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 baptized
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 center 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 behavior,
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 judgments,
including judgments on one’s own behavior, 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 defense 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 - laborers, 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 laborers (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 laborers 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
specialized 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
|