Adam Smith

Scottish economist and philosopher

• Born: June 5, 1723 (baptized)
• Birthplace: Kirkcaldy, Fifeshire, Scotland
• Died: July 17, 1790
• Place of death: Edinburgh, Scotland

Smith was one of the major luminaries of the eighteenth century Scottish Enlightenment. His The Wealth of Nations became the bible of nineteenth century liberals, and twenty-first century conservatives have embraced his vision of the beneficent results of the free marketplace. Economists continue to pay homage to Smith for his contribution to the study of economic development.

Early Life

Adam Smith was born in a fishing and mining town near Edinburgh. His exact date of birth is unknown, although records show when he was baptized. His father, also named Adam, had died before his son’s birth. His mother, the former Margaret Douglas, was thus the most important influence in young Smith’s life. After attending the local school, Smith entered the University of Glasgow in 1737. In 1740, he won the Snell Exhibition, receiving a scholarship for study at Balliol College, Oxford, and spent the next six years there reading widely in the classics, literature, and philosophy.

From 1746 to 1748, Smith lived with his mother in Kirkcaldy, until a group of friends arranged for him to give a series of public lectures in Edinburgh. These lectures proved so successful that he was named to the chair of logic at the University of Glasgow in 1751. When the equivalent position for moral philosophy became available that same year, he was elected to the place. Smith proved to be not simply a popular and effective teacher; he became heavily involved in university administration, serving as quaestor for six years, then as dean of faculty and as vice rector.

At Glasgow, Smith lectured on a broad range of topics: rhetoric and belles lettres, natural theology, ethics, and jurisprudence (law, government, and economics). Although nothing is known about his lectures on natural theology (except for a former student’s report that they dealt with “the proofs of the being and attributes of God, and those principles of the human mind upon which religion is founded”), student notes on his rhetoric and economic lectures have been published. Smith’s lectures on ethics became the basis of his first book, The Theory of Moral Sentiments (1759). The work was an immediate success, it was translated into French and German, and it went through nine editions during Smith’s life.

Influential politician Charles Townshend was so impressed that he engaged Smith to tutor his stepson, the young duke of Buccleuch. In early 1764, Smith gave up his Glasgow chair to accompany his charge on a Grand Tour of the Continent that lasted until late 1766. After his return, Smith worked briefly as an adviser to Townshend, who was then chancellor of the exchequer. Given a generous lifetime pension by Buccleuch, Smith then went back to Kirkcaldy to work on what would be his masterpiece. From 1773 to 1776, he was in London advising the government on economic matters while simultaneously continuing with his own writing. The publication of An Inquiry into the Nature and Causes of the Wealth of Nations (commonly known as The Wealth of Nations) on March 9, 1776, was a landmark in Western thought.

Life’s Work

Adam Smith first made his reputation with The Theory of Moral Sentiments. The problem he set for himself in this book was to explain the forces responsible for the socialization of the individual to fit that person for membership in a social group. Reflecting the optimistic Deism of the Scottish Enlightenment, his starting point was that God had endowed human beings with inborn “moral sentiments” that bound them together. One such sentiment was the desire each person had for the praise and approval of his or her fellows or acquaintances: “Nature, when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his brethren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard.” The second was an individual’s capacity for imaginatively identifying with others: “This is the only looking-glass by which we can, in some measure,… scrutinize the propriety of our own conduct.”

Smith regarded justice as the “main pillar” upon which society rested. He defined this justice in negative terms—as consisting of refraining from injuring another person or from taking or withholding from another what belonged to that person. More important, Smith realized the impossibility of relying exclusively upon the spontaneous and natural operation of an individual’s impulses toward fellow feeling for the attainment of justice. The force of what he termed “sympathy” was strongest among those sharing a common social bond—membership in the same family, church, town, guild, or other social group. The wider the distance, physical or social, that separated people, the weaker was the bond’s influence: “All men, even those at the greatest distance,” he wrote, “are no doubt entitled to our good wishes, and our good wishes we naturally give them. But if, notwithstanding, they should be unfortunate, to give ourselves any anxiety upon that account seems to be no part of our duty.” Accordingly, people formulate general rules to govern their actions and institute governments to enforce those rules by legal sanctions.

Smith recognized that individuals were moved simultaneously by self-regard and by social passions. The key to his later book, The Wealth of Nations, was his belief in the primacy of the self-regarding motives within the economic sphere, given the impersonality and anonymity of the marketplace. The individual, he believed, is dependent upon the goodwill of his or her neighbors but cannot depend on their generosity alone to provide it. To ensure the proper feeling, the individual must show others that it is to their own benefit to help the individual: “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.” Smith’s larger purpose in The Wealth of Nations was to identify the reasons behind what is called economic development, or what he called the progress of opulence. One such cause was the “propensity to truck, barter, and exchange one thing for another,” which Smith considered to be “one of those original principles in human nature, of which no further account can be given.” The second was the similarly natural ambition by individuals to gain the esteem of their fellows by improving their economic status and thus their rank in society.

These impulses interacted to promote economic development through the mechanism of an increasingly extensive division of labor. Smith’s major contribution to economic theory lay in his explanation of the ways in which the specialization of function, accompanying the division of labor, increased productivity by reducing the time wasted in shifting from one task to another, sharpening workers’ skills, and facilitating the invention of improved machinery. Smith envisaged the size of the market as the major limitation upon the extent to which the division of labor could go. Thus, he saw the process progressing almost automatically toward always higher levels of well-being: The more productivity was increased, the larger the population that could be supported; the larger the population, the larger the market; the larger the market, the more extensive the division of labor. Smith’s argument for international free trade rested upon the same ground. Each country specializing in the kinds of production in which it had a comparative advantage would increase the total wealth of all. A major target of the book was the mercantilist policies of Smith’s time, which aimed at promoting national autarky (economic self-sufficiency), which Smith attacked for forcing “part of the industry of the country into a channel less advantageous than that in which it would run of its own accord.”

Behind Smith’s exaltation of the beneficent economic results of the pursuit of self-interest lay Sir Isaac Newton’s vision of a universe governed by self-regulating laws. Under a regime of free exchange, individuals unintentionally promote the good of their nation’s economy. An individual does this when trying “as much as he can both to employ his capital in support of domestick 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 also assumed a tendency toward a self-correcting equilibrium in the economy. Aggregate income and output were automatically in balance; free competition would ensure that whenever prices, wages, or the return on capital rose above or fell below their “natural” rates, supply and demand would bring about the required adjustment. The corollary was that government regulation will always distort the most efficient utilization of resources by interfering with the “natural balance of industry.”

The first edition of The Wealth of Nations sold out within six months of publication. Smith published a revised edition in 1778 and followed it with a substantially expanded third edition six years later. The work was translated into French, German, Danish, Dutch, Italian, and Spanish. In 1777, Smith was appointed commissioner of the customs in Edinburgh, where he would live for the rest of his life. The income from this position, combined with his pension from the duke of Buccleuch, made Smith a comparatively wealthy man. Perhaps because of his close ties with his mother until her death in 1784, he never married. Nevertheless, he was active in the social life of Edinburgh’s intellectual and scientific community. Among the honors he received was election in 1787 to the rectorship of the University of Glasgow. Although notorious for his absentmindedness, Smith maintained his broad intellectual interests. He revised and added to The Theory of Moral Sentiments. His Essays on Philosophical Subjects, published posthumously in 1795, include a lengthy piece on the history of astronomy that has earned for him recognition as a pioneer in the history and philosophy of science. He continued to write, but he destroyed the bulk of his manuscripts shortly before his death at the age of sixty-seven on July 17, 1790.

Significance

The Wealth of Nations became the bible of those who favor laissez-faire economics, that is, no interference by the government with the individual’s pursuit of self-interest in the marketplace. Nevertheless, Adam Smith was not the uncritical admirer of private enterprise that many later admirers thought him to be. He was deeply suspicious of the tendency of businessmen to seek special privileges from the government and to combine to extort monopoly profits. When monopoly could not be avoided, he preferred government to private control. Nor was he dogmatic in his support for laissez-faire. He upheld the responsibility of the state to provide public services that would benefit society as a whole, but only when they were “of such a nature, that the profit could never repay the expence to any individual, or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.”

He explicitly endorsed publicly supported compulsory elementary education to offset the stultifying effects of the division of labor. He similarly qualified his support for international free trade by allowing for protectionist measures when they were required for national defense, a priority “of much more importance than opulence.”

Even though his position was distorted by later exponents of laissez-faire, Smith’s prescriptive recommendations would have a major impact on governmental policies not simply in Great Britain but throughout the Western world as well. Writing in 1857, the historian H. T. Buckle concluded that “looking at its ultimate results, [The Wealth of Nations] is probably the most important book that has ever been written, and is certainly the most valuable contribution ever made by a single man towards establishing the principles on which government should be based.” The later reaction against laissez-faire spurred the resultant downgrading of Smith, but a new generation of free marketers has found in his writings a continued source of inspiration.

At the same time, Smith’s intellectual influence has transcended the economic implications of his work. Smith was a pioneer in the application of the historical approach to the analysis of economic phenomena. His arguments rested not only upon his astute observations of contemporary society but also upon a vast accumulation of data drawn from his wide reading in history. Even more important, his work was the first comprehensive and systematic exploration of how a capitalist market economy worked. His emphasis upon the central role of the division of labor would be followed by later students—including those, such as Karl Marx, who found more to damn than to praise.

Bibliography

Campbell, R. H., and A. S. Skinner. Adam Smith. London: Croom Helm, 1982. A succinctly written and comprehensive biography based upon a thorough mastery of the extant primary sources.

Dougherty, Peter J. Who’s Afraid of Adam Smith? How the Market Got Its Soul. New York: J. Wiley, 2002. Analyzes two of Smith’s books: The Wealth of Nations, with its ideas about the free market, and the more obscure A Theory of Moral Sentiments, expressing Smith’s belief that free markets can flourish only in societies with social capital and strong institutions of civil society. Dougherty explains how there has been a renaissance of interest in Smith’s ideas, and he describes how some economists have taken measures to integrate Smith’s moral sentiments into capitalism.

Fleischaker, Samuel. On Adam Smith’s “Wealth of Nations”: A Philosophical Companion. Princeton, N.J.: Princeton University Press, 2004. Fleischaker explains Smith’s economic ideas within the context of Smith’s moral theory and philosophies of science and social science. He also relates Smith’s ideas to the thoughts of his contemporaries, including David Hume and Francis Hutchinson.

Glahe, Fred R., ed. Adam Smith and the Wealth of Nations: 1776-1976 Bicentennial Essays. Boulder: Colorado Associated Press, 1978. A collection of appreciations by twentieth century champions of the free market.

Lightwood, Martha B. A Selected Bibliography of Significant Works About Adam Smith. Philadelphia: University of Pennsylvania Press, 1984. A handy bibliographical guide to important works about Smith.

Raphael, D. D. Adam Smith. New York: Oxford University Press, 1985. A brief intellectual biography written especially for the general reader.

Ross, Ian Simpson. The Life of Adam Smith. New York: Oxford University Press, 1995. A comprehensive and scholarly biography of Smith.

Skinner, Andrew S. A System of Social Science: Papers Relating to Adam Smith. Oxford, England: Clarendon Press, 1979. A collection of essays dealing with different aspects of Smith’s thought by a foremost authority.

Wood, John Cunningham, ed. Adam Smith: Critical Assessments. 4 vols. London: Croom Helm, 1983. A massive compilation that brings together the more important commentaries on Smith.