Adam Smith

Adam Smith

Overview
Adam Smith was a Scottish social philosopher
Ethics
Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc.Major branches of ethics include:...

 and a pioneer of political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...

. One of the key figures of the Scottish Enlightenment
Scottish Enlightenment
The Scottish Enlightenment was the period in 18th century Scotland characterised by an outpouring of intellectual and scientific accomplishments. By 1750, Scots were among the most literate citizens of Europe, with an estimated 75% level of literacy...

, Smith is the author of The Theory of Moral Sentiments
The Theory of Moral Sentiments
The Theory of Moral Sentiments was written by Adam Smith in 1759. It provided the ethical, philosophical, psychological, and methodological underpinnings to Smith's later works, including The Wealth of Nations , A Treatise on Public Opulence , Essays on Philosophical Subjects , and Lectures on...

and An Inquiry into the Nature and Causes of the Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...

. The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus
Magnum opus
Magnum opus , from the Latin meaning "great work", refers to the largest, and perhaps the best, greatest, most popular, or most renowned achievement of a writer, artist, or composer.-Related terms:Sometimes the term magnum opus is used to refer to simply "a great work" rather than "the...

and the first modern work of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

. It earned him an enormous reputation and would become one of the most influential works on economics ever published. Smith is widely cited as the father of modern economics and capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

.

Smith studied social philosophy
Social philosophy
Social philosophy is the philosophical study of questions about social behavior . Social philosophy addresses a wide range of subjects, from individual meanings to legitimacy of laws, from the social contract to criteria for revolution, from the functions of everyday actions to the effects of...

 at the University of Glasgow
University of Glasgow
The University of Glasgow is the fourth-oldest university in the English-speaking world and one of Scotland's four ancient universities. Located in Glasgow, the university was founded in 1451 and is presently one of seventeen British higher education institutions ranked amongst the top 100 of the...

 and the University of Oxford
University of Oxford
The University of Oxford is a university located in Oxford, United Kingdom. It is the second-oldest surviving university in the world and the oldest in the English-speaking world. Although its exact date of foundation is unclear, there is evidence of teaching as far back as 1096...

.
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Quotations

China is a much richer country than any part of Europe.

I.xi.e.34 (Digression, First Period)

The retinue of a grandee in China or Indostan [sic] accordingly is, by all accounts, much more numerous and splendid than that of the richest subjects in Europe… in manufacturing art and industry, China and Indostan, though inferior, seem not to be much inferior to any part of Europe. The money price of the greater part of manufactures, therefore, will naturally be much lower in those great empires than it is any-where in Europe.

I.xi.g.28 (Digression, Third Period)
Encyclopedia
Adam Smith was a Scottish social philosopher
Ethics
Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality—that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc.Major branches of ethics include:...

 and a pioneer of political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...

. One of the key figures of the Scottish Enlightenment
Scottish Enlightenment
The Scottish Enlightenment was the period in 18th century Scotland characterised by an outpouring of intellectual and scientific accomplishments. By 1750, Scots were among the most literate citizens of Europe, with an estimated 75% level of literacy...

, Smith is the author of The Theory of Moral Sentiments
The Theory of Moral Sentiments
The Theory of Moral Sentiments was written by Adam Smith in 1759. It provided the ethical, philosophical, psychological, and methodological underpinnings to Smith's later works, including The Wealth of Nations , A Treatise on Public Opulence , Essays on Philosophical Subjects , and Lectures on...

and An Inquiry into the Nature and Causes of the Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...

. The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus
Magnum opus
Magnum opus , from the Latin meaning "great work", refers to the largest, and perhaps the best, greatest, most popular, or most renowned achievement of a writer, artist, or composer.-Related terms:Sometimes the term magnum opus is used to refer to simply "a great work" rather than "the...

and the first modern work of economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

. It earned him an enormous reputation and would become one of the most influential works on economics ever published. Smith is widely cited as the father of modern economics and capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...

.

Smith studied social philosophy
Social philosophy
Social philosophy is the philosophical study of questions about social behavior . Social philosophy addresses a wide range of subjects, from individual meanings to legitimacy of laws, from the social contract to criteria for revolution, from the functions of everyday actions to the effects of...

 at the University of Glasgow
University of Glasgow
The University of Glasgow is the fourth-oldest university in the English-speaking world and one of Scotland's four ancient universities. Located in Glasgow, the university was founded in 1451 and is presently one of seventeen British higher education institutions ranked amongst the top 100 of the...

 and the University of Oxford
University of Oxford
The University of Oxford is a university located in Oxford, United Kingdom. It is the second-oldest surviving university in the world and the oldest in the English-speaking world. Although its exact date of foundation is unclear, there is evidence of teaching as far back as 1096...

. After graduating, he delivered a successful series of public lectures at Edinburgh
Edinburgh
Edinburgh is the capital city of Scotland, the second largest city in Scotland, and the eighth most populous in the United Kingdom. The City of Edinburgh Council governs one of Scotland's 32 local government council areas. The council area includes urban Edinburgh and a rural area...

, leading him to collaborate with David Hume
David Hume
David Hume was a Scottish philosopher, historian, economist, and essayist, known especially for his philosophical empiricism and skepticism. He was one of the most important figures in the history of Western philosophy and the Scottish Enlightenment...

 during the Scottish Enlightenment
Scottish Enlightenment
The Scottish Enlightenment was the period in 18th century Scotland characterised by an outpouring of intellectual and scientific accomplishments. By 1750, Scots were among the most literate citizens of Europe, with an estimated 75% level of literacy...

. Smith obtained a professorship at Glasgow
Glasgow
Glasgow is the largest city in Scotland and third most populous in the United Kingdom. The city is situated on the River Clyde in the country's west central lowlands...

 teaching moral philosophy, and during 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 other intellectual leaders of his day. Smith then returned home and spent the next ten years writing The Wealth of Nations, publishing it in 1776. He died in 1790 at the age of 67.

Early life


Smith was born to Margaret Douglas at Kirkcaldy
Kirkcaldy
Kirkcaldy is a town and former royal burgh in Fife, on the east coast of Scotland. The town lies on a shallow bay on the northern shore of the Firth of Forth; SSE of Glenrothes, ENE of Dunfermline, WSW of Dundee and NNE of Edinburgh...

, Fife
Fife
Fife is a council area and former county of Scotland. It is situated between the Firth of Tay and the Firth of Forth, with inland boundaries to Perth and Kinross and Clackmannanshire...

, Scotland. His father, also named Adam Smith, was a lawyer
Lawyer
A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an attorney, counsel or solicitor; a person who is practicing law." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain the stability of political...

, civil servant, and widower who married Margaret Douglas in 1720 and died two months after Smith was born. Although the exact date of Smith's birth is unknown, his baptism was recorded on 5 June 1723 at Kirkcaldy. Though few events in Smith's early childhood are known, Scottish journalist and Smith's biographer John Rae
John Rae (biographer)
John Rae was a Scottish journalist and biographer. The long-time editor of The Contemporary Review, and contributor to The British Quarterly Review, he became famous for his 1895 biography of Adam Smith, Life of Adam Smith, which replaced the Biographical Memoir of Adam Smith of 1811, by Dugald...

 recorded that Smith was abducted by gypsies at the age of four and released when others went to rescue him. Smith was close to his mother, who likely 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. While there, Smith studied Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...

, mathematics
Mathematics
Mathematics is the study of quantity, space, structure, and change. Mathematicians seek out patterns and formulate new conjectures. Mathematicians resolve the truth or falsity of conjectures by mathematical proofs, which are arguments sufficient to convince other mathematicians of their validity...

, history
History
History is the discovery, collection, organization, and presentation of information about past events. History can also mean the period of time after writing was invented. Scholars who write about history are called historians...

, and writing
Writing
Writing is the representation of language in a textual medium through the use of a set of signs or symbols . It is distinguished from illustration, such as cave drawing and painting, and non-symbolic preservation of language via non-textual media, such as magnetic tape audio.Writing most likely...

.


Formal education


Smith entered the University of Glasgow
University of Glasgow
The University of Glasgow is the fourth-oldest university in the English-speaking world and one of Scotland's four ancient universities. Located in Glasgow, the university was founded in 1451 and is presently one of seventeen British higher education institutions ranked amongst the top 100 of the...

 when he was fourteen and studied moral philosophy under Francis Hutcheson
Francis Hutcheson (philosopher)
Francis Hutcheson was a philosopher born in Ireland to a family of Scottish Presbyterians who became one of the founding fathers of the Scottish Enlightenment....

. Here, Smith developed his passion for liberty
Liberty
Liberty is a moral and political principle, or Right, that identifies the condition in which human beings are able to govern themselves, to behave according to their own free will, and take responsibility for their actions...

, reason
Reason
Reason is a term that refers to the capacity human beings have to make sense of things, to establish and verify facts, and to change or justify practices, institutions, and beliefs. It is closely associated with such characteristically human activities as philosophy, science, language, ...

, and free speech. In 1740, Smith was awarded the Snell exhibition and left to attend Balliol College, Oxford
Balliol College, Oxford
Balliol College , founded in 1263, is one of the constituent colleges of the University of Oxford in England but founded by a family with strong Scottish connections....

.

Smith considered the teaching at Glasgow far superior to that at Oxford
University of Oxford
The University of Oxford is a university located in Oxford, United Kingdom. It is the second-oldest surviving university in the world and the oldest in the English-speaking world. Although its exact date of foundation is unclear, there is evidence of teaching as far back as 1096...

, 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 many years, given up altogether even the pretence of teaching."
Smith is also reported to have complained to friends that Oxford officials once discovered him reading a copy of David Hume's
David Hume
David Hume was a Scottish philosopher, historian, economist, and essayist, known especially for his philosophical empiricism and skepticism. He was one of the most important figures in the history of Western philosophy and the Scottish Enlightenment...

 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 many books from the shelves of the large Oxford library. When Smith was not studying on his own, his time at Oxford was not a happy one, according to his letters. Near the end of his time at Oxford, Smith began suffering from shaking fits, probably the symptoms of a nervous breakdown. He left Oxford University in 1746, before his scholarship ended.

In Book V of The Wealth of Nations, Smith comments on the low quality of instruction and the meager 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
University of Cambridge
The University of Cambridge is a public research university located in Cambridge, United Kingdom. It is the second-oldest university in both the United Kingdom and the English-speaking world , and the seventh-oldest globally...

, 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
Church of England
The Church of England is the officially established Christian church in England and the Mother Church of the worldwide Anglican Communion. The church considers itself within the tradition of Western Christianity and dates its formal establishment principally to the mission to England by St...

.

Smith's discontent at Oxford might be in part due to the absence of his beloved teacher in Glasgow, Francis Hutcheson
Francis Hutcheson
Francis Hutcheson may refer to:*Francis Hutcheson *Francis Hutcheson -See also:*Frank Hutchison, blues musician*Francis Hutchinson, British clergyman...

. 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 fervor and earnestness of his orations (which he sometimes opened to the public). His lectures endeavored 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 was not 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
David Hume
David Hume was a Scottish philosopher, historian, economist, and essayist, known especially for his philosophical empiricism and skepticism. He was one of the most important figures in the history of Western philosophy and the Scottish Enlightenment...

 and influential mentor Francis Hutcheson.

Teaching career


Smith began delivering public lectures in 1748 in Edinburgh, sponsored by the Philosophical Society of Edinburgh under the patronage of Lord Kames
Henry Home, Lord Kames
Henry Home, Lord Kames was a Scottish advocate, judge, philosopher, writer and agricultural improver. A central figure of the Scottish Enlightenment, a founder member of the Philosophical Society of Edinburgh, and active in the Select Society, his protégés included James Boswell, David Hume and...

. His lecture topics included rhetoric
Rhetoric
Rhetoric is the art of discourse, an art that aims to improve the facility of speakers or writers who attempt to inform, persuade, or motivate particular audiences in specific situations. As a subject of formal study and a productive civic practice, rhetoric has played a central role in the Western...

 and belles-lettres
Belles-lettres
Belles-lettres or belles lettres is a term that is used to describe a category of writing. A writer of belles-lettres is a belletrist. However, the boundaries of that category vary in different usages....

, 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 was not adept at public speaking
Public speaking
Public speaking is the process of speaking to a group of people in a structured, deliberate manner intended to inform, influence, or entertain the listeners...

, his lectures met with success.

In 1750, he met the philosopher David Hume
David Hume
David Hume was a Scottish philosopher, historian, economist, and essayist, known especially for his philosophical empiricism and skepticism. He was one of the most important figures in the history of Western philosophy and the Scottish Enlightenment...

, 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 other important figures of the Scottish Enlightenment.

In 1751, Smith earned a professorship at Glasgow University teaching logic
Logic
In philosophy, Logic is the formal systematic study of the principles of valid inference and correct reasoning. Logic is used in most intellectual activities, but is studied primarily in the disciplines of philosophy, mathematics, semantics, and computer science...

 courses, and in 1752 Smith was elected a member of the Philosophical Society of Edinburgh, having been introduced to the society by Lord Kames. When the head of Moral Philosophy
Professor of Moral Philosophy, Glasgow
The Chair of Moral Philosophy is a professorship at the University of Glasgow, Scotland, which was established in 1727.The Nova Erectio of King James VI of Scotland shared the teaching of Moral Philosophy, Logic and Natural Philosophy among the Regents...

 died the next year, Smith took over the position. He worked as an academic for the next thirteen years, which he characterized as "by far the most useful and therefore by far the happiest and most honorable period [of his life]".

Smith published The Theory of Moral Sentiments
The Theory of Moral Sentiments
The Theory of Moral Sentiments was written by Adam Smith in 1759. It provided the ethical, philosophical, psychological, and methodological underpinnings to Smith's later works, including The Wealth of Nations , A Treatise on Public Opulence , Essays on Philosophical Subjects , and Lectures on...

in 1759, embodying some of his Glasgow lectures. This work was concerned with how human morality depends on sympathy between agent and spectator, or the individual and other members of society. Smith defined "sympathy" as the feeling of moral sentiments
Moral sense theory
Moral sense theory is a view in meta-ethics according to which morality is somehow grounded in moral sentiments or emotions...

. He bases his explanation not on a special "moral sense", as the third Lord Shaftesbury
Anthony Ashley-Cooper, 3rd Earl of Shaftesbury
Anthony Ashley Cooper, 3rd Earl of Shaftesbury was an English politician, philosopher and writer.-Biography:...

 and Hutcheson had done, nor on utility
Utilitarianism
Utilitarianism is an ethical theory holding that the proper course of action is the one that maximizes the overall "happiness", by whatever means necessary. It is thus a form of consequentialism, meaning that the moral worth of an action is determined only by its resulting outcome, and that one can...

 as Hume did, but on sympathy. Following 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 Glasgow to learn under Smith. After the publication of The Theory of Moral Sentiments, Smith began to give more attention to jurisprudence
Jurisprudence
Jurisprudence is the theory and philosophy of law. Scholars of jurisprudence, or legal theorists , hope to obtain a deeper understanding of the nature of law, of legal reasoning, legal systems and of legal institutions...

 and economics in his lectures and less to his theories of morals. For example, Smith lectured that the cause of increase in national wealth is labor, rather than the nation's quantity of gold or silver, which is the basis for mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...

, the economic theory that dominated Western Europe
Western Europe
Western Europe is a loose term for the collection of countries in the western most region of the European continents, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity—the region lying in the...

an economic policies at the time.

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
Charles Townshend
Charles Townshend was a British politician. He was born at his family's seat of Raynham Hall in Norfolk, England, the second son of Charles Townshend, 3rd Viscount Townshend, and Audrey , daughter and heiress of Edward Harrison of Ball's Park, near Hertford, a lady who rivalled her son in...

—who had been introduced to Smith by David Hume—to tutor his stepson, Henry Scott
Henry Scott, 3rd Duke of Buccleuch
Henry Scott, 3rd Duke of Buccleuch and 5th Duke of Queensberry KG KT FRSE was a Scottish nobleman and long-time friend of the notable Sir Walter Scott...

, the young Duke of Buccleuch. Smith then resigned from his professorship to take the tutoring position, and 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 while teaching him subjects including proper Polish. He was paid £
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...

300 per year plus expenses along with £300 per year pension, which was roughly twice his former income as a teacher. Smith first travelled as a tutor to Toulouse, France
Toulouse
Toulouse is a city in the Haute-Garonne department in southwestern FranceIt lies on the banks of the River Garonne, 590 km away from Paris and half-way between the Atlantic Ocean and the Mediterranean Sea...

, where he stayed for a year and a half. According to accounts, he found Toulouse to be very boring, and he wrote 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
Geneva
Geneva In the national languages of Switzerland the city is known as Genf , Ginevra and Genevra is the second-most-populous city in Switzerland and is the most populous city of Romandie, the French-speaking part of Switzerland...

, where Smith met with the philosopher Voltaire
Voltaire
François-Marie Arouet , better known by the pen name Voltaire , was a French Enlightenment writer, historian and philosopher famous for his wit and for his advocacy of civil liberties, including freedom of religion, free trade and separation of church and state...

.

After staying in Geneva, the party went to Paris, where Smith came to know intellectual leaders such as Benjamin Franklin
Benjamin Franklin
Dr. Benjamin Franklin was one of the Founding Fathers of the United States. A noted polymath, Franklin was a leading author, printer, political theorist, politician, postmaster, scientist, musician, inventor, satirist, civic activist, statesman, and diplomat...

, Turgot
Anne Robert Jacques Turgot, Baron de Laune
Anne-Robert-Jacques Turgot, Baron de Laune , often referred to as Turgot, was a French economist and statesman. Turgot was a student of Francois Quesnay and as such belonged to the Physiocratic school of economic thought...

, Jean D'Alembert
Jean le Rond d'Alembert
Jean-Baptiste le Rond d'Alembert was a French mathematician, mechanician, physicist, philosopher, and music theorist. He was also co-editor with Denis Diderot of the Encyclopédie...

, André Morellet
André Morellet
André Morellet was a French economist and writer. He was one of the last of the philosophes, and in this character he figures in many memoirs, such as those of Madame de Rémusat....

, Helvétius and, in particular, François Quesnay
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

, the head of the Physiocratic school
Physiocrats
Physiocracy is an economic theory developed by the Physiocrats, a group of economists who believed that the wealth of nations was derived solely from the value of "land agriculture" or "land development." Their theories originated in France and were most popular during the second half of the 18th...

, whose ideas impressed him so that he considered dedicating Quesnay his The Wealth of Nations had Quesnay not died earlier. The physiocrats opposed mercantilism
Mercantilism
Mercantilism is the economic doctrine in which government control of foreign trade is of paramount importance for ensuring the prosperity and security of the state. In particular, it demands a positive balance of trade. Mercantilism dominated Western European economic policy and discourse from...

, the dominating economic theory at the time, by taking up the motto Laissez faire et laissez passer, le monde va de lui même!
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

 (Let do and let pass, the world goes on by itself!). They also declared that only agriculture produced wealth, and that merchants and manufacturers did not. But this, their praising nature, and a natural style of life was a necessary smoke screen that hid their criticisms of the consumption pattern of nobility and church – the only clients merchants and manufacturers had. After Louis XIV
Louis XIV of France
Louis XIV , known as Louis the Great or the Sun King , was a Bourbon monarch who ruled as King of France and Navarre. His reign, from 1643 to his death in 1715, began at the age of four and lasted seventy-two years, three months, and eighteen days...

 and Louis XV
Louis XV of France
Louis XV was a Bourbon monarch who ruled as King of France and of Navarre from 1 September 1715 until his death. He succeeded his great-grandfather at the age of five, his first cousin Philippe II, Duke of Orléans, served as Regent of the kingdom until Louis's majority in 1723...

 had ruined France by lost wars, by aiding the American insurgents against the British, and above all by the excessive consumption of unproductive labour
Unproductive labour in economic theory
Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...

 – labour which does not contribute to economic reproduction. If nobility and church are disposable for economic reproduction including those who work for them, the feudal France agriculture was the only sector important to maintain the society. As English distribution of income differed sharply from French, this was not fully understood by Adam Smith who concluded that their teachings are "with all its imperfections [perhaps] the nearest approximation to the truth that has yet been published upon the subject of political economy". The distinction of productive versus unproductive labour
Unproductive labour in economic theory
Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...

 – the physiocratic classe steril – became the central issue to the development approach of classical economics.

Later years


In 1766, Henry Scott's younger brother died 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. There he befriended Henry Moyes
Henry Moyes
Henry Moyes was a lecturer on natural philosophy. As an itinerant public speaker he helped raise 18th century popular interest in the new field of chemistry. He mixed with the greatest engineers and scientists of the day and attended the Lunar Society...

, a young blind man who showed precocious aptitude. As well as teaching Moyes, Smith secured the patronage of David Hume and Thomas Reid
Thomas Reid
The Reverend Thomas Reid FRSE , was a religiously trained Scottish philosopher, and a contemporary of David Hume, was the founder of the Scottish School of Common Sense, and played an integral role in the Scottish Enlightenment...

 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. The Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...

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 mother in Panmure House
Panmure House
Panmure House was a 17th-century country house in the Parish of Panbride, Angus, Scotland, to the north of Carnoustie. It was the seat of the Earl of Panmure. It was rebuilt in the 19th century, and demolished in 1955....

 in Edinburgh's Canongate
Canongate
The Canongate is a small district at the heart of Edinburgh, the capital city of Scotland.The name derives from the main street running through the area: called Canongate without the definite article, "the". Canongate forms the lower, eastern half of the Royal Mile in Edinburgh's historic Old Town....

. 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
Royal Society of Edinburgh
The Royal Society of Edinburgh is Scotland's national academy of science and letters. It is a registered charity, operating on a wholly independent and non-party-political basis and providing public benefit throughout Scotland...

, and from 1787 to 1789 he occupied the honorary position of Lord Rector of the University of Glasgow. He died 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 had not achieved more.

Smith's literary executors were two friends from the Scottish academic world: the physicist and chemist Joseph Black
Joseph Black
Joseph Black FRSE FRCPE FPSG was a Scottish physician and chemist, known for his discoveries of latent heat, specific heat, and carbon dioxide. He was professor of Medicine at University of Glasgow . James Watt, who was appointed as philosophical instrument maker at the same university...

, and the pioneering geologist James Hutton
James Hutton
James Hutton was a Scottish physician, geologist, naturalist, chemical manufacturer and experimental agriculturalist. He is considered the father of modern geology...

. Smith left behind many notes and some unpublished material, but gave instructions to destroy anything that was not fit for publication. He mentioned an early unpublished History of Astronomy as probably suitable, and it duly appeared in 1795, along with other material such as Essays on Philosophical Subjects
Essays on Philosophical Subjects
Essays on Philosophical Subjects, by the Scottish economist Adam Smith, is a history of astronomy down to Smith's own era, plus some thoughts on ancient physics and metaphysics....

.

Smith's library went by his will to David Douglas, Lord Reston
David Douglas, Lord Reston
David Douglas, Lord Reston was a Scottish judge and the heir of Adam Smith.He was born on 24 July 1769, in Strathendry, the fifth and youngest son of Col...

 (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 some of the books. The remainder passed to her son, Professor Robert Oliver Cunningham
Robert Oliver Cunningham
Robert Oliver Cunningham was a Scottish naturalist.He was born on 27 March 1841, in Prestonpans, the second son of the Rev. William Bruce Cunningham and Cecilia Margaret Douglas , daughter of David Douglas, Lord Reston , the heir of Adam Smith...

 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.

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 died six years before his own death.

Smith, who is often described as a prototypical absent-minded professor
Absent-minded professor
The absent-minded professor is a stock character of popular fiction, usually portrayed as a talented academic whose focus on academic matters leads them to ignore or forget their surroundings....

, is considered by historians to have been an eccentric but benevolent intellectual, comically absent-minded, with peculiar habits of speech and gait, and a smile of "inexpressible benignity". He was known to talk to himself, a habit that began during his childhood when he would speak to himself and smile in rapt conversation with invisible companions. He also had occasional spells of imaginary illness, and he is reported to have had books and papers placed in tall stacks in his study.

Various anecdotes have discussed his absent-minded nature. In one story, Smith took Charles Townshend on a tour of a tanning
Tanning
Tanning is the making of leather from the skins of animals which does not easily decompose. Traditionally, tanning used tannin, an acidic chemical compound from which the tanning process draws its name . Coloring may occur during tanning...

 factory, and while discussing free trade
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...

, Smith walked into a huge tanning pit
Tanning
Tanning is the making of leather from the skins of animals which does not easily decompose. Traditionally, tanning used tannin, an acidic chemical compound from which the tanning process draws its name . Coloring may occur during tanning...

 from which he needed help to escape. Another episode records that he put bread and butter into a teapot, drank the concoction, and declared it to be the worst cup of tea he ever had. In another example, Smith went out walking and daydreaming in his nightgown and ended up 15 miles (24.1 km) outside town before nearby church bells brought him back to reality.

James Boswell
James Boswell
James Boswell, 9th Laird of Auchinleck was a lawyer, diarist, and author born in Edinburgh, Scotland; he is best known for the biography he wrote of one of his contemporaries, the English literary figure Samuel Johnson....

 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
Joshua Reynolds
Sir Joshua Reynolds RA FRS FRSA was an influential 18th-century English painter, specialising in portraits and promoting the "Grand Style" in painting which depended on idealization of the imperfect. He was one of the founders and first President of the Royal Academy...

 that 'he made it a rule when in company never to talk of what he understood'.

Smith, who is 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, so almost all depictions of him created during his lifetime were drawn from memory. The best-known portraits of Smith are the profile by James Tassie
James Tassie
James Tassie was a Scottish gem engraver and modeller.He was born of humble parentage at Pollokshaws, in Glasgow. During his earlier years he worked as a stonemason, but, having seen the collection of paintings brought together in Glasgow by Robert Foulis and Andrew Foulis, the printers, he...

 and two etching
Etching
Etching is the process of using strong acid or mordant to cut into the unprotected parts of a metal surface to create a design in intaglio in the metal...

s by John Kay
John Kay (caricaturist)
John Kay was a Scottish caricaturist and engraver.He was born near Dalkeith, where his father was a mason. At thirteen he was apprenticed to a barber, whom he served for six years. He then went to Edinburgh, where in 1771 he obtained the freedom of the city by joining the corporation of...

. The line engravings produced for the covers of 19th 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 father had a strong interest in Christianity
Christianity
Christianity is a monotheistic religion based on the life and teachings of Jesus as presented in canonical gospels and other New Testament writings...

 and belonged to the moderate wing of the Church of Scotland
Church of Scotland
The Church of Scotland, known informally by its Scots language name, the Kirk, is a Presbyterian church, decisively shaped by the Scottish Reformation....

. In addition to the fact that he received the Snell Exhibition, Smith may have also moved to England with the intention of pursuing a career in the Church of England
Church of England
The Church of England is the officially established Christian church in England and the Mother Church of the worldwide Anglican Communion. The church considers itself within the tradition of Western Christianity and dates its formal establishment principally to the mission to England by St...

. At Oxford, Smith rejected Christianity and it is generally believed that he returned to Scotland as a deist.

Economist Ronald Coase
Ronald Coase
Ronald Harry Coase is a British-born, American-based economist and the Clifton R. Musser Professor Emeritus of Economics at the University of Chicago Law School. After studying with the University of London External Programme in 1927–29, Coase entered the London School of Economics, where he took...

 has challenged the view that Smith was a deist, stating that while Smith may have referred to the "Great Architect of the Universe
Great Architect of the Universe
The Great Architect of the Universe is a conception of God discussed by many Christian theologians and apologists. As a designation it is used within Freemasonry to neutrally represent whatever Supreme Being to which each member individually holds in adherence...

" in his works, other scholars have "very much exaggerated the extent to which Adam Smith was committed to a belief in a personal God". He based this on analysis of a remark in The Wealth of Nations where Smith writes that the curiosity of mankind about the "great phenomena of nature" such as "the generation, the life, growth and dissolution of plants and animals" has led men to "enquire into their causes". Coase also notes Smith's observation that "[s]uperstition first attempted to satisfy this curiosity, by referring all those wonderful appearances to the immediate agency of the gods."

The Theory of Moral Sentiments


In 1759, Smith published his first work, The Theory of Moral Sentiments. He continued making extensive revisions to the book, up until his death. 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 social relationships. His goal in writing the work was to explain the source of mankind's ability to form moral judgements, in spite of man's natural inclinations towards self-interest. Smith proposes a theory of sympathy, in which the act of observing others makes people aware of themselves and the morality of their own behavior.

Scholars have traditionally perceived a conflict between The Theory of Moral Sentiments and The Wealth of Nations; the former emphasizes sympathy for others, while the latter focuses on the role of self-interest. In recent years, however, most 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 result of a natural desire to have outside observers sympathize with them. Rather than viewing The Wealth of Nations and The Theory of Moral Sentiments as presenting incompatible views of human nature, most Smith scholars regard the works as emphasizing different aspects of human nature that vary depending on the situation. The Wealth of Nations draws on situations where man's morality is likely to play a smaller role, such as the laborer involved in pin-making, whereas The Theory of Moral Sentiments focuses on situations where man's morality is likely to play a dominant role among more personal exchanges.

These views ignore that Smith's visit to France (1764–66) changed radically his former views and that The Wealth of Nations is an inhomogeneous convolute of his former lectures and of what Quesnay
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

 taught him. Before his voyage to France in The Theory of Moral Sentiments, Adam Smith refers to an "invisible hand" which procures that the gluttony of the rich helps the poor as the stomach of rich is so limited that they have to spend their fortune on servants. After his visit to France, Smith considers in the Wealth of Nations (1776) the gluttony of the rich as unproductive labour
Unproductive labour in economic theory
Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...

. The micro-economical/psychological view in the tradition of Aristotle
Aristotle
Aristotle was a Greek philosopher and polymath, a student of Plato and teacher of Alexander the Great. His writings cover many subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, linguistics, politics, government, ethics, biology, and zoology...

, Puffendorf
Samuel von Pufendorf
Baron Samuel von Pufendorf was a German jurist, political philosopher, economist, statesman, and historian. His name was just Samuel Pufendorf until he was ennobled in 1684; he was made a Freiherr a few months before his death in 1694...

 and Hutcheson
Francis Hutcheson (philosopher)
Francis Hutcheson was a philosopher born in Ireland to a family of Scottish Presbyterians who became one of the founding fathers of the Scottish Enlightenment....

, Smith's teacher, – elements compatible with a neoclassical theory – chanced to the macro-economical view of the classical theory Smith learned in France.

The Wealth of Nations


There is a fundamental dissent 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. Neoclassical economists emphasise Smith's invisible hand
Invisible hand
In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...

, a concept mentioned in the middle of his work – book IV, chapter II – and classical economists believe that Smith stated his programme how to promote the "Wealth of Nations" in the first sentences.

Smith used the term "the invisible hand
Invisible hand
In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...

" in "History of Astronomy" referring to "the invisible hand of Jupiter" and twice – each time with a different meaning – the term "an invisible hand
Invisible hand
In economics, invisible hand or invisible hand of the market is the term economists use to describe the self-regulating nature of the marketplace. This is a metaphor first coined by the economist Adam Smith...

": in The Theory of Moral Sentiments
The Theory of Moral Sentiments
The Theory of Moral Sentiments was written by Adam Smith in 1759. It provided the ethical, philosophical, psychological, and methodological underpinnings to Smith's later works, including The Wealth of Nations , A Treatise on Public Opulence , Essays on Philosophical Subjects , and Lectures on...

 (1759) and in The Wealth of Nations (1776). This last statement about "an invisible hand" has been interpreted as "the invisible hand" in numerous ways. It is therefore important to read the original:

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 may 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 is 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 may be of the greatest value, he intends only his own gain, and he is in this, as in many other eases, 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. [emphasis added].


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

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. 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" is certainly meant to answer Mandeville's contention that "Private Vices … may be turned into Public Benefits". It shows Smith's belief that when an individual pursues his self-interest, he indirectly 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 was wary of businessmen and warned of their "conspiracy against the public or in some other contrivance to raise prices." Again and again, Smith warned of the collusive nature of business interests, which may form cabals or monopolies
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

, fixing the highest price "which can be squeezed out of the buyers". Smith also warned that a true laissez-faire economy would quickly become 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 some 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."

The neoclassical interest in Smith's statement about "an invisible hand" originates in the possibility to see it as a precursor of neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...

 and its General Equilibrium concept. Samuelson's
Paul Samuelson
Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in...

 "Economics" refers 6 times to Smith's "invisible hand". To emphasize this relation, Samuelson quotes Smith's "invisible hand" statement putting "general interest" where Smith wrote "publick 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." And it was then when neoclassical economics was revived in Chicago from oblivion and Samuelson entered the scene.

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
Unproductive labour in economic theory
Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...

 as they do not contribute to growth. This is what Smith had learned in France with Quesnay
François Quesnay
François Quesnay was a French economist of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats...

. To this French insight that unproductive labour
Unproductive labour in economic theory
Unproductive labour is labour which does not further the end of the system. Therefore this concept has sense only with reference to a determined system. In classical economics the end is growth and development, in Marxian economics the end is capitalistic profit and in business the end is to place...

 should be pushed back to use more labor productively, Smith added his own proposal, that productive labor should be made even more productive by deepening the division of labor. Deepening the division of labor means under competition lower prices and thereby extended markets. Extended markets and increased production lead to a new step of reorganising production and inventing new ways of producing which again lower prices, etc., etc.. Smith's central message is therefore that under dynamic competition a growth machine secures "The Wealth of Nations". It predicted England's evolution as the workshop of the World, underselling all its competitors. The opening sentences of the "Wealth of Nations" summarize this policy:

The annual labor 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 are to consume it … .[B]ut this proportion must in every nation be regulated by two different circumstances;
  • first, by the skill, dexterity, and judgment with which its labor is generally applied; and,
  • secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed [emphasis added].

Smith's "Wealth of Nations" offers many insights other theories disagree. It argues that agriculture offers fewer possibilities to a division of labour, raising its prices compared with industry. [Us-American and European agriculture is therefore subsidised]. To Smith, the genius and the natural talents of men are no natural dispositions which have to be paid for according to comparative advantages. "It is not upon many occasions so much the cause, as the effect of the division of labour." Competition should reduce the prices of these "talents". Smith suspects manufacturers of mischief and trusts landowners and labourers – as consumers – to represent the common good. [Ricardo mistrusts landowners as earners of a monopoly income.]




Criticism and Dissent



Prominent interpretation, as well as criticism, of Smith's views on the societal merits of unregulated labor management by the ruling class is expressed by Noam Chomsky as follows: "He's pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised. People read snippets of Adam Smith, the few phrases they teach in school. Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be. And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits."



Excerpted from Class Warfare, 1995, pp. 19-23, 27-31 Source: http://www.chomsky.info/books/warfare02.htm

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
Astronomy
Astronomy is a natural science that deals with the study of celestial objects and phenomena that originate outside the atmosphere of Earth...

 down to Smith's own era, plus some thoughts on ancient physics and metaphysics
Metaphysics
Metaphysics is a branch of philosophy concerned with explaining the fundamental nature of being and the world, although the term is not easily defined. Traditionally, metaphysics attempts to answer two basic questions in the broadest possible terms:...

, probably contain parts of what would have been the latter treatise. Lectures on Jurisprudence
Lectures on Jurisprudence
Lectures on Jurisprudence is a book of Adam Smith's lectures, comprising notes taken from his early lectures, plus an early draft of The Wealth of Nations.Published as part of the 1976 Glasgow Edition of the works and correspondence of Adam Smith...

were notes taken from Smith's early lectures, plus an early draft of The Wealth of Nations, published as part of the 1976 Glasgow Edition of the works and correspondence of Smith. Other works, including some published posthumously, include Lectures on Justice, Police, Revenue, and Arms (1763) (first published in 1896); A Treatise on Public Opulence (1764) (first published in 1937); and Essays on Philosophical Subjects (1795).

In economics and moral philosophy


The Wealth of Nations was a precursor to the modern academic discipline of economics. In this and other 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 often satirized by Tory writers in the moralizing tradition of Hogarth and Swift, as a discussion at the University of Winchester suggests.

George Stigler
George Stigler
George Joseph Stigler was a U.S. economist. He won the Nobel Memorial Prize in Economic Sciences in 1982, and was a key leader of the Chicago School of Economics, along with his close friend Milton Friedman....

 attributes to Smith "the most important substantive proposition in all of economics" and foundation of resource-allocation theory. It is that, under competition, owners of resources (for example labor, land, and capital) will use them most profitably, resulting in an equal rate of return in equilibrium
Economic equilibrium
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the values of economic variables will not change. It is the point at which quantity demanded and quantity supplied are equal...

 for all uses, adjusted for apparent differences arising from such factors as training, trust, hardship, and unemployment.

Paul Samuelson
Paul Samuelson
Paul Anthony Samuelson was an American economist, and the first American to win the Nobel Memorial Prize in Economic Sciences. The Swedish Royal Academies stated, when awarding the prize, that he "has done more than any other contemporary economist to raise the level of scientific analysis in...

 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
General equilibrium
General equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...

 modeling of Walras
Walras
Walras is surname of:* Auguste Walras , French school administrator and economist* Léon Walras * Walras' law...

 a century later. Smith's allowance for wage increases in the short and intermediate term from capital accumulation and invention added a realism missed later by Malthus, Ricardo, and Marx in their propounding a rigid subsistence-wage theory of labour supply.

On the other hand, Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...

 dismissed Smith's contributions as unoriginal, saying "His very limitation made for success. Had he been more brilliant, he would not 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 would not 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 also use Smith's labour theories, in part. The first volume of Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...

'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 labor that went into its production. This contrasts with the modern understanding of mainstream economics
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox 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 popularized by such neoclassical economists as Alfred Marshall
Alfred Marshall
Alfred Marshall was an Englishman and one of the most influential economists of his time. His book, Principles of Economics , was the dominant economic textbook in England for many years...

 as a concise synonym for "economic science" and a substitute for the earlier, broader term "political economy
Political economy
Political economy originally was the term for studying production, buying, and selling, and their relations with law, custom, and government, as well as with the distribution of national income and wealth, including through the budget process. Political economy originated in moral philosophy...

" used by Smith. This corresponded to the influence on the subject of mathematical methods used in the natural science
Natural science
The natural sciences are branches of science that seek to elucidate the rules that govern the natural world by using empirical and scientific methods...

s. Neoclassical economics systematized supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

 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
Marginal utility
In economics, the marginal utility of a good or service is the utility gained from an increase in the consumption of that good or service...

 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 other 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
Homo economicus
Homo economicus, or Economic human, is the concept in some economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends...

or "economic man" was also more 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 hierarchy, beliefs in inequality, including racial inequality, and provide additional support for those who point to Smith's opposition to slavery, colonialism, and empire. They show the caricatures of Smith drawn by the opponents of views on hierarchy and inequality in this online article.. Emphasized also 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 also cite Smith's view that a common street porter was not intellectually inferior to a philosopher., and point to the need for greater appreciation of the public views in discussions of science and other subjects now considered to be technical. They also cite Smith's opposition to the often expressed view that science is superior to common sense.


Portraits, monuments, and banknotes



Smith has been commemorated in the UK on banknotes printed by two different banks; his portrait has appeared since 1981 on the £
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...

50 notes issued by the Clydesdale Bank
Clydesdale Bank
Clydesdale Bank is a commercial bank in Scotland, a subsidiary of the National Australia Bank Group. In Scotland, Clydesdale Bank is the third largest clearing bank, although it also retains a branch network in London and the north of England...

 in Scotland, and in March 2007 Smith's image also appeared on the new series of £20 notes issued by the Bank of England
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...

, making him the first Scotsman to feature on an English banknote
Bank of England note issues
The Bank of England, which is now the Central Bank of the United Kingdom, has issued banknotes since 1694. Since 1970, its new series of notes have featured portraits of British historical figures. Of the eight banks authorised to issue banknotes in the UK, only the Bank of England can issue...

.

A large-scale memorial of Smith by Alexander Stoddart
Alexander Stoddart
Alexander Stoddart is a Scottish sculptor, who, since 2008, has been Her Majesty's Sculptor in Ordinary in Scotland. He works primarily on figurative sculpture in clay within the neoclassical tradition...

 was unveiled on 4 July 2008 in Edinburgh. It is a 10 feet (3 m)-tall bronze sculpture and it stands above the Royal Mile
Royal Mile
The Royal Mile is a succession of streets which form the main thoroughfare of the Old Town of the city of Edinburgh in Scotland.As the name suggests, the Royal Mile is approximately one Scots mile long, and runs between two foci of history in Scotland, from Edinburgh Castle at the top of the Castle...

 outside St Giles' Cathedral in Parliament Square, near the Mercat cross
Mercat cross
A mercat cross is a market cross found in Scottish cities and towns where trade and commerce was a part of economic life. It was originally a place where merchants would gather, and later became the focal point of many town events such as executions, announcements and proclamations...

. 20th century sculptor Jim Sanborn (best known for the Kryptos
Kryptos
Kryptos is an encrypted sculpture by American artist Jim Sanborn located on the grounds of the Central Intelligence Agency in Langley, Virginia. Since its dedication on November 3, 1990, there has been much speculation about the meaning of the encrypted messages it bears...

sculpture at the United States Central Intelligence Agency
Central Intelligence Agency
The Central Intelligence Agency is a civilian intelligence agency of the United States government. It is an executive agency and reports directly to the Director of National Intelligence, responsible for providing national security intelligence assessment to senior United States policymakers...

) has created multiple pieces which feature Smith's work. At Central Connecticut State University
Central Connecticut State University
Central Connecticut State University is a state university in New Britain, Connecticut, United States.The school was moved to its present campus in 1922...

 is Circulating Capital, a tall cylinder which features an extract from The Wealth of Nations on the lower half, and on the upper half, some of the same text but represented in binary code
Binary code
A binary code is a way of representing text or computer processor instructions by the use of the binary number system's two-binary digits 0 and 1. This is accomplished by assigning a bit string to each particular symbol or instruction...

. At the University of North Carolina at Charlotte
University of North Carolina at Charlotte
The University of North Carolina at Charlotte , also known as UNC Charlotte or simply Charlotte, is a public research university located in Charlotte, North Carolina, United States...

, outside the Belk College of Business Administration, is Adam Smith's Spinning Top. Another Smith sculpture is at Cleveland State University
Cleveland State University
Cleveland State University is a public university located in downtown Cleveland, Ohio. It was established in 1964 when the state of Ohio assumed control of Fenn College, and it absorbed the Cleveland-Marshall College of Law in 1969...

.

Residence


His house on Panmure Close off the Canongate
Canongate
The Canongate is a small district at the heart of Edinburgh, the capital city of Scotland.The name derives from the main street running through the area: called Canongate without the definite article, "the". Canongate forms the lower, eastern half of the Royal Mile in Edinburgh's historic Old Town....

 survived until 1889, but a nearby building of similar age adopted the stance of having been his house (in the same manner as John Knox's House) erecting a plaque c.1950 proclaiming itself as having been his residence. In reality Smith's residence was a far grander building than that remaining.

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 such as the Adam Smith Institute
Adam Smith Institute
The Adam Smith Institute, abbreviated to ASI, is a think tank based in the United Kingdom, named after one of the founders of modern economics, Adam Smith. It espouses free market and classical liberal views, in particular by creating radical policy options in the light of public choice theory,...

, Adam Smith Society and the Australian Adam Smith Club, and in terms such as the Adam Smith necktie.

Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...

 argues that, while Smith did not coin the term laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

, "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". P. J. O'Rourke
P. J. O'Rourke
Patrick Jake "P. J." O'Rourke is an American political satirist, journalist, writer, and author. O'Rourke is the H. L. Mencken Research Fellow at the Cato Institute and is a regular correspondent for The Atlantic Monthly, The American Spectator, and The Weekly Standard, and frequent panelist on...

 describes Smith as the "founder of free market economics".

However, other writers have argued that Smith's support for laissez-faire (which in French means leave alone) has been overstated. Herbert Stein
Herbert Stein
Herbert Stein was a senior fellow at the American Enterprise Institute and was on the board of contributors of The Wall Street Journal. He was chairman of the Council of Economic Advisers under President Nixon and President Ford. From 1974 until 1984, he was the A...

 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
Limited government
Limited government is a government which anything more than minimal governmental intervention in personal liberties and the economy is generally disallowed by law, usually in a written constitution. It is written in the United States Constitution in Article 1, Section 8...

", 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 was prepared to accept or propose qualifications to that policy in the specific cases where he judged that their net effect would be beneficial and would not undermine the basically free character of the system. He did not wear the Adam Smith necktie." In Stein's reading, The Wealth of Nations could justify the Food and Drug Administration
Food and Drug Administration
The Food and Drug Administration is an agency of the United States Department of Health and Human Services, one of the United States federal executive departments...

, the Consumer Product Safety Commission
Consumer Product Safety Commission
The United States Consumer Product Safety Commission is an independent agency of the United States government created in 1972 through the Consumer Product Safety Act to protect "against unreasonable risks of injuries associated with consumer products." The CPSC is an independent agency that does...

, mandatory employer health benefits, environmentalism
Environmentalism
Environmentalism is a broad philosophy, ideology and social movement regarding concerns for environmental conservation and improvement of the health of the environment, particularly as the measure for this health seeks to incorporate the concerns of non-human elements...

, and "discriminatory taxation
Pigovian tax
A Pigovian tax is a tax levied on a market activity that generates negative externalities. The tax is intended to correct the market outcome. In the presence of negative externalities, the social cost of a market activity is not covered by the private cost of the activity...

 to deter improper
Sin tax
A sin tax is a kind of sumptuary tax: a tax specifically levied on certain generally socially proscribed goods and services. These goods are usually alcohol and tobacco, but also include candies, soft drinks, fat foods and coffee, while services range from prostitution to...

 or luxurious behavior".

Similarly, Vivienne Brown stated in The Economic Journal that in the 20th century United States, Reaganomics
Reaganomics
Reaganomics refers to the economic policies promoted by the U.S. President Ronald Reagan during the 1980s, also known as supply-side economics and called trickle-down economics, particularly by critics...

 supporters, The Wall Street Journal
The Wall Street Journal
The Wall Street Journal is an American English-language international daily newspaper. It is published in New York City by Dow Jones & Company, a division of News Corporation, along with the Asian and European editions of the Journal....

, and other similar sources have spread among the general public a partial and misleading vision of Smith, portraying him as an "extreme dogmatic defender of laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

capitalism and supply-side economics
Supply-side economics
Supply-side economics is a school of macroeconomic thought that argues that economic growth can be most effectively created by lowering barriers for people to produce goods and services, such as lowering income tax and capital gains tax rates, and by allowing greater flexibility by reducing...

". 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."


Moreover, in this passage Smith goes on to specify progressive, not flat, taxation:

"The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion"


Smith even specifically named taxes that he thought should be required by the state among them luxury goods taxes and tax on rent. He believed that tax laws should be as transparent as possible and that each individual should pay a "certain amount, and not arbitrary," in addition to paying this tax at the time "most likely to be convenient for the contributor to pay it". Smith goes on to state that:

"Every tax, however, is, to the person who pays it, a badge, not of slavery, but of liberty."


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 such as infrastructure, provide national defense 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" such as roads, bridges, canals, and harbours. He also encouraged invention and new ideas through his patent enforcement and support of infant industry monopolies. he supported public education and religious institutions as providing general benefit to the society. Finally he outlined how the government should support the dignity of the monarch or chief magistrate, such that they are 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 splendor in the court of a king than in the mansion-house of a doge." In addition, he was in favor of retaliatory tariffs and believed that they would eventually bring down the price of goods. He even stated in Wealth of Nations:

"The recovery of a great foreign market will generally more than compensate the transitory inconvenience of paying dearer during a short time for some sorts of goods."


Noam Chomsky
Noam Chomsky
Avram Noam Chomsky is an American linguist, philosopher, cognitive scientist, and activist. He is an Institute Professor and Professor in the Department of Linguistics & Philosophy at MIT, where he has worked for over 50 years. Chomsky has been described as the "father of modern linguistics" and...

 has arguedSee chapters 2, 5, 6, and 10 of his Understanding Power, New Press (February 2002), along with his Year 501: The Conquest Continues, primarily chapter 1, South End Press, 1993. that several aspects of Smith's thought have been misrepresented and falsified by contemporary ideology, including Smith's reasons for supporting markets and Smith's views on corporations. Chomsky argues that Smith supported markets in the belief that they would lead to equality, and that Smith opposed wage labor and corporations. Economic historians such as Jacob Viner
Jacob Viner
Jacob Viner was a Canadian economist and is considered with Frank Knight and Henry Simons one of the "inspiring" mentors of the early Chicago School of Economics in the 1930s: he was one of the leading figures of the Chicago faculty.- Biography :Viner was born in 1892 in Montreal, Quebec to...

 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.

Economist Daniel Klein
Daniel B. Klein
Daniel B. Klein is a professor of economics at George Mason University and an Associate Fellow of the Swedish Ratio Institute. Much of his research examines public policy questions, libertarian political philosophy, and the sociology of academia...

 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. Economist David Ricardo
David Ricardo
David Ricardo was an English political economist, often credited with systematising economics, and was one of the most influential of the classical economists, along with Thomas Malthus, Adam Smith, and John Stuart Mill. He was also a member of Parliament, businessman, financier and speculator,...

 set straight some 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 was 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 also supported tariffs on imported goods to counteract an internal tax on the same good. Smith also fell to pressure in supporting some tariffs in support for national defense.

Further reading


External links


  • Adam Smith at the Concise Encyclopedia of Economics
    Concise Encyclopedia of Economics
    The Concise Encyclopedia of Economics is a widely-used encyclopedia of economics. It is used by students and teachers from high school to college to graduate school, and is one of the most popular worldwide resources for researching and understanding topics in economics.Articles are written by...

  • Adam Smith at the Adam Smith Institute
    Adam Smith Institute
    The Adam Smith Institute, abbreviated to ASI, is a think tank based in the United Kingdom, named after one of the founders of modern economics, Adam Smith. It espouses free market and classical liberal views, in particular by creating radical policy options in the light of public choice theory,...