Key thinker: Adam Smith (1723–1790)

Adam Smith (1723–1790)

Adam Smith was born in Kirkcaldy, Scotland, a few months before the death of his father, a customs official. Smith, who never married, remained close to his mother throughout his life. He was a studious boy, and began to study moral philosophy at Glasgow University at the age of fourteen. In 1740 he won a scholarship to Balliol College, Oxford, where he studied for six years until suffering a nervous illness which caused him to withdraw.

In 1748 Smith gave a successful series of public lectures in Edinburgh, covering subjects such as rhetoric as well as economics. Three years later Smith was appointed Professor of Logic at Glasgow University, becoming Professor of Moral Philosophy the following year. Although he enjoyed academic life and developed his ideas through his lectures, in 1763 he was offered a more lucrative post as a private tutor to the young Duke of Buccleuch, one of Scotland's greatest landowners. This appointment enabled Smith to travel, and to meet some of Europe's most celebrated thinkers such as Voltaire.

After his return, Smith devoted himself to writing his most celebrated book, An Inquiry into the Nature and Causes of the Wealth of Nations (1776). His growing reputation secured him membership of Britain's most prestigious societies, such as the Royal Society of London. In 1778 he was given a sinecure post in the Scottish customs service, and returned to Edinburgh to live with his mother (who survived him by six years). An eccentric and amiable figure, Adam Smith was mourned by many friends when he died in 1790.

Adam Smith's posthumous reputation rests on two books, The Wealth of Nations and The Theory of Moral Sentiments (1759). In the latter he argued that 'sympathy' (or, one might say, 'empathy') was the key to moral conduct. In our social interactions we learn to see ourselves through the eyes of an imaginary impartial spectator—the closest we can come to finding out what others really think of us. The spectator prevents us from acting out of blind self-interest, and acts as a kind of social cement.

Smith's moral theory—which had much in common with the views of his friend David Hume (see—seems hard to reconcile with his more celebrated economic ideas. These, set out in The Wealth of Nations, emphasize the role of self-interest in human conduct. Thus, people do not expect to receive services from 'the butcher, the brewer, or the baker' because these people are benevolent. 'We address ourselves, not to their humanity but to their self-love'. One could argue that in instrumental activities like economic deals our 'sympathy' for one another is suspended, at least to a degree, allowing self-interest to dominate. It would still be possible for butchers, brewers and bakers to be benevolent in other activities; they could, like Smith himself, give a portion of their profits to charity. In any case, the overall effect of self-interest in economic matters is beneficial, because an 'invisible hand' lies behind the free market, ensuring efficient production and, through competition, affordable prices.

One of the key arguments of The Wealth of Nations was an attack on mercantilism (for analysis, see Chapter 22), the idea that governments must intervene to ensure a favourable balance of trade with other nations. Smith argued forcefully for freedom of trade, which would be governed by the same 'invisible hand' to ensure greater prosperity for all trading nations. Smith had shown that the 'division of labour', through which various workers contributed to a finished item, led to efficient production within a workplace. The same principle could be applied to nations, which should produce the goods (and services) for which they were best equipped and trade the surplus with other countries in order to secure the other things they need.

However, despite Smith's warnings about the malign effect of government intervention it is wrong to portray him as an unflinching advocate of laissez-faire. He can even be regarded as a prophet of the 'mixed economy' found in many developed nations after World War II, since he acknowledged that some vital goods and services were unlikely to be provided by the free market. Smith's work can also be used to justify the redistribution of wealth through taxation; rather than defining poverty as an absolute measure based on access to basic food and shelter, he understood that it was related to the general level of prosperity in a given society.

Smith is usually hailed as the father of modern economics, and his influence can be traced in most of the classic writings in the field. Even Karl Marx, who had a very different view of the operations of the free market, was indebted to Smith's insights. In the last few decades of the twentieth century Smith's ideas were invoked by governments on both sides of the Atlantic, as a champion in the 'battle of ideas' against the advocates of state intervention. As we have seen, this view is based on a distortion of Smith's true message, but it is a mark of his achievement that people were willing to debate his legacy more than two centuries after his death.

Further reading
Knud Haakonsson, The Cambridge Companion to Adam Smith, Cambridge University Press, 2006.
Ian Ross, The Life of Adam Smith, Oxford University Press, 1995.

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