Adam Smith (16 June 1723 NS (5 June 1723 OS ) – 17 July 1790) was a Scottish moral philosopher , pioneer of political economy , and a key figure in the Scottish Enlightenment . [2]

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, most of the time abbreviated as The Wealth of Nations , is considered his magnum opus and the first modern work of economics . Smith is cited as the dad of modern economics and is still amongst the most influential thinkers in the field of economics today. [3]

Smith studied social philosophy at the University of Glasgow and at Balliol College, Oxford , where he had been 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 throughout the Scottish Enlightenment . Smith obtained a professorship at Glasgow teaching moral philosophy, and throughout 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 additional 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 additional works, he 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 most often satirised by Tory writers in the moralising tradition of William Hogarth and Jonathan Swift . In 2005, The Wealth of Nations was named amongst the 100 Best Scottish Books of all time. [4] The minor planet 12838 Adamsmith was named in his memory. [5]



Biography

Early life

Smith began life in Kirkcaldy , in the County of Fife , in Scotland. His father, additionally Adam Smith, was a Scottish Writer to the Signet (senior solicitor ), advocate , and prosecutor (Judge Advocate) and additionally served as comptroller of the Customs in Kirkcaldy. In 1720 he married Margaret Douglas, daughter of the landed Robert Douglas of Strathendry, additionally in Fife. His dad passed away two months after he had been born, leaving his mom a widow. The date of Smith's baptism into the Church of Scotland at Kirkcaldy was 5 June 1723, and this has most often been treated as if it were additionally 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 gipsies 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 had been fourteen 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 .

Adam 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 a large number of years, given up altogether even the pretence of teaching." Smith is additionally reported to have complained to friends that Oxford officials once detected him reading a copy of David Hume 's Treatise on 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 a large number of books from the shelves of the large Bodleian Library . When Smith wasn't studying on his own, his time at Oxford wasn't 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. [2]

In Book V of The Wealth of Nations , Smith comments on the low quality of instruction and the meagre 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 .

Adam Smith's discontent at Oxford might be in part due to the absence of his beloved teacher in Glasgow, Francis Hutcheson . Hutcheson 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 fervour and earnestness of his orations (which he at times opened to the public). His lectures endeavoured not merely to teach philosophy but to make his students embody that philosophy in their lives, appropriately acquiring the epithet, the preacher of philosophy. Unlike Smith, Hutcheson wasn't a system builder; rather it was his magnetic personality and method of lecturing that 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 . [2]

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 , [2] 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 wasn't 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 additional important figures of the Scottish Enlightenment. [2]

In 1751, Smith earned a professorship at Glasgow University teaching logic courses, and in 1752 he had been 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 passed away the next year, Smith took over the position. He worked as an academic for the next thirteen years, which he characterised as "by far the most useful and therefore by far the happiest and most honourable period [of his life]".

Smith published The Theory of Moral Sentiments in 1759, embodying a few of his Glasgow lectures. This work was concerned with how human morality depends on sympathy between agent and spectator, or the individual and additional 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 twentieth-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 a large number of wealthy students left their schools in additional countries to enrol at Glasgow to learn under Smith. [2] 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. [2] For instance, 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. [2]

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. 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.

Tutoring and travels

Smith's tutoring job entailed touring Europe with Scott, throughout which time he educated Scott on a variety of subjects – like proper Polish. He had been 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 one and a half years. 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 . [3]

From Geneva, the party moved to Paris. Here Smith came to know several great intellectual leaders of the time; invariably having an effect on his future works. This list included: Benjamin Franklin , Turgot , Jean D'Alembert , André Morellet , Helvétius , and, notably, François Quesnay , the head of the Physiocratic school . [3] So impressed with his ideas [3] Smith considered dedicating The Wealth of Nations to him – had Quesnay not passed away beforehand. [3] 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!). They were additionally known to have declared that only agricultural activity produced real wealth; merchants and industrialists (manufacturers) did not. This however, didn't represent their true school of thought, but was a mere "smoke screen" manufactured to hide their actual criticisms of the nobility and church; arguing that they made up the only real clients of merchants. [3]

The wealth of France was virtually destroyed by Louis XIV and Louis XV in ruinous wars, [3] by aiding the American insurgents against the British, and perhaps most destructive (in terms of public perceptions) was what was seen as the excessive consumption of goods and services deemed to have no economic contribution – unproductive labour. Assuming that nobility and church are essentially detractors from economic growth, the feudal system of agriculture in France was the only sector important to maintain 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 the teachings and beliefs of Physiocrats were, "with all [their] imperfections [perhaps], the nearest approximation to the truth that has yet been published upon the subject of political economy". [3] 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 passed away 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 ten years to his magnum opus. [3] There he befriended Henry Moyes , a young blind man who showed precocious aptitude. As well as teaching Moyes, 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. [9] 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 mom 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 , and from 1787 to 1789 he occupied the honorary position of Lord Rector of the University of Glasgow . He passed away in the northern wing of Panmure House in Edinburgh on 17 July 1790 after a painful illness and was buried in the Canongate Kirkyard . On his death bed, Smith expressed disappointment that he hadn't 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 a large number of notes and a few unpublished material, but gave instructions to destroy anything that wasn't fit for publication. He mentioned an early unpublished History of Astronomy as probably suitable, and it duly appeared in 1795, along with additional material like 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 Rev. W. B. Cunningham of Prestonpans in 1878, Mrs. Cunningham sold a few 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), Edinburgh.

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 passed away six years before his own death.

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 had been known to talk to himself, a habit that began throughout his childhood when he would smile in rapt conversation with invisible companions. He additionally had occasional spells of imaginary illness, and he's 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 additionally 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, and 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, who's reported to have been an odd-looking fellow, has been described as someone who "had a large nose, bulging eyes, a protruding lower lip, a nervous twitch, and a speech impediment". 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, [11] so almost all depictions of him created throughout 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 nineteenth century reprints of The Wealth of Nations were based largely on Tassie's medallion.

Religious views

There has been considerable scholarly debate about the nature of Smith's religious views. Smith's dad 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 might 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 at times refer to the " Great Architect of the Universe ", later scholars like 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 like the one in the Wealth of Nations in which Smith writes that the curiosity of mankind about the "great phenomena of nature", like "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 like mankind were better acquainted with than the agency of the gods".

Some additional 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. [12]

Smith was additionally a close friend and later the executor of David Hume , who was commonly characterised in his own time as an atheist . [13] 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. [14]

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. [15] Smith continued making extensive revisions to the book, up until his passing. Although The Wealth of Nations is widely regarded as Smith's most influential work, it is believed that Smith himself 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." [18] 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 behavior. 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 behavior, 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, a few 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 consequence 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, a few 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

There is disagreement 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 might 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's 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 might be of the greatest value, he intends only his own gain, and he's in this, as in a large number of additional 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 quite common amongst merchants, and quite few words need be employed in dissuading them from it.

Those who regard that statement as Smith's central message additionally quote frequently Smith's dictum:

It isn't 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" might be meant to reply Mandeville's contention that "Private Vices ... might 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 had been wary of businessmen and warned of their "conspiracy against the public or in a few additional contrivance to raise prices". Again and again, Smith warned of the collusive nature of business interests, which might form cabals or monopolies , fixing the highest price "which can be squeezed out of the buyers". Smith additionally 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 a few 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." [19] 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 ordinarily 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 additional workman being exactly in the same situation, he's 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 to see it as a precursor of neoclassical economics and its General Equilibrium concept. Samuelson's "Economics" refers 6 times to Smith's "invisible hand". To emphasise this relation, Samuelson quotes Smith's "invisible hand" statement putting "general interest" where Smith wrote "public interest". Samuelson concluded: "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". Taking up the physiocratical concept of the economy as a circular process means that to have growth the inputs of period2 must excel the inputs of period1. Therefore, the outputs of period1 not used or usable as input of period2 are regarded as unproductive labour as they don't contribute to growth. This is what Smith had heard in France from, amongst others, Quesnay . To this French insight that unproductive labour should be pushed back 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 continuous reorganisation of production and inventing new ways of producing, which lead to further increased production, lower prices, and increased 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're to consume it ... .[B]ut this proportion must in every nation be regulated by two different circumstances;

  • first, by the skill, dexterity, and judgement with which its labour is ordinarily applied; and,
  • secondly, by the proportion between the number of those who're employed in useful labour, and that of those who aren't so employed [emphasis added].

Smith added, however, 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 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 most often seems invisible is that it is most 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 a few 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 draught of The Wealth of Nations , published as part of the 1976 Glasgow Edition of the works and correspondence of Smith. Other works, including a few published posthumously, include Lectures on Justice, Police, Revenue, and Arms (1763) (first published in 1896); and Essays on Philosophical Subjects (1795). [20]

Legacy

In economics and moral philosophy

The Wealth of Nations was a precursor to the modern academic discipline of economics. In this and additional 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 most often satirised by Tory writers in the moralising tradition of Hogarth and Swift, as a discussion at the University of Winchester suggests. [21] In 2005, The Wealth of Nations was named amongst the 100 Best Scottish Books of all time. [4] Former UK Prime Minister Margaret Thatcher , it is said, used to carry a copy of the book in her handbag. [22]

In light of the arguments put forward by Smith and additional economic theorists in Britain, academic belief in mercantalism began to decline in Britain in the late eighteenth century. Throughout 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 obvious differences arising from such factors as training, trust, hardship, and unemployment. [24]

Paul Samuelson finds in Smith's pluralist use of supply and demand as applied to wages, rents, 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. [26]

Joseph Schumpeter criticised Smith for a lack of technical rigor, yet he argued that this enabled Smith's writings to appeal to wider audiences: "His quite limitation made for success. Had he been more brilliant, he wouldn't 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 wouldn't 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 additionally 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. [27] [28] 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 additional 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 additionally more most 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. [29] They show the caricatures of Smith drawn by the opponents of views on hierarchy and inequality in this online article. Emphasised additionally 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 additionally cite Smith's view that a common street porter wasn't intellectually inferior to a philosopher, and point to the need for greater appreciation of the public views in discussions of science and additional subjects now considered to be technical. They additionally cite Smith's opposition to the most often expressed view that science is superior to common sense. [30]

Smith additionally explained the relationship between growth of private property and civil government:

"Men might live together in society with a few tolerable degree of security, though there's 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's great property there's great inequality. For one quite 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're most 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 a large number of years, or perhaps of a large number of 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's no property, or at least none that exceeds the value of two or three days' labour, civil government isn't 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 might 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 might 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 a few 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 in turn would help shape British imperial debates from the mid-nineteenth 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 amongst the empire's thirteen 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 nineteenth-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 like 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, numerous 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." [31] 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 after 1981 on the £ 50 notes issued by the Clydesdale Bank in Scotland, [33] [35] and in March 2007 Smith's image additionally 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 . [37]

A large-scale memorial of Smith by Alexander Stoddart was unveiled on 4 July 2008 in Edinburgh. It is a 10 feet (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, a few 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 . An Additional Smith sculpture is at Cleveland State University . [39] He additionally appears as the narrator in the 2013 play The Low Road , centred on a proponent on laissez-faire economics in the late eighteenth century but dealing obliquely with the financial crisis of 2007–2008 and the recession which followed – in the premiere production, he had been portrayed by Bill Paterson .

Residence

Adam Smith resided at Panmure house from 1778–90. This residence has now been purchased by the Edinburgh Business School at Heriot Watt University and fundraising has begun to restore it. [40] [41] Part of the Northern end of the original building appears to have been demolished in the nineteenth 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 like the Adam Smith Institute in London, the Adam Smith Society [43] and the Australian Adam Smith Club, [44] and in terms like the Adam Smith necktie. [45]

Alan Greenspan argues that, while Smith didn't 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". [47] P. J. O'Rourke describes Smith as the "founder of free market economics". [49]

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 had been prepared to accept or propose qualifications to that policy in the specific cases where he judged that their net effect would be beneficial and wouldn't undermine the basically free character of the system. He didn't 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 twentieth century United States, Reaganomics supporters, the Wall Street Journal , and additional similar sources have spread amongst 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 ". [51] 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, amongst 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 couldn't 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 like infrastructure, provide national defence and regulate banking. It was the role of the government to provide goods "of such a nature that the profit could never repay the expense to any individual" like roads, bridges, canals, and harbours. He additionally 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 amongst 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 can't 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're 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 splendour in the court of a king than in the mansion-house of a doge ". In addition, he allowed that in a few specific circumstances retaliatory tariffs might be beneficial:

"The recovery of a great foreign market will ordinarily more than compensate the transitory inconvenience of paying dearer throughout a short time for a few sorts of goods."

He added, however, 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 additional classes of them" ( The Wealth of Nations, IV.ii.39).

Economic historians like 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 . [53]

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. [54] [55] Economist David Ricardo set straight a few 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 had been 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 additionally supported tariffs on imported goods to counteract an internal tax on the same good. Smith additionally fell to pressure in supporting a few tariffs in support for national defence.

Some have additionally claimed, Emma Rothschild amongst them, that Smith would have supported a minimum wage, [56] although there's no direct textual evidence supporting the claim. Indeed, Smith wrote:

"The price of labour, it must be observed, can't be ascertained quite accurately anywhere, different prices being most 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 aren't regulated by law, all that we can pretend to determine is what're the most usual; and experience seems to show that law can never regulate them properly, though it has most often pretended to do so." (Source: The Wealth of Nations, Book 1, Chapter 8)

Smith additionally noted a rough equality of bargaining power :

A landlord, a farmer, a master manufacturer, a merchant, though they didn't employ a single workman, could ordinarily live a year or two upon the stocks which they have already acquired. Many workmen couldn't subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman might be as necessary to his master as his master is to him; but the necessity isn't so immediate.

See also