Adam Smith 1723–1790
Scottish economist, philosopher, nonfiction writer, and essayist.
Often referred to as the founder of the science of political economy, Smith is best known as the author of An Inquiry into the Nature and Causes of the Wealth of Nations (1776), which is generally recognized as the first comprehensive and systematic examination of the economic forces in Europe that gave birth to capitalism in the eighteenth century. Combining theoretical analysis with policy recommendations, The Wealth of Nations is partly a history of European economics and partly a description of the state of manufacture and trade in Smith's day. Explaining in detail the reasons for the breakdown of feudal Europe and the growth of the newly emerging world of industry, Smith offered suggestions for achieving rapid economic development in contemporary circumstances. His advocacy of freedom from government restriction of the economic process—what has since become known as the laissez-faire doctrine—appealed to the individualistic consciousness of Europe's rising capitalist class, and their enthusiasm for Smith's policy proposals in The Wealth of Nations greatly contributed to the book's enormous impact on Western economic thought and institutions. Smith was also known among his contemporaries as a prominent moral philosopher. His study of ethics, particularly as revealed in The Theory of Moral Sentiments (1759), helped to define the meaning and attributes of moral behavior in an age when traditional religious teachings were being replaced by secular values. Like The Wealth of Nations, The Theory of Moral Sentiments has been widely praised for its insight into the psychology of human behavior and its expression of leading intellectual currents of Smith's day.
Smith was born in the seaport town of Kirkcaldy, Scotland. His father, a customs official, died shortly before his birth, and he was raised by his mother, with whom he enjoyed a close relationship until her death in 1784 at the age of ninety. When he was fourteen, Smith entered the University of Glasgow, where he became a favorite pupil of Francis Hutcheson, whose teaching of moral philosophy greatly influenced Smith's thought throughout his career. In his lectures on moral philosophy, Hutcheson emphasized themes that later
became prominent in Smith's writing: the notion that moral and aesthetic judgments are based on feelings, not reason; faith in the fundamental value and divine origin of an ethical law of nature; and the recognition of benevolence and justice as important human virtues. Smith left the University of Glasgow in 1740 and enrolled at Oxford, where he remained for seven years, pursuing a course of study that was largely self-directed. He moved to Edinburgh in 1748 at the suggestion of Lord Henry Home of Kames, who had invited him to deliver a series of public lectures there on rhetoric and belles lettres. It is believed that Smith repeated or revised many of these lectures, which encompass aesthetic subjects as well as history, jurisprudence, government, and science, during his subsequent teaching career at the University of Glasgow, first as a professor of logic in 1751 and later as a professor of moral philosophy from 1752 to 1764. Since Smith ordered his literary executors to burn his manuscripts, only a portion of these lectures are extant; some are printed in Essays on Philosophical Subjects (1795), and others, dating from 1762–63, appear in Lectures on Justice, Police, Revenue and Arms (1896; also referred to as Lectures on Jurisprudence) and Lectures on Rhetoric and Belles Lettres (1963). As Chair of Moral Philosophy at the University of Glasgow, Smith not only taught ethics, but also carefully considered the social aspects of the subjects of government and law. His study of jurisprudence led him to conclude that economic liberty was a fundamental human right, a theme he was to expand upon in The Wealth of Nations. Smith's first book, The Theory of Moral Sentiments, was drawn from his lectures at the University of Glasgow dealing properly with ethics. A critical and popular success that also elicited the admiration of Smith's peers, among them the philosophers David Hume and Edmund Burke, the work so impressed the politician Charles Townsend that he offered Smith the position of tutor to his stepson, Henry Scott, the Duke of Buccleuch. Smith accepted the assignment, resigning from his professorship in 1764, and accompanied the Duke on a two-year visit to France and Switzerland. Upon his return to Scotland, Smith settled in Kirkcaldy, where he spent the next ten years working on The Wealth of Nations. The immediate success of this book derived in large part from the popularity of its policy recommendations, which favored the rising capitalist class in Europe, and a variety of governments sought Smith's economic advice. During the remaining years of his life, Smith enjoyed recognition as a prominent economist and man of letters. He hosted regular Sunday dinners attended by important writers and other distinguished guests and devoted careful attention to his duties as commissioner of customs for Scotland, an appointment he received in 1778. He died in 1790, three years after his election to the office of Rector of Glasgow University.
Smith's reputation as a writer rests on his success in formulating systems in the realm of the social sciences to explain human behavior. In The Theory of Moral Sentiments, Smith examined the nature and origin of ethical judgments, and in his masterpiece, The Wealth of Nations, he explored the motivations of economic actors operating in a free market. Smith's system of moral philosophy, as outlined the The Theory of Moral Sentiments, is founded on the sentiment of sympathy, which, Smith maintained, forms the basis for humankind's judgments about both the propriety and merit of people's actions and feelings. According to Smith, it is sympathy, in the sense of imagining oneself in another person's situation, that shapes our judgments about whether another person's actions and feelings are right or wrong, deserving of praise or blame. As Smith points out, in order to form sound judgments about the conduct of others, individuals must be able to make judgments about their own behavior that are free of self-interest. In what is considered the most original aspect of Smith's ethical theory, he argued that the only way to avoid self-deception in our assessments of ourselves is to view our own actions through the eyes of an "ideal impartial spectator," a person possessed of perfect virtue who knows all the relevant facts but is not personally involved and who adheres to a set of general rules about what is considered socially appropiate behavior. In Smith's system, these general rules derive from accepted social virtues, such as benevolence and justice; sympathy, a natural human phenomenon, is the ultimate source of virtuous sentiments. While The Theory of Moral Sentiments deals with humankind's struggle to achieve happiness on a moral level, The Wealth of Nations concerns humankind's material welfare. Smith's primary objective in The Wealth of Nations was to define the ways and means of producing national wealth and to outline the conditions for rapid economic development in terms of national income. He rejected the mercantilist theory that money, in the form of gold and silver, is wealth, maintaining instead that wealth is measured in terms of consumer goods. Smith emphasized that the greatest amount of trade will take place among countries that possess surplus stocks of consumer goods, or the raw materials necessary to produce them, and he argued that the best way to maximize a country's capital accumulation is to increase productivity through a division of labor whereby individual workers are assigned specialized functions in the manufacture of a particular product. It follows from Smith's analysis that producers, in an effort to ensure that all of their material wants will be supplied, will concentrate on the manufacture of goods for which there is the greatest demand. Thus, Smith views self-interest as the primary motivation of economic agents in a capitalist society. He writes, "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 self-interest." Smith adds, however, that economic actors, through no design of their own, actually help to promote the general welfare by producing and selling the goods that satisfy the greatest needs of the people: the capitalist "intends only his own gain" but is "led by an invisible hand to promote an end which was no part of his intention." In Smith's view, then, there exits a natural order in the universe whereby individual selfishness adds up to the maximum social good. He therefore concluded that government attempts to disrupt this natural order in the form of restrictions on free trade should be abolished. One of the major themes of The Wealth of Nations—and the one that most appealed to the capitalist class that was coming to power in Europe at the time of the book's publication—is economic liberalism and the need to remove the government controls on individual economic agents that had survived from feudal and mercantilist times.
Smith is widely viewed as the philosopher of the capitalist revolution for his achievement in The Wealth of Nations. Scholars generally agree that Smith's genius lie in his ability to bring together into a coherent whole a vast range of topics that had been treated in the economic literature of his day and to fashion a system that explained the forces that were then at work forging a new economic order in Europe. Among Smith's contemporary audience, The Wealth of Nations was more applauded for its practical recommendations than for its analytic aspects. The acceptance of Smith's policy proposals by Europe's rising capitalist class helped to put in place economic practices and institutions that still survive and that continue to be associated with Smith's name. From a modern standpoint, however, Smith's lasting legacy is his economic analysis, which has been the subject of a vast amount of literature written by both professional and academic economists all over the world. In addition to discussing specific aspects of Smith's theory, most notably his ideas concerning the division of labor and the proper role of government in a free market economy, scholars have studied the philosophical foundations of his thought. Another prominent topic in the literature on Smith is the relationship between The Wealth of Nations and The Theory of Moral Sentiments. While it is almost unanimously agreed that both works attest to Smith's keen understanding of human psychology, critics have debated whether Smith's moral outlook has any bearing on his economic analysis. While some critics have argued that the concept of sympathy in The Theory of Moral Sentiments is in direct conflict with the idea of self-interest in The Wealth of Nations, others have found that Smith's notions of justice and benevolence as formulated in the earlier work are the key to an understanding of Smith's economic analysis. The ongoing controversy over whether Smith's moral and economic systems can be reconciled has not detracted from the critical stature of either The Wealth of Nations or The Theory of Moral Sentiments. The Theory of Moral Sentiments, like The Wealth of Nations, continues to be analyzed by critics on its own merits, for its theory and methodology as well as for the light it sheds on the Scottish philosophical tradition. Smith's fame, however, rests almost entirely on The Wealth of Nations. The economic system Smith developed in this work became the model for capitalist societies all over the globe, and today Smith is ranked with Thomas Robert Malthus, David Ricardo, John Stuart Mill, and Karl Marx among the world's greatest classical economists.
The Theory of Moral Sentiments (philosophy) 1759; revised editions, 1761, 1767, 1774, 1781, 1790
An Inquiry into the Nature and Causes of the Wealth of Nations (nonfiction) 1776; revised editions, 1778, 1784, 1786, 1789
Essays on Philosophical Subjects (essays and lectures) 1795
The Works of Adam Smith. 5 vols, (nonfiction, philosophy, essays, and lectures) 1811–12
Lectures on Justice, Police, Revenue and Arms, Delivered in the University of Glasgow by Adam Smith, Reported by a Student in 1763 (lectures) 1896
Lectures on Rhetoric and Belles Lettres Delivered in the University of Glasgow by Adam Smith, Reported by a Student in 1762–63 (lectures) 1963
The Glasgow Edition of the Works and Correspondence of Adam Smith. 6 vols. (nonfiction, philosophy, essays, lectures, and correspondence) 1982–87
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SOURCE: "The Theory of Moral Sentiments," in Adam Smith, Macmillan & Co., Limited, 1904, pp. 46–67.
[In the following excerpt from a chapter on The Theory of Moral Sentiments in Hirst's full-length study of Smith's career, Hirst focuses on Smith's notion of virtue, discussing the primary components of his system of ethics, sympathy, and the conscience.]
… With all its faults, the Theory of Moral Sentiments is still one of the most instructive and entertaining of all our English treatises on ethics. There is plenty of warmth and colour. The argument is never bare; you follow its thread through a wondrous maze, till your perplexities are solved, and you finally congratulate yourself as well as the author on having rejected all the errors and collected all the wisdom of the ages. When the main theme threatens to be tedious he entertains you with an imaginary portrait, or digresses into some subsidiary discussion upon fortune, or fashion, or some other of the currents that turn men from their purpose. It has been observed that the strongest antagonists of Smith's central doctrine are enthusiastic in praising his skill in the analysis of human nature. The truth is, that the most absent-minded was also the most observant of men. He seems to have watched the actions and passions of his acquaintances with extraordinary precision. Motives interested him at least as much as conduct; he rather...
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SOURCE: "The Economics and Sociology of Labor," in Adam Smith and Modern Sociology: A Study in the Methodology of the Social Sciences, The University of Chicago Press, 1907, pp. 79–154.
[In the following excerpt, Small comments on the extent to which extra-economic factors such as sociology and psychology enter into Smith's analysis in The Wealth of Nations, and also compares Smith's economic theories with those of Karl Marx.]
… [The Wealth of Nations] was primarily a technological inquiry, with the ways and means of producing national wealth as its objective; it assumed that this interest had a value of its own; at the same time it assumed that this interest in production is tributary to the interest in consumption; it assumes, further, that the wealth interest in general is but a single factor in the total scheme of human and divine purposes, and that, whatever the technique of satisfying the wealth interest may prove to be, the place of that interest in the whole harmony of human relations has to be established by a calculus in whose equations the formulas of economic technique are merely subordinate terms.
All of this was understood by Smith's friend Dugald Stewart, and it was uttered by him with sufficient clearness more than a century ago. It may assist our own insight to recall some of his words:1
The foregoing very...
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SOURCE: "Adam Smith's Empiricism and the Law of Nature. I," in The Journal of Political Economy, Vol. XLVIII, No. 4, August, 1940, pp. 487–520.
[In the following excerpt, Bittermann examines Smith's methodology in relation to the doctrine of natural law, arguing that, in formulating his ethical and economic theories, Smith rejected the rationalistic methods of the natural-law school of thought in favor of empirical procedures.]
I. THE PROBLEM STATED
Adam Smith was both the founder of a science and the prophet of an economic and political creed, and the combination and possible confusion of scientific and normative2 elements in the Wealth of Nations has long provided material for the critics. There were advocates of laisser faire long before Smith, and it may well be contended that economic liberalism was but one aspect of broader philosophic, literary, and political movements of the time directed toward the emancipation of the individual from traditional social controls of thought and action. In formulating his economic theories Smith utilized the arguments and conclusions of a host of writers. His preeminence is due to the fact that he first integrated various theories into a "system"; he showed how an economic order with a minimum of state action could function as a going concern; by comparing the effects of laisser faire and intervention in economic...
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SOURCE: "The Scottish Tradition in Economic Thought," in The Individual in Society: Papers on Adam Smith, George Allen & Unwin Ltd., 1967, pp. 19–41.
[In the following essay, Macfie places Smith and several other economists, including Francis Hutcheson, David Hume, and James and John Stuart Mill, within the historical context of the Scottish tradition in economic thought. Macfie emphasizes that their approach was sociological rather than analytical and that their methods were strongly influenced by the philosophy of Stoicism and the doctrine of natural law. Macfie's essay was originally delivered as a lecture at the Annual General Meeting of the Scottish Economic Society on March 14, 1955.]
This essay must start with a confession. In undertaking, some months ago, to submit an article on some such subject as 'The Scottish Tradition in Economic Thought', I was, it is now clear, in a state of not very creditable ignorance. I had then a rather vague idea that one could in an article say something directly significant on this subject. I had, of course, at various times read the Scots classics in a rather haphazard way; but the effect of reading them all straight through in their proper sequence, in the hope of tracing the individual Scottish thread running through them—the effect of this has been radical. For it has forced the conviction that there is a quite specific...
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SOURCE: "Politics and Principles," in Adam Smith's Science of Morals, George Allen & Unwin Ltd., 1971, pp. 205–20.
[In the following essay, Campbell argues that Smith's moral and political philosophies are ultimately based on the principle of utility.]
The thesis that Smith's theory of morality is essentially a scientific one should not be taken to imply that he does not endorse any moral and political principles of his own. By and large he accepts, as morally justified, the norms which it is his main purpose to explain. His own moral convictions can be seen in the arguments which he uses to justify his confidence in the judgments of the impartial spectator. These convictions are also apparent in the moral assumptions he brings to bear on the political issues of his day and in the recommendations he makes concerning the general conduct of politics. This is not to say that the arguments which he uses to justify his moral and political principles are the same as those which he uses to explain why certain principles are generally accepted. At least they do not correspond to the efficient causes of moral and political principles; although, as we shall see, they do often correspond to the final causes of such principles, or, in other words, to the purposes which are unwittingly served by these efficient causes.
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SOURCE: A conclusion to The Economics of Adam Smith, University of Toronto Press, 1973, pp. 305–20.
[Hollander defends Smith against charges that The Wealth of Nations contains numerous inconsistencies and assesses his contribution to formal and applied classical economics. The critic underscores Smith's responsiveness to changing economic conditions brought about by contemporary technological and sociological developments, particularly as displayed in his theory of the competitive allocation of resources.]
Professor Schumpeter in his celebrated critique has written that Adam Smith's function was merely that of co-ordinator whose 'mental stature was up to mastering the unwieldy material that flowed from many sources and to subjecting it, with a strong hand, to the rule of a small number of coherent principles'; there was not 'a single analytic idea, principle, or method that was entirely new in 1776.1 There is much to be said for viewing the Wealth of Nations as a 'synthesis'; but in our view the downplaying of the achievement implied by Schumpeter's formulation is seriously misleading. For the strength of the work lies precisely in its comprehensiveness—unparalleled at the time—which, as Sir Alexander Gray has observed, reflects a transition in economic literature from partisan pamphlet to scientific treatise.2 This characteristic of the Wealth of...
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SOURCE: "The Wealth of Nations," in Adam Smith, St. Martin's Press, 1982, pp. 168–85.
[In the following essay on The Wealth of Nations, Campbell and Skinner provide a comprehensive analysis of Smith's economic system, explaining and discussing the interrelationship among his theories of production, labor, wages, price and distribution, profits, savings and investment, interest rates, and capital accumulation. The authors also comment on Smith's policy recommendations concerning government regulation of the economy.]
The first edition of the Wealth of Nations was published on 9 March 1776 by Strahan and Cadell. It appeared in two volumes, at a cost of one pound and sixteen shillings. The second edition appeared in 1778 and the third six years later. The fourth edition is dated 1786, and the fifth and final version to be published in Smith's lifetime appeared in 1789, the year of the French Revolution.
The work has become one of the most influential to be published in the English language and has now been translated into Chinese, Czech, Dutch, Finnish, Italian, Portuguese, Russian, Serbo-Croat, Spanish, Swedish and Turkish. The first edition was sold out in six months, and was translated into Danish (1779–80), French (1778–9, 1788) and German (1776–8) before Smith died.
When the book appeared, many of its major themes would have been familiar to...
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SOURCE: "Ethics," in Adam Smith, Oxford University Press, Oxford, 1985, pp. 29–45.
[In the following excerpt, Raphael judges the strengths and weaknesses of Smith's theory of moral judgment.]
The first chapter of the Moral Sentiments is entitled 'Of Sympathy'; the first chapter of the Wealth of Nations is entitled 'Of the Division of Labour'. In each case the title is a signal of what Smith thinks most fundamental. The main subject of the Moral Sentiments is the nature of moral judgement and Smith founds it on sympathy. The main subject of the Wealth of Nations is economic growth and Smith founds that on the division of labour.
It is a mistake to suppose, as a number of nineteenth-century commentators did, that Adam Smith's first book treats sympathy as the motive of moral action. The role of sympathy in his book is to explain the origin and the nature of moral judgement, of approval and disapproval. For this purpose he uses the word 'sympathy' in a somewhat unusual way to mean not just sharing the feelings of another, but being aware that one shares the feelings of another. As often happens when a philosopher takes a term of common usage and employs it in a special sense, he sometimes forgets his own prescription and slips back into the normal meaning, but in general Smith is clear enough about what he is doing....
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SOURCE: "The Mistake," in Adam Smith's Mistake: How a Moral Philosopher Invented Economics & Ended Morality, Shambhala, 1990, pp. 80–93.
[In the following excerpt, Lux faults Smith's thesis (in The Wealth of Nations) that human self-interest is solely responsible for the economic well-being of the public, arguing that this theory fails to take into account the possibility of dishonesty and cheating on the part of economic actors.]
The central statement of Adam Smith's Wealth of Nations—for history, and certainly for economics—is that which affirms the value of self-interest: "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 self interest." The lines that follow this "butcher-baker" statement are often quoted as well: "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. Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow citizens."1
In this famous passage Smith seems to be telling us that, within the range of human motives, those in the category of self-interest, and not those classed as benevolence, are chiefly responsible for our being adequately supplied with provisions for living and the other goods and services that an economy should...
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SOURCE: "'A Small Party': Moral and Political Leadership in Commercial Society," in Adam Smith in His Time and Ours: Designing the Decent Society, The Free Press, 1993, pp. 164–74.
[In the following excerpt, Muller analyzes Smith's views on the moral and political roles of the intellectual as social scientist in commercial society.]
Commercial society, in which every man becomes to some degree a merchant, encourages the spread of characteristics associated with the prudent pursuit of self-interest—the "inferior virtues" of moderation, self-control, frugality, and decent behavior toward others. But that does not mean that the rarer and more demanding virtues, such as valor, strong benevolence, and fortitude, are obsolete. While Smith taught that the road to national wealth lay in commerce rather than in conquest, he believed that the nation still needed the ability to defend itself and therefore required the fortitude and bravery of the military hero. While welldesigned institutions minimize the need for ongoing government intervention in social and economic life, commercial society still requires the informed prudence and wisdom of statesmen and legislators devoted to the public weal.1 In The Theory of Moral Sentiments, Smith reminded his readers of the superiority of these virtues and the greater approbation and self-approbation that ought to attend them. And The Wealth of...
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Ross, Ian Simpson. The Life of Adam Smith. Oxford, England: Clarendon Press, 1995, 495 p.
A biography that includes discussion of Smith's writings and their critical reception. Ross, one of the editors of The Glasgow Edition of the Works and Correspondence of Adam Smith, provides a bibliography of primary and secondary sources.
Blaug, Mark. Economic Theory in Retrospect. 4th ed. Cambridge: Cambridge University Press, 1985, 737 p.
A history of economic theory from mercantilist times to the twentieth century, with a chapter on Smith's Wealth of Nations.
Bonar, James. Moral Sense. Library of Philosophy, edited by J. H. Muirhead. London: George Allen & Unwin, 1930, 304 p.
A study of the theory of moral philosophy prevailing in Scotland during the eighteenth century, which Bonar defines as "a special theory of the origin of Ethics—the theory that right decisions, if not indeed right principles, were due to a Moral Sense conceived as a special faculty." Bonar focuses on the writings and thought of the founders of this philosophy, Anthony Ashley Cooper Shaftesbury and Francis Hutcheson, their leading followers, and their principal critics, among them Smith....
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