing you have to know is yourself. A man who knows himself can step outside himself and watch his own reactions like an observer.” ―
Smith remained unmarried and stayed close to his mother, until her passing. He was characterised as rather ungainly in appearance and was rather absent-minded in the real world. He often paid little attention to outer details, caught up in his own world of thought and ideas. Smith could talk to himself outloud and friends described a smile of “inexpressible benignity”
Smith’s father was a strong Christian but, at Oxford, Smith appears to have lost interest in the Christian church, professing beliefs that could be interpreted as Deist (Belief in personal God similar to some of the founding fathers of the US). In his writings he doesn’t make reference to God, but did mention the “Great Architect of the Universe” – suggesting he did see divine providence in the workings of the world.
Adam Smith died in Edinburgh on 17 July 1790 after a painful illness. Amongst his final words, he expressed a regret that he had not achieved more. He requested that his private papers would be burnt.
Legacy of Adam Smith
The Wealth of Nations is widely considered to be one of the most influential books in western history. It is a cornerstone of modern economics, which both supporters and critics reference as a starting point. It also symbolised a move from the pre-industrial mercantilist age, to a modern world where trade rather than empire was seen as the progressive way forward.
What were the economic beliefs of Adam Smith?
In a modern setting, we would classify Adam Smith as either a free-market economist or a social democrat, centre-left. He generally supported free markets and was aware of their efficiencies. However, he was not a libertarian (no governmentt intervention). Whilst supporting the efficiency of markets, he was also aware of the problems of monopolies and exploitation of consumers and the poor. Smith also argued for a progressive tax system to pay for public goods.
In a way, Smith is very much a centrist economist. Some claim Smith as a champion of capitalism, but this claim is not so straightforward Smith was more nuanced as a thinker and willing to examine the evidence – not fixed on a certain ideology. Other economists such as Marx, Stiglitz and Thomas Piketty criticise Smith for being too concentrated on free markets and treating labour as a commodity rather than human.
The Economics Bible – read Tejvan Pettinger’s – author of this article – book on economics
Cracking Economics (UK)
The Essential Adam Smith at Amazon
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