Adam Smith

Summary

Adam Smith (16 June 1723 – 17 July 1790) was a Scottish economist and moral philosopher. He is considered one of the pioneers of political economy and founder of the school of classical economics. One of the main representatives of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776), the latter usually referred to simply as The Wealth of Nations and considered Smith”s major work and the first modern work on economics.

Smith studied moral philosophy at the Universities of Glasgow and Oxford, where he was one of the first students to benefit from the scholarships established by John Snell. On completion of his studies he gave a series of public lectures at the University of Edinburgh which led to his collaboration with David Hume during the Scottish Enlightenment. Smith took up a professorship in Glasgow where he taught moral philosophy and published The Theory of Moral Sentiments. He later took up a visiting professorship, which allowed him to travel throughout Europe and interact with other intellectuals of his time. Adam Smith laid the foundations of classical free market economic theory. The Wealth of Nations was the forerunner of modern economics. In this and other works, he explained how calculated self-interest and competition can lead to economic prosperity. Smith was controversial in his day and his general approach and writing style was often satirised by Tory-affiliated writers in the moralistic tradition of Hogarth and Swift.

In 2005, The Wealth of Nations was named among the 100 best Scottish books of all time. Former British Prime Minister Margaret Thatcher is said to have used to carry a copy of the book in her handbag.

Youth

Smith was born in Kirkland, Scotland. His father was also called Adam Smith and worked as a lawyer and civil servant. He married Margaret Douglas in 1720, but she died two months after Adam Smith”s birth. Although the exact date of his birth is not known, the date of his baptism (5 June 1723) has survived, and this was often used as his birth date, since it remained unknown. Little is known about his childhood. The Scottish journalist and Smith”s biographer, John Rae, reports that Smith was kidnapped by gypsies at the age of four and was only released after some people organised an expedition to rescue him. Adam Smith was reportedly close to his mother, who encouraged him to pursue his academic ambitions. Adam Smith attended Burgh School (described by Ray as ”one of the best secondary schools of that time in Scotland”) from 1729 to 1737, where he studied Latin, mathematics and history.

Education

Smith entered the University of Glasgow when he was fourteen and studied moral philosophy under the tutelage of Francis Hutcheson. There he developed his passion for freedom, reason and free speech. In 1740, Smith was the graduate scholar presented for postgraduate study at Balliol College, Oxford, as part of the Snell Exhibition (an annual scholarship awarded to a student at the University of Glasgow).

Smith considered the teaching in Glasgow far superior to that in Oxford, which he found intellectually oppressive. In Book V, Chapter II of the Wealth of Nations, he writes: “In the University of Oxford, the greater part of the public professors have for many years given up teaching altogether, even in pretence.” Smith also reported that he had complained to friends that Oxford officials once discovered him reading a copy of David Hume”s Treatise on Human Nature, and then confiscated his book and severely disciplined him for reading it. According to William Robert Scott, “His (Smith”s) time at Oxford gave little, if any, help towards what was to be his life”s work.” Nevertheless, Smith had the opportunity, while at Oxford, to self-educate himself on various subjects by reading many books from the shelves of the great Bodleian Library. When he was not studying on his own, his time at Oxford was not pleasant, according to his letters. Towards the end of his stay there, Smith began to suffer from tremors, probably a symptom of a nervous breakdown. He left Oxford University in 1746, before the end of his fellowship.

In Book V of the Wealth of Nations, Smith comments on the low quality of teaching and the scant intellectual activity in English universities, compared to those in Scotland. He attributes this both to the lavish funding of Oxford and Cambridge colleges, which made professors” incomes independent of their ability to attract students, and to the fact that distinguished men of letters could still have a more comfortable living, such as the priests of the Church of England.

Smith”s dissatisfaction at Oxford could be partly due to the absence of his beloved teacher in Glasgow, Francis Hutcheson. Hutcheson was regarded as one of the most important professors at Glasgow University in his day and won the approval of students, colleagues and even ordinary residents with his fervour and zeal in his lectures (which he sometimes made open to the public). Through his lectures he sought not only to teach philosophy, but to get his students to incorporate that philosophy into their lives, thus earning himself the fitting nickname, “the preacher of philosophy.” Unlike Smith, Hutcheson was not a system builder. Rather, it was his charming personality and method of lecturing that so influenced his students and caused the greatest of them to refer to him respectfully as “the -forever memorable- Hutcheson,” a title that Smith, throughout his correspondence, used to describe only two individuals, his good friend David Hume and his important mentor Francis Hutcheson.

Career in teaching

Smith began giving public lectures in 1748 at the University of Edinburgh, sponsored by the Edinburgh Philosophical Society and under the patronage of Lord James. The subject matter of the lectures concerned rhetoric and literature and, later, the subject of ”the progress of abundance”. In this latter subject he proceeded first to the analytical interpretation of the economic philosophy of “the obvious and simple system of natural liberty.” Although Smith had no experience in public presentations, his lectures were a success.

In 1750 he met David Hume, a philosopher ten years his senior. In their writings, covering history, politics, economics and religion, Smith and Hume shared close intellectual and personal ties with each other rather than with other important figures of the Scottish Enlightenment.

In 1751, Smith won a professorship at the University of Glasgow, teaching logic, and in 1752 he was elected a member of the Edinburgh Philosophical Society, to which he was recommended by Lord James. When, in the following year, the head of the Moral Philosophy Society died, Smith took his place. He worked as an academic teacher for the next thirteen years, which he described as ”by far the most useful and therefore by far the happiest and most remarkable period .

Smith published The Theory of Moral Sentiments in 1759, incorporating some of his Glasgow lectures. The subject of this work was how human morality depends on the sympathy between agent and spectator, or between independent and other members of society. Smith defined “mutual sympathy” as the basis of moral emotions. He based his interpretation not on a special ”moral sense”, as the 3rd Lord Shaftesbury and Hutcheson had done, nor as a utility as Hume had done, but on mutual sympathy, a term which is best described in modern language by the term emotional identification, i.e. the ability to recognise the feelings which another person expresses.

After 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 the University of Glasgow and be taught by him. After the publication also, Smith began to pay more attention to his lectures on legal and economic matters and less to his theories of morality. For example, Smith taught that the cause of an increase in national wealth is labor rather than the quantity of gold and silver, which is the basis of mercantilism, the economic theory that dominated economic policy in Western Europe at the time.

In 1762 the University of Glasgow awarded Smith the degree of Doctor of Laws. At the end of 1763, he accepted an offer from Charles Townshend (to whom David Hume had introduced him) to tutor his stepson, Henry Scott, the new Duke of Buccleuch. Smith then resigned his position at the University to take over Scott”s teaching and tried to refund the fees to his students after resigning in the middle of the teaching period, but they refused.

Teaching and travel

Smith”s teaching work included tours of Europe with Scott, during which time he trained Scott in various subjects, such as the correct Polish language. He was paid £300 per year (plus expenses), together with a pension of £300 per year; about twice his previous income as a teacher. Smith first travelled as a teacher to Toulouse, France, where he remained for a year and a half. According to his own account, he found Toulouse somewhat boring, as he wrote to Hume that he had “begun to write a book to pass the time.” After a tour of southern France, the group moved to Geneva, where Smith met the philosopher Voltaire.

From Geneva, the team moved to Paris. There Smith met several great spiritual leaders of the time, who inevitably influenced his future works. This list included: Benjamin Franklin, Turgot, Jean le Rod d”Alambert, André Morellet, Helvétius and, most notably, François Kenne, head of the Physiocratic School. Impressed by his ideas, Smith thought of dedicating the “Wealth of Nations” to him – if Kene had not died before. The Naturalists were opposed to mercantilism, the dominant economic theory of the day, as seen in their free market slogan “Laissez faire et laissez-passer, le monde va de lui même!” (= “Let them do, let them pass, the world goes on by itself!”). They were also known to have stated that only agricultural activity produced real wealth, while merchants and industrialists (manufacturers) did not. This, however, did not represent their true school of thought, but was a mere “smokescreen” that they constructed in order to hide their real criticisms of the aristocracy and the church, claiming that they were the only real customers of the merchants and manufacturers. The wealth of France was nearly destroyed by Louis XIV and Louis XV in disastrous wars, aiding the American rebels against the English, and perhaps the most disastrous (in the public”s view) was what was seen as the excessive consumption of goods and services judged to have no economic contribution – unproductive labour. Assuming that the aristocracy and the church are essentially detractors of economic development, the feudal system of agriculture in France was the only important sector for maintaining the wealth of the nation. Since the English economy of the time produced a distribution of income that was unlike that in France, Smith concluded that the teachings and beliefs of the Naturalists were “in spite of all , the nearest approach to the truth that has yet been published on the subject of political economy.” The distinction between productive and unproductive labour – the naturalistic ”sterile class” (classe steril) – was a dominant theme in the development and understanding of what would come to be called classical economic theory.

After years

His younger brother Henry Scott died in Paris in 1766, and Smith”s tour as a teacher soon came to an end.  That same year, Smith returned to his home in Kirkland, and devoted much of the next ten years to writing his magnum opus.  There he became friendly with Henry Mois, a blind young man who had shown an early appeal for learning. Smith not only began to tutor Moise, but in addition he secured the support of both David Hume and Thomas Reed in educating the young man.  Smith was elected a member of the Royal Society of London in May 1773, and in 1775 he was elected a member of the Literary Club.  The Wealth of Nations was published in 1776 and was extremely well received by the public, the first edition selling out in just six months.

In 1778, Smith was appointed commissioner of the Scottish customs, and moved with his mother to Panmure House, an aristocratic residence in the Canongate district of Edinburgh.  Smith was a member of the Edinburgh Philosophical Society. Thus, when it became the Royal Society of Edinburgh by Royal Decree in 1783, he automatically became a founding member.  In addition, he was elected by the students of the University of Glasgow to the honorary post of Rector, which he held from 1787 to 1789.  He died after a painful illness in the north ward of Panmure House, Edinburgh, on 17 July 1790, and was buried in Canongate Cemetery. Shortly before he passed away, Smith expressed his disappointment that he had not achieved more in his life.

Executors of Smith”s literary legacy were two friends from the world of Scottish science: physicist and chemist Joseph Black and geology pioneer James Hutton. Smith left behind many notes, as well as some unpublished material. However, he left orders to destroy anything that was unfit for publication.  He mentioned as probably suitable for publication an early unpublished History of Astronomy, and it did indeed appear in 1795, along with other material such as the “Essays on Philosophical Questions”.

Smith bequeathed his books to his nephew David Douglas, Lord of Reston, who lived with him. David was the son of Colonel Robert Douglas (of Strathendry, Fife), Smith”s first cousin. The library was eventually divided between Douglas”s two children, Cecilia Margaret (wife Cunningham) and David Ann (wife Bannerman). Mrs Cunningham sold some of the books after the death of her husband, the Reverend Cunningham (of Prestonpans), while the remainder passed to her son, Robert Oliver Cunningham, a professor at Queen”s College, Belfast. He donated some of the books to the university, while the rest were sold after his death. Mrs Bannerman”s books, by contrast, were bequeathed intact to New College, Edinburgh, after her death in 1879.

Character

We don”t know much about Anam Smith”s personal views, beyond what we infer from his published articles. His personal papers were destroyed posthumously, at his request, and he seems to have had a very close relationship with his mother, with whom he stayed after his return from France and who died six years before him.

Many contemporaries and biographers of Adam Smith describe him as absent-minded to the point of comedy, with odd habits of speech and gait and a smile of “inexpressible benevolence”, a habit that was established in his childhood, when he would smile while engaging in conversation with unseen interlocutors. At times he was an imaginary patient, and was said to stack books and papers in tall piles on his desk. According to one source, Smith gave Charles Townsend a tour of a tannery. While discussing free trade, Smith fell into a pit from which he needed help to extricate himself. It is also said that he had put bread and butter in a teapot, drank the concoction and declared it the worst tea drink he had ever had. According to another source, Smith, distracted, walked out of the house wearing only his nightgown and ended up 24 km out of town before being brought back to reality by the bells of a nearby church.

James Boswell, who was a student of Smith”s at Glasgow University and later associated with him at the Literary Club, says that Smith felt that talking about his ideas in conversation would reduce the sales of his books, so his conversations were unimpressive. According to Boswell, Smith once told Sir Joshua Reynolds that “he made it a rule never to discuss in company the things he understood”.

Smith, thought to have had a strange appearance, was described as having “a large nose, bulging eyes, a prominent lower lip, tics and difficulty in speaking”. Smith himself is reported to have acknowledged his unfortunate appearance by commenting “I am a charmer only in my books”. Smith rarely posed for portraits, so almost all of the portraits he had in life were done from memory. Smith”s best-known portraits are his profile by James Tacy and two sketches by John Kay. The engravings used for the cover of Wealth of Nations were based primarily on the metal portrait of Tashi.

Religious beliefs

There has been considerable scholarly debate about the nature of Adam Smith”s religious views. His father had taken a keen interest in Christianity and belonged to the moderate wing of the Church of Scotland. The fact that Adam Smith received the Snell Scholarship suggests that he may have gone to Oxford with the intention of pursuing a career in the Church of England.

The Anglo-American economist Ronald Coase challenged the view that Adam Smith was a Deist on the basis that in his works he never explicitly invokes God as an explanation of the harmony of the natural or human world. According to Coase, although Smith is sometimes referred to as the “Great Architect of the Universe,” later scholars such as Jacob Viner have “exaggerated the extent to which Adam Smith was committed to a faith and a personal God,” a belief for which Coase finds little evidence in passages such as those in The Wealth of Nations, in which Adam Smith writes that mankind”s curiosity about “the great phenomena of nature”, such as “the generation, life, growth and dissolution of plants and animals”, has led people “to inquire into their causes”, and that “superstition at first attempted to satisfy this curiosity by referring all these wonderful presences to the immediate will of the gods. Philosophy then tried to account for them all, starting from the most ordinary causes, or from those more familiar to mankind than the will of the gods.”

Other writers argue that Adam Smith”s social and economic philosophy is inherently theological and that his entire model of social structure logically depends on the notion of God”s action in nature.

Adam Smith was also a close friend and later executor of the will of David Hume, who was usually described in his day as an atheist. The publication of Adam Smith”s letter to William Strahan in 1777, describing Hume”s courage in his impending death despite his lack of religious faith, attracted considerable controversy.

The theory of moral emotions

In 1759 Smith published his first work, The Theory of Moral Sentiments. He continued to make extensive revisions to the book until his death. Although “The Wealth of Nations” is recognized by many as Smith”s most important work, it is believed that he considered “The Theory of Moral Sentiments” to be superior.

In this work, Smith critically examines the moral thought of his time, and cites the claim that consciousness arises from social relations. Smith”s goal in writing this work was to explain where humanity”s ability to form moral judgments stems from, despite the natural inclination of individuals toward self-interest. Smith proposes a theory of empathy, in which people, by observing others, recognize themselves and draw conclusions about the morality of their own behavior.

Scholars have traditionally recognized a contradiction between the “Theory of Moral Sentiments” and the “Wealth of Nations”. While the former emphasizes sympathy for others, the latter focuses on the role of self-interest. More recently, however, some scholars have argued that there is no contradiction. They claim that in The Theory of Moral Sentiments, Smith develops a theory of psychology in which individuals seek the approval of an “impartial spectator” as a result of a natural desire to have external observers who sympathize with them. Rather than treating the two works as conflicting, they see them as simply emphasizing different aspects of human nature that vary according to the situation.

These views overlook the fact that Smith”s visit to France (1764-1766) radically altered his earlier views and that the Wealth of Nations is a disparate patchwork of his earlier lectures and what Kene taught him. Prior to his trip to France, in “The Theory of Moral Sentiments” Smith refers to an “invisible hand” (“In preferring to support a domestic industry rather than a foreign one, the individual aims at his own job security. And by directing that industry in such a way that its output is of higher value he aims only at his own profit. So here ,as in other cases, he is guided by an invisible hand to further an aim without its being his intention”), which ensures that the gluttony of the rich helps the poor, as the strength of the rich is so limited that they have to spend their fortunes on servants. After his visit to France, Smith considers in the Wealth of Nations (1776) the satisfaction of the gluttony of the rich as unproductive work. The microeconomic

The Wealth of Nations

His The Wealth of Nations was one of the first attempts to study the historical development of industry and trade in Europe. This work helped create the modern academic discipline of economics and provided one of the best-known intellectual justifications for free trade, capitalism, and liberalism.

Among classical and neoclassical economists there are fundamental disagreements as to the basic message of Smith”s most important work, An Inquiry into the Nature and Causes of the Wealth of Nations. Neoclassicals emphasize Smith”s Invisible Hand, an idea he refers to in the middle of his work – Book D, Chapter B. And classical economists believe that Smith based his program for promoting the “wealth of nations” on his original proposals.

Smith, using the term “the invisible hand” in his History of Astronomy, was referring to the “invisible hand of Jupiter”. The term “an invisible hand” appears again in both the “Theory of Moral Sentiments” (1759) and the “Wealth of Nations” (1776). This latter statement about “an invisible hand” has been interpreted as “the invisible hand” in a variety of ways. Therefore, it is important to recognize the original:

As each individual, therefore, tries as much as he can to put his capital into supporting domestic industry, and thus direct that industry whose products may be of great value. Every individual necessarily labors to make the annual revenue of society as large as possible. Indeed, he neither seeks to promote the social interest, nor knows whether he is promoting it. In preferring domestic to international industry, he seeks only his own security. And in thus directing that industry as its products may be of great value, he seeks only his own profit, and is guided by an invisible hand that advances ends not intended by him. Nor is it always worse for the society that was not part of it. Through the pursuit of his own interest, he often advances the interest of society more effectively than when he willfully advances the latter. I have never seen good done by those who invoke commerce for the common good. It is indeed an affectation, not very common among merchants, and very few words suffice to discourage them from it.

Those who consider the above statement to be Smith”s central message also refer to this quote:

We do not expect our dinner from the kindness of the butcher, the brewer or the baker, but from their concern for their own interests. We appeal to their philanthropy, not to their humanity, and we never speak to them of our needs but of their advantages.

Smith”s statement on the benefits of an “invisible hand” is apparently intended to respond to Bernard Mandeville”s claim of “private sins” that can be turned into “public benefits”. It demonstrates Smith”s belief that when an individual pursues his own self-interest, he directly promotes the good of society. Self-interested competition in the free market, he argued, would tend to reward society as a whole by keeping prices low while building incentives for a wide variety of goods and services. Nevertheless, he was wary of businessmen and warned of “their conspiracy against the public or some other ploy by which they can raise prices.” Repeatedly, Smith foreshadowed the unfair nature of business interests that can form conspiracies or monopolies by setting the highest price “that can be extracted from buyers.” Smith also warned that a political system dominated by businessmen allows business and industry to conspire against consumers, with business scheming to gain influence over policy and legislation. The interest of manufacturers and marketers, according to Smith, “is always different or even opposite to that of the public The proposal of any new law or regulation of commerce arising out of this order should always be listened to with great caution, and should not be ratified until it has been not only thoroughly but suspiciously examined.

The neoclassical interest in Smith”s “invisible hand” statement comes from its potential to be seen as a precursor to neoclassical economics and General Equilibrium theory. In his work, Paul Samuelson refers to Smith”s “invisible hand” six times. To emphasize this relationship, Samuelson mentions Smith”s “invisible hand” by talking about “general interest” where Smith writes “public interest”. Samuelson concludes that “Smith failed to prove the point of the invisible hand doctrine. Indeed, until the 1940s no one knew how to prove, even properly state, the core truth in this proposal for a perfectly competitive market.”

Classical economists, on the contrary, see in Smith”s early proposals his programme to promote the “Wealth of Nations”. Taking the concept of the economy from the naturalist school as a cyclical process means that for growth to occur, the inputs of period 2 must exceed the inputs of period 1. Therefore the returns of period 1 that were not used as inputs of period 2 are treated as unproductive labour since they do not contribute to growth. This is what Smith learned alongside Kenet in France. On top of the French prediction that unproductive labor should be pushed back so that more labor could be used productively, Smith added his own suggestion that productive labor be made even more productive by deepening the division of labor. This would mean competitively lower prices, and hence enlarged markets. Enlarged markets and increased production will lead to new steps to reorganise production and invent new ways of producing which in turn lower prices and so on.Smith”s central message, then, is that under dynamic competition a growing machine ensures the “Wealth of Nations”. He foresaw the evolution of England into the laboratory of the World, excluding all its competitors. The opening sentences of the “Wealth of Nations” summarize this policy:

The annual labour of each nation is the fund which initially provides it with all the requirements and comforts of life which it consumes annually… This fruit… refers to the greater or lesser percentage of those who consume it… but this percentage must be regulated by each nation under two conditions:

Criticism and disagreements

Alfred Marshall criticised Smith”s definition of the economy on several points. He argued that people should be as important as money, services should be as important as products, and that there should be an emphasis on human well-being rather than just welfare.

Nobel Prize-winning economist Joseph Stiglitz says, referring to one of Smith”s most famous ideas, “the reason the invisible hand often seems invisible is because it is often not there.”

Other projects

Shortly before his death, Smith destroyed all his manuscripts. In the last years of his life, he seems to have been planning two major treatises, one on the theory and history of law and one on the sciences and arts. His Essays on Philosophical Subjects, published after his death, a history of astronomy up to Smith”s time, and some of his thoughts on ancient physics and metaphysics, apparently contain parts of what would become his last treatise. The Lectures on Jurisprudence were notes from Smith”s early lectures, as well as an initial draft of The Wealth of Nations, published as part of the 1976 Glasgow Edition of his works and correspondence. His other works, including those published after his death, include Lectures on Justice, Police, Revenue, and Arms (1763, first edition in 1896) and Essays on Philosophical Subjects (1795).

In economics and moral philosophy

The “Wealth of Nations” was a forerunner of the modern academic discipline of economics. In this and other works, Smith developed how rational self-interest and competition can lead to economic prosperity. Smith was a controversial figure in his day, and his general approach and writing style were often the subject of satire by Conservative writers who followed the moralistic tradition of Hogarth and Swift, as illustrated by a debate at the University of Winchester. In 2005, The Wealth of Nations was included in the 100 best Scottish books of all time. The former Prime Minister of Great Britain, Margaret Thatcher, is said to have used to carry a copy of the book in her handbag.

In the light of the arguments put forward by Smith and other economic theorists in Britain, academic belief in mercantilism began to decline in England in the late 18th century. During the Industrial Revolution, Britain accepted free trade and laissez-faire economics (wrongly attributed to Smith, as it was a naturalistic doctrine adopted in the 19th century by European liberalism) and through the British Empire, used its power to spread around the world a broadly liberal economic model, characterized by open markets, and international and domestic trade relatively free of barriers.

George Stigler credits Smith with “the most important and essential in the whole of the economics proposal”. And that is that, under competition, the owners of resources (for example, labor, land, and capital) will use them more efficiently, resulting in equal returns in equilibrium for all uses, adjusted for apparent differences arising from factors such as education, confidence, living conditions, and unemployment.

Paul Samuelson finds in Smith”s pluralistic use of supply and demand, as applied to wages, rents and profits, a valid and valuable precursor to the general equilibrium theory of the Walrasian general equilibrium a century later. Smith”s granting of wage increases, in the short and medium term, from capital accumulation and invention, lends a realism later lost by Malthus, Ricardo, and Karl Marx in their proposals for a rigid theory of the subordination of wages to the labor supply.

On the other hand, Joseph Schumpeter dismissed Smith”s contribution as trivial, saying “his limited potential made him successful. Had he been more intelligent, he would not have been taken so seriously. Had he dug deeper, he would have revealed a darker truth; had he used more complex and inventive methods, he would not have been understood. But he had no such ambitions; in fact he disliked anything that went beyond the common sense. He never wrote anything that would be difficult for even his dumbest readers to grasp. He gently guided them, encouraging them with platitudes and familiar observations, making them feel at ease throughout.”

Classical economists presented competing theories to those of Smith, which were called the “labour theory of value”. Later Marxist economic theories derived from classical economics also partly use Smith”s labour theories. The first volume of Marx”s greatest work, Capital, was published in German in 1867. In it, Marx focused on the labor theory of value and what is considered to be the exploitation of labor by capital. The labour theory of value held that the value of an object is determined by the labour required in its production. This contrasts with the modern claim of neoclassical economists that the value of a thing is determined by what one is willing to pay to acquire the object.

The body of theory later called “neoclassical economics” or “marginalism” was formed from about 1870 to 1910. The term “economics” was popularized by neoclassical economists such as Alfred Marshall as a synonym for the term “economics” and a substitute for the earlier, broader term “political economy” used by Smith. This was in response to the influence of mathematical methods used in the natural sciences; neoclassical economics systematized supply and demand as the joint determinants of price and quantity in market equilibrium, affecting both the distribution of output and the distribution of income. They thus got rid of the labour theory of value through which Smith identified with classical political economy, in favour of a demand-side marginal utility theory of value and a more general supply-side theory of cost.

The bicentenary of the publication of The Wealth of Nations was celebrated in 1976 and resulted in a revival of interest throughout the academic community in Smith”s “Theory of Moral Sentiments” and other works. Thus, since 1976, Smith is most often presented as the author of both ”Wealth of Nations” and ”The Theory of Moral Sentiments”, and is therefore presented as the founder of moral philosophy and the science of economics. Adam Smith”s homo economicus (or “economic man”) is also most often presented as a moral person. Moreover, economists David Levy and Sandra Peart in their article “The Secret History of Melancholic Science” emphasize his opposition to hierarchy and beliefs of inequality, including racial inequality, and provide additional support for those who emphasize Smith”s opposition to slavery, colonialism, and empire. They show caricatures of Smith drawn by opponents of his views on hierarchy and inequality. They also highlight Smith”s statements about the need for high wages for the poor, and the effort to keep wages low. In The Philosopher”s Vanity: From Equality to Hierarchy to Postclassical Economics, Peart and Levy also invoke Smith”s view that a common street porter was not intellectually inferior to a philosopher, and point to the need for greater recognition of public opinion in debates on matters of science as well as matters that today might be considered technical. They also mention Smith”s opposition to the often-expressed view that science is superior to common sense.

Smith also explained the relationship between the growth of private property and urban government:

People can live together in a society with some tolerable degree of security, although there is no public judge to protect them from the injustice of these passions. But the covetousness and ambition of the rich and the poor the hatred of work and the love of present ease and pleasure, are the passions which motivate to invade property, passions far more constant in their operation and far more universal in their influence. Where there is great wealth, there is great inequality. For every very rich man there must be at least five hundred poor, and the prosperity of the few presupposes the poverty of the many. The prosperity of the rich excites the indignation of the poor, who are often driven by poverty and motivated by envy to invade his property. Only under the protection of the judge can the owner of a valuable property, acquired by the labour of many years, or perhaps of many generations, sleep even one night in safety. He is always surrounded by unknown enemies, whom, though never provoked, he can never appease, and from whose injustice he can only be protected by the power of the public magistrate, who is ever energetic to punish it. Hence, the acquisition of valuable and important property requires the establishment of public administration. Where there is no property, or at least none that exceeds the wages of two or three days” work, public administration is not needed. Public administration presupposes some subordination. But as the necessity of public administration gradually increases with the acquisition of valuable property, so the main reasons which naturally introduce the idea of subordination gradually increase with the increase of valuable property (…) Persons of inferior wealth unite to defend those of superior wealth in their possession, so that those of superior wealth unite to defend them in the acquisition of their own. All the lesser shepherds feel that the safety of their flocks depends on the safety of the greater shepherds. That the preservation of their lesser power depends on the preservation of his own greater power, and his power to hold their inferiors in subjection to them depends on their subjection to him. They constitute a kind of minor nobles, interested in protecting the property and protecting the power of their minor lord, so that he may defend their property and support their power. Public administration, in so far as it has been established for the security of property, has in fact been established to protect the rich from the poor, or those who have some property from those who have none.

Portraits, monuments and banknotes

Adam Smith has been immortalised in the UK on banknotes printed by two different banks. His portrait has been featured since 1981 on the £50 note issued by the Clydesdale Bank in Scotland and in March 2007 Smith”s image was also featured on the new series of £20 notes issued by the Bank of England, making him the first Scot to appear on an English banknote.

On 4 July 2008 a large-scale monument to Adam Smith, by Alexander Stoddart, was unveiled in Edinburgh. It is a three-metre high bronze sculpture which stands above the Royal Mile, outside St Giles” Cathedral, in Parliament Square, near Mercat cross. The 20th century sculptor Jim Sanborn (best known for his Kryptos sculpture at the CIA) has created multiple pieces that showcase Smith”s work. At Central Connecticut State University there is “circulating capital,” a tall scroll that projects a portion of the Wealth of Nations on its lower half, while the upper half contains the same text, but in binary form. At the University of North Carolina at Charlotte, outside the Belk College of Business Administration, there is Adam Smith”s spinning top. Another statue of Adam Smith is located at Cleveland State University. He is also featured as a narrator in the 2013 play The Low Road, which focuses on a laissez-faire economics advocate in the late 18th century, but laterally deals with the financial crisis of 2007-2008 and the recession that followed – the role was played by Bill Paterson on opening night.

Residence

Adam Smith lived in Panmure house from 1778 to 1790. This house has now been purchased by the Edinburgh Business School of Heriot Watt University and fundraising for its restoration has begun. Part of the northern part of the original building appears to have been demolished in the 19th century to make way for a blacksmith”s shop.

As a symbol of the free market economy

Supporters of free market policies have given Smith the reputation of being the founder of free market economics. This view is reflected in the names of various organisations such as the Adam Smith Institute in London, the Adam Smith Society and the Adam Smith Australian Group, and in terms such as the Adam Smith tie.

Alan Greenspan argues that, while Smith did not coin the term laissez-faire, “it was left to Adam Smith to identify the general set of principles which conceptually clarified the apparent chaos of commercial transactions”. Greenspan goes on to say that the Wealth of Nations was “one of the greatest achievements in the history of human intellect”. P. J. O”Rourke describes Smith as the “founder of free market economics”.

Other writers, however, claim that Smith”s support for laissez-faire (a French expression meaning “let it be done”, i.e. “let people act on their own, without interference”) has been overemphasised. Herbert Stein wrote that “those who wear an Adam Smith tie” do so to “declare their commitment to the idea of free markets and the limited role of government” and this distorts Smith”s ideas. Stein writes that Smith “was not absolute or dogmatic about this idea. He viewed government intervention in the market with great skepticism… but he was ready to accept or suggest specializations in this policy in those special cases whose ultimate effect he thought would be positive and would not undermine the free character of the system. He did not wear an Adam Smith tie.” In Stein”s interpretation, the “Wealth of Nations” could justify the existence of the Food and Drug Administration, the Consumer Product Safety Commission, mandatory health care contributions by employers, the environmental protection movement, and “discriminatory taxation to discourage improper or luxurious behavior.”

Similarly, Vivienne Brown stated in The Economic Journal that in the 20th century United States, the supporters of President Reagan”s economic policies, the Wall Street Journal, as well as other related sources, are responsible for the distorted image of Smith, describing him as “an extreme doctrinaire defender of laissez-faire capitalism and supply-side economics”. In fact, ”The Wealth of Nations” includes the following statement regarding the payment of taxes:

The citizens of each state ought to contribute to the support of the government as much as possible, in proportion to their respective capacities, i.e. in proportion to the income each enjoys under the protection of the state.

Some commentators have argued that Smith”s works advocate a graduated, rather than flat, income tax, and that he defined the taxes he believed the state should require, including taxes on luxury goods and a tax on rents.

In addition, Smith outlined the responsibilities of a government in Chapter 1 of the Fifth Book of the Wealth of Nations. Among what he considers the prerequisites of a government are to ensure the validity of contracts and provide a system of justice, grant patents, secure intellectual property, provide public goods such as various infrastructure, provide national defense, and regulate the banking system. It was the role of government to provide goods “of such a nature that profit cannot recoup the expenditure of any private individual”, such as roads, bridges, irrigation canals and ports. It also encouraged innovation and new ideas by securing patents and supporting the embryonic industry monopolies of the time. He supported public education and religious organizations because they provided a general benefit to society. Finally, he described how the government should support the dignity of the monarch or the supreme court judge so that they are equal or above the public in terms of standard of living. He stated that monarchs should be provided with more resources than judges in a democracy because “we naturally expect more splendor in the court of a king than in the mansion of a doge. In addition, he was in favour of aggressive taxation and believed that this could potentially cause the prices of goods to fall. He stated this in the ”Wealth of Nations”:

The recovery of a large foreign market will also generally compensate for the transitional inconvenience caused by the increased costs for a short time of certain goods.

Economic historians such as Jacob Viner see Smith as a strong advocate of the free market and limited government (what Smith called “natural liberty”) but not as a dogmatic advocate of laissez-faire.

The economist Daniel Klein considers that the use of the terms “free market economics” or “free market economist” to identify Smith”s ideas is too general and in the wrong direction. Klein gives six central features of the identity of Smith”s economic thought and argues that a new name is needed that more accurately describes the identity of Smith”s economic thought. The economist David Ricardo cleared up some of the misconceptions about Smith”s free market views. Most people still fall prey to the idea that Smith was a free market economist, with no exceptions, although this is not the case. Ricardo showed that Smith supported aid to the embryonic industries. Smith believed that the government should subsidize fledgling industries, but he feared that when they came of age, they would be unwilling to wean themselves from government assistance. Smith also advocated taxing imported goods to offset domestic taxes on the same good. Smith also caved to pressure and supported some taxes in favor of national defense. Some, including Emma Rothschild, argued that Smith was in favour of a minimum wage.

But Smith had written in his book “The Wealth of Nations”:

It must be observed that the value of labour cannot be ascertained with great accuracy anywhere; often a different price is paid in the same place and for the same work, not only according to the skill of the worker, but according to the convenience or cruelty of the employer. Where wages are not fixed by law, all that we can pretend to determine are the most common; and experience seems to show that the law can never fix wages correctly, though it often professes to do so.

(Source: The Wealth of Nations, Book 1, Chapter 8)

Smith also noted the inequality of bargaining power:

A landowner, a farmer, a craftsman, a tradesman, if they employ no workers, can generally live for a year or two on the stock they have built up. Many labourers cannot endure for a week, a few for a month, and a few for a year, without work. In the long run the worker is as necessary to the employer as the employer is to the worker, but the first of these two needs is not so immediate.

Sources

  1. Άνταμ Σμιθ
  2. Adam Smith
  3. Στο έργο του Η ζωή του Άνταμ Σμιθ (Life of Adam Smith), ο Ρέι γράφει: «στα τέσσερα χρόνια του, και ενώ επισκεπτόταν τον παππού του στο Strathendry στις όχθες του Leven, [ο Σμιθ] απήχθη από διερχόμενη ομάδα τσιγγάνων και για κάποιο χρονικό διάστημα δεν μπορούσε να βρεθεί. Σύντομα όμως εμφανίστηκε ένας κύριος, ο οποίος λίγα μίλια πιο πριν είχε συναντήσει στο δρόμο μια τσιγγάνα που κουβαλούσε ένα παιδί που έκλαιγε αξιολύπητα. Αμέσως στάλθηκαν ανιχνευτές στην κατεύθυνση που υπέδειξε και συνάντησαν τη γυναίκα στο δάσος του Leslie. Μόλις τους είδε, έριξε κάτω το φορτίο της και δραπέτευσε, και το παιδί οδηγήθηκε πίσω στη μητέρα του. [Ο Σμιθ] θα μπορούσε να ήταν, φοβάμαι, ένας φτωχός τσιγγάνος»[15]
  4. Prononciation en anglais britannique standard retranscrite phonémiquement selon la norme API.
  5. Gerhard Streminger: Adam Smith. Wohlstand und Moral. Eine Biographie. München 2017, S. 17f.
  6. Scottish Jests and Anecdotes: To which are Added, A Selection of Choice English and Irish Jests von Robert Chambers, Verlag W. Tait, 1832, Seite 97
  7. Mario Vargas Llosa: Die Ablenkungen des Herrn Smith – Der schottische Nationalökonom Adam Smith hat besser erklärt als alle, warum gewisse Länder vorankommen und andere zurückfallen. Und wo die Grenze zwischen der Zivilisation und der Barbarei wirklich liegt (Header) Schweiz am Wochenende, 8. April 2017, Seite 20
  8. Kaufkraft eines britischen Pfund Sterling (£) in den Jahren von 1209 bis 2019 (Referenzwert: 2019) de.statista.com, abgerufen am 8. September 2021
  9. Reinhard Blomert: Adam Smiths Reise nach Frankreich. Die Andere Bibliothek, 2012
  10. ^ Se la ricchezza di una nazione è data dalla somma totale dei beni dei cittadini, allora non si considera il problema della distribuzione della ricchezza (squilibrio tra ricchi e poveri).
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