Adam Smith
After two centuries, Adam Smith remains a towering figure in
the history of economic thought. Known primarily for a single work, An
Inquiry into the nature an causes of the Wealth of Nations (1776), the
first comprehensive system of political economy, Smith is more properly
regarded as a social philosopher whose economic writings constitute only
the capstone to an overarching view of political and social evolution.
If his masterwork is viewed in relation to his earlier lectures on moral
philosophy and government, as well as to allusions in The Theory of
Moral Sentiments (1759) to a work he hoped to write on "the general
principles of law and government, and of the different revolutions they
have undergone in the different ages and periods of society”, then The
Wealth of Nations may be seen not merely as a treatise on economics but
as a partial exposition of a much larger scheme of historical evolution.
Early Life
Unfortunately, much is known about Smith’s thought than about
his life. Though the exact date of his birth is unknown, he was baptised
on June 5, 1723, in Kikcaldy, a small (population 1,500) but thriving
fishing village near Edinburgh, the son by second marriage of Adam
Smith, comptroller of customs at Kikcaldy, and Margaret Douglas,
daughter of a substantial landowner. Of Smith’s childhood nothing is
known other than that he received his elementary schooling in Kirkcaldy
and that at the age of four years he was said to have been carried off
by gypsies. Pursuits was mounted, and young Adam was abandoned by his
captors. "He would have made, I fear, a poor gypsy”, commented his
principal biographer.
At the age of 14, in 1737, Smith entered the university of
Glasgow, already remarkable as a centre of what was to become known as
the Scottish Enlightenment. There, he was deeply influenced by Francis
Hutcheson, a famous professor of moral philosophy from whose economic
and philosophical views he was later to diverge but whose magnetic
character seems to have been a main shaping force in Smith’s
development. Graduating in 1740, Smith won a scholarship (the Snell
Exhibition) and travelled on horseback to Oxford, where he stayed at
Balliol College. Compared to the stimulating atmosphere of Glasgow,
Oxford was an educational desert. His years there were spent largely in
self-education, from which Smith obtained a firm grasp of both classical
and contemporary philosophy.
Returning to his home after an absence of six years, Smith cast
about for suitable employment. The connections of his mother’s family,
together with the support of the jurist and philosopher Lord Henry
Kames, resulted in an opportunity to give a series of public lectures in
Edinburgh - a form of education then much in vogue in the prevailing
spirit of " improvement”.
The lectures, which ranged over a wide variety of subjects from
rhetoric history and economics, made a deep impression on some of
Smith’s notable contemporaries. They also had a marked influence on
Smith’s own career, for in 1751, at the age of 27, he was appointed
professor of logic at Glasgow, from which post he transferred in 1752 to
the more remunerative professorship of moral philosophy, a subject that
embraced the related fields of natural theology, ethics, jurisprudence,
and political economy.
Glasgow
Smith then entered upon a period of extraordinary creativity,
combined with a social and intellectual life that he afterward described
as " by far the happiest, and most honourable period of my life”.
During the week he lectured daily from 7:30 to 8:30 am and again thrice
weekly from 11 am to noon, to classes of up to 90 students, aged 14 and
16. (Although his lectures were presented in English, following the
precedent of Hutcheson, rather than in Latin, the level of
sophistication for so young an audience today strikes one as
extraordinarily demanding.) Afternoons were occupied with university
affairs in which Smith played an active role, being elected dean of
faculty in 1758; his evenings were spent in the stimulating company of
Glasgow society.
Among his circle of acquaintances were not only remembers of
the aristocracy, many connected with the government, but also a range of
intellectual and scientific figures that included Joseph Black, a
pioneer in the field of chemistry, James Watt, later of steam-engine
fame, Robert Foulis, a distinguished printer and publisher and
subsequent founder of the first British Academy of Design, and not
least, the philosopher David Hume, a lifelong friend whom Smith had met
in Edinburgh. Smith was also introduced during these years to the
company of the great merchants who were carrying on the colonial trade
that had opened to Scotland following its union with England in 1707.
One of them, Andrew Cochrane, had been a provost of Glasgow and had
founded the famous Political Economy Club. From Cochrane and his fellow
merchants Smith undoubtedly acquired the detailed information concerning
trade and business that was to give such a sense of the real world to
The Wealth of Nations.
The Theory of Moral Sentiments
In 1759 Smith Published his first work, The Theory of Moral
Sentiments. Didactic, exhortative, and analytic by turns, The Theory
lays the psychological foundation on which The Wealth of Nations was
later to be built. In it Smith described the principles of "human nature
", which, together with Hume and the other leading philosophers of his
time, he took as a universal and unchanging datum from which social
institutions, as well as social behaviour, could be deduced.
One question in particular interested Smith in The Theory of
Moral Sentiments. This was a problem that had attracted Smith’s teacher
Hutcheson and a number of Scottish philosophers before him. The question
was the source of the ability to form moral judgements, including
judgements on one’s own behaviour, in the face of the seemingly
overriding passions for self-preservation and self-interest. Smith’s
answer, at considerable length, is the presence within each of us of an
"inner man” who plays the role of the "impartial spectator”, approving
or condemning our own and others’ actions with a voice impossible to
disregard. (The theory may sound less naive if the question is
reformulated to ask how instinctual drives are socialized through the
superego.)
The thesis of the impartial spectator, however, conceals a more
important aspect of the book. Smith saw humans as created by their
ability to reason and - no less important - by their capacity for
sympathy. This duality serves both to pit individuals against one
another and to provide them with the rational and moral faculties to
create institutions by which the internecine struggle can be mitigated
and even turned to the common good. He wrote in his Moral Sentiments
the famous observation that he was to repeat later in The Wealth of
Nations: that self-seeking men are often "led by an invisible hand...
without knowing it , without intending it, to advance the interest of
the society.”
It should be noted that scholars have long debated whether
Moral Sentiments complemented or was in conflict with The Wealth of
Nations, which followed it. At one level there is a seeming clash
between the theme of social morality contained in the first and largely
amoral explanation of the manner in which individuals are socialized to
become the market-oriented and class-bound actors that set the economic
system into motion.
Travels on the Continent
The Theory quickly brought Smith wide esteem and in particular
attracted the attention of Charles Townshend, himself something of an
amateur economist, a considerable wit, and somewhat less of a statesman,
whose fate it was to be the chancellor of the exchequer responsible for
the measures of taxation that ultimately provoked the American
Revolution. Townshend had recently married and was searching for a tutor
for his stepson and ward, the young Duke of Buccleuch. Influenced by
the strong recommendations of Hume and his own admiration for The Theory
of Moral Sentiments, he Approached Smith to take the Charge.
The terms of employment were lucrative (an annual salary of
?300 plus travelling expenses and a pension of ?300 a year after),
considerably more than Smith had earned as a professor. Accordingly,
Smith resigned his Glasgow post in 1763 and set off for France the next
year as the tutor of the young duke. They stayed mainly in Toulouse,
where Smith began working on a book (eventually to be The Wealth of
Nations) as an antidote to the excruciating boredom of the provinces.
After 18 months of ennui he was rewarded with a two-month sojourn in
Geneva, where he met Voltaire, for whom he had the profoundest respect,
thence to Paris where Hume, then secretary to the British embassy,
introduced Smith to the great literary salons of the French
Enlightenment. There he met a group of social reformers and theorists
headed by Francois Quesnay, who are known in history as the physiocrats.
There is some controversy as to the precise degree of influence the
physiocrats exerted on Smith, but it is known that he thought
sufficiently well of Quesnay to have considered dedicating The Wealth of
Nations to him, had not the French economist died before publication.
The stay in Paris was cut short by a shocking event. The
younger brother of the Duke of Buccleuch , who had joined them in
Toulouse, took ill and perished despite Smith’s frantic ministration.
Smith and his charge immediately returned to London. Smith worked in
London until the spring of 1767 with Lord Townshend, a period during
which he was elected a fellow of the Royal Society and broadened still
further his intellectual circle to include Edmund Burke, Samuel Johnson,
Edward Gibbon, and perhaps Benjamin Franklin. Late that year he
returned to Kirkcaldy, where the next six years were spent dictating and
reworking The Wealth of Nations, followed by another stay of three
years in London, where the work was finally completed and published in
1776.
The Wealth of Nations
Despite its renown as the first great work in political
economy. The Wealth of Nations is in fact a continuation of the
philosophical theme begun in The Theory of Moral Sentiments. The
ultimate problem to which Smith addresses himself is how the inner
struggle between the passions and the "impartial spectator’ - explicated
in Moral Sentiments in terms of the single individual - works its
effects in the larger arena of history itself, both in the long-run
evolution of society and in terms of the immediate characteristics of
the stage of history typical of Smith’s own day.
The answer to this problem enters in Book 5, in which Smith
outlines he four main stages of organization through which society is
impelled, unless blocked by deficiencies of resources, wars, or bad
policies of government: the original "rude’ state of hunters, a second
stage of nomadic agriculture, a third stage of feudal or manorial
"farming”, and a fourth and final stage of commercial interdependence.
It should be noted that each of these stages is accompanied by
institutions suited to its needs. For example, in the age of the
huntsman, "there is scar any established magistrate or any regular
administration of justice. " With the advent of flocks there emerges a
more complex form of social organization, comprising not only
"formidable” armies but the central institution of private property with
its indispensable buttress of law and order as well. It is the very
essence of Smith’s thought that he recognized this institution, whose
social usefulness he never doubted, as an instrument for the protection
of privilege, rather than one to be justified in terms of natural law:
"Civil government,” he wrote, "so far as it is instituted for the
security of property, is in reality instituted for the defence of the
rich against the poor, or of those who have some property against those
who have none at all.” Finally, Smith describes the evolution through
feudalism into a stage of society requiring new institutions such as
market-determined rather than guild-determined wages and free rather
than government-constrained enterprise. This later became known as
laissez-faire capitalism; Smith called it the system of perfect liberty.
There is an obvious resemblance between this succession of
changes in the material basis of production, each bringing its requisite
alterations in the superstructure of laws and civil institutions, and
the Marxian conception of history. Though the resemblance is indeed
remarkable, there is also a crucial difference: in the Marxian scheme
the engine of evolution is ultimately the struggle between contending
classes, whereas in Smith’s philosophical history the primal moving
agency is "human nature "driven by the desire for self-betterment and
guided (or misguided) by the faculties of reason.
Society and "the invisible hand”
The theory of historical evolution, although it is perhaps the
binding conception of The Wealth of Nations, is subordinated within the
work itself to a detailed description of how the "invisible hand”
actually operates within the commercial, or final, stage of society.
This becomes the focus of Books I and II. In which Smith undertakes to
elucidate two questions. The first is how a system of perfect liberty,
operating under the drives and constraints of human nature and
intelligently designed institutions , will give rise to an orderly
society. The question, which had already been considerably elucidated by
earlier writers, required both an explanation of the underlying
orderliness in the pricing of individual commodities and an explanation
of the "laws” that regulated the division of the entire "wealth” of the
nation (which Smith saw as its annual production of goods and services)
among the three great claimant classes - labourers, landlords, and
manufacturers.
This orderliness, as would be expected, was produced by the
interaction of the two aspects of human nature, its response to its
passions and its susceptibility to reason and sympathy. But whereas The
Theory of Moral Sentiments had relied mainly on the presence of the
"inner man” to provide the necessary restraints to private action, in
The Wealth of Nations one finds an institutional mechanism that acts to
reconcile the disruptive possibilities inherent in a blind obedience to
the passions alone. This protective mechanism is competition, an
arrangement by which the passionate desire for bettering one’s condition
- a "desire that comes with United States from the womb, and never
leaves United States until we go into the grave " - is turned into a
socially beneficial agency by pitting one person’s drive for
self-betterment against another’s.
It is in the unintended outcome of this competitive struggle
for self-betterment that the invisible hand regulating the economy shows
itself, for Smith explains how mutual vying forces the prices of
commodities down to their natural levels, which correspond to their
costs of production. Moreover, by inducing labour and capital to move
from less to more profitable occupations or areas, the competitive
mechanism constantly restores prices to these "natural” levels despite
short-run aberrations. Finally, by explaining that wages and rents and
profits (the constituent parts of the costs of production) are
themselves subject to this natural prices but also revealed an
underlying orderliness in the distribution of income itself among
workers, whose recompense was their wages; landlords, whose income was
their rents; and manufacturers, whose reward was their profit.
Economic growth
Smith’s analysis of the market as a self- correcting mechanism
was impressive. But his purpose was more ambitious than to demonstrate
the self-adjusting properties of the system. Rather, it was to show
that, under the impetus of the acquisitive drive, the annual flow of
national wealth could be seen steadily to grow.
Smith’s explanation of economic growth , although not neatly
assembled in one part of The Wealth of Nations, is quite clear. The
score of it lies in his emphasis on the division of labour (itself an
outgrowth of the "natural” propensity to trade) as the source of
society’s capacity to increase its productivity. The Wealth of Nations
opens with a famous passage describing a pin factory in which 10
persons, by specialising in various tasks, turn out 48,000 pins a day,
compared with the few, perhaps only 1 , that each could have produced
alone. But this all-important division of labour does not take place
unaided. It can occur only after the prior accumulation of capital (or
stock, as Smith calls it ), which is used to pay the additional workers
and to buy tools and machines.
The drive for accumulation, however, brings problems. The
manufacturer who accumulates stock needs more labourers ( since
labour-saving technology has no place in Smith’s scheme), and in
attempting to hire them he bids up their wages above their "natural”
price. Consequently his profits begin to fall, and the process of
accumulation is in danger of ceasing. But now there enters an ingenious
mechanism for continuing the advance. In bidding up the price of labour,
the manufacturer inadvertently sets into motion a process that
increases the supply of labour, for "the demand for men, like that for
any other commodity, necessarily regulates the production of men.”
Specifically, Smith had in mind the effect of higher wages in lessening
child mortality. Under the influence of a larger labour supply, the wage
rise is moderated and profits are maintained; the new supply of
labourers offers a continuing opportunity for the manufacturer to
introduce a further division of labour and thereby add to the system’s
growth.
Here then was a "machine” for growth - a machine that operated
with all the reliability of the Newtonian system with which Smith was
quite familiar. Unlike the Newtonian system, however, Smith’s growth
machine did not depend for its operation on the laws of nature alone.
Human nature drove it, and human nature was a complex rather than a
simple force. Thus, the wealth of nations would grow only if
individuals, through their governments, did not inhibit this growth by
catering to the pleas for special privilege that would prevent the
competitive system from exerting its begin effect. Consequently, much of
The Wealth of Nations, especially Book IV, is a polemic against the
restrictive measures of the "mercantile system” that favoured monopolies
at home and abroad. Smith’s system of "natural liberty”, he is careful
to point out, accords with the best interests of all but will not be put
into practice if government is entrusted to, or heeds, the "mean
rapacity, who neither are , nor ought to be, the rulers of mankind.”
The Wealth of Nations is therefore far from the ideological
tract it is often supposed to be. Although Smith preached laissez-faire
(with important exceptions), his argument was directed as much against
monopoly as government; and although he extolled the social results of
the acquisitive process, he almost invariably treated the manners and
manoeuvres of businessmen with contempt. Nor did he see the commercial
system itself as wholly admirable. He wrote with decrement about the
intellectual degradation of the worker in a society in which the
division of labour has proceeded very far; for by comparison with the
alert intelligence of the husbandman, the specialised worker "generally
becomes as stupid and ignorant as it is possible for a human being to
become”.
In all of this, it is notable that Smith was writing in an age
of preindustrial capitalism. He seems to have had no real presentiment
of the gathering Industrial Revolution, harbingers of which were visible
in the great ironworks only a few miles from Edinburgh. He had nothing
to say about large-scale industrial enterprise, and the few remarks in
The Wealth of Nations concerning the future of joint-stock companies
(corporations) are disparaging. Finally, one should bear in mind, that,
if growth is the great theme of The Wealth of Nations, it is not
unending growth. Here and there in the treatise are glimpsed at a
secularly declining rate of profit; and Smith mentions as well the
prospects that when the system eventually accumulates its "full
complement of riches” - all the pin factories, so to speak, whose output
could be absorbed - economic decline would begin, ending in an
impoverished stagnation.
The Wealth of Nations was received with admiration by Smith’s
wide circle of friends and admires, although it was by no means an
immediate popular success. The work finished, Smith went into
semiretirement. The year following its publication he was appointed
commissioner both of customs and of salt duties for Scotland, posts
that brought him ?600 a year. He thereupon informed his former charge
that he no longer required his pension, to which Buccleuch replied
that his sense of honour would never allow him to stop paying it. Smith
was therefore quite well off in the final years of his life, which were
spent mainly in Edinburgh with occasional trips to London or Glasgow
(which appointed him a rector of the university). The years passed
quietly, with several revisions of both major books but with no further
publications. On July 17, 1790, at the age of 67, full of honours and
recognition, Smith died; he was buried in the churchyard at Canongate
with a simple monument stating that Adam Smith, author of The Wealth of
Nations, was buried there.
Beyond the few facts of his life, which can be embroidered only
in detail, exasperatingly little is known about the man. Smith never
married, and almost nothing is known of his personal side. Moreover, it
was the custom of his time to destroy rather than to preserve the
private files if illustrious men, with the unhappy result that much of
Smith’s unfinished work, as well as his personal papers, was destroyed
(some as late as 1942). Only one portrait of Smith survives, a profile
medallion by Tassie; it gives a glimpse of the older man with his
somewhat heavy-lidded eyes, aquiline nose, and a hint of protrusive
lower lip. "I am a beau in nothing but my books, ”Smith once told a
friend to whom he was showing his library of some 3,000 volumes.
From various accounts, he was also a man of many peculiarities,
which included a stumbling manner of speech ( until he had warmed to
his subject), a gait described as "vermicular”/ and above all an
extraordinary and even comic absence of mind. On the other hand,
contemporaries wrote of a smile of "inexpressive benignity,” and of his
political tact and dispatch in managing the sometimes acerbic business
of the Glasgow faculty.
Certainly he enjoyed a high measure of contemporary fame; even
in his early days at Glasgow his reputation attracted students from
nations as distant as Russia, and his later years were crowned not only
with expression of admiration from many European thinkers but by a
growing recognition among British governing circles that his work
provided a rationale of inestimable importance for practical economic
policy.
Over the years, Smith’s lustre as a social philosopher has
escaped much of the weathering that has affected the reputations of
other first-rate political economists. Although he was writing for his
generation, the breadth of his knowledge/ the cutting edge of his
generalization, the boldness of his vision, have never ceased to attract
the admiration of all social scientists, and in particular economists.
Couched in the spacious, cadenced prose of his period, rich in imagery
and crowded with life, The Wealth of Nations projects a sanguine but
never sentimental image of society. Never so finely analytic as David
Ricardo nor so stern and profound as Karl Marx, Smith is the very
epitome of the Enlightenment: hopeful but realistic, speculative but
practical, always respectful of the classical past but ultimately
dedicated to the great discovery of his age - progress.
BIBLIOGRAPHY:
John Rae. "Life of Adam Smith” 1985
William Scott. "Adam Smith as Student and Professor” 1987
Andrew S. Skinner. "Essays on Adam Smith” 1988
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