Adam Smith

(16 June 1723 NS (5 June 1723 OS) 17 July 1790)

He was a Scottish moral philosopher, pioneer of political economy, and a key
figure in the Scottish Enlightenment.
Smith was born in Kirkcaldy, in the County of Fife, in Scotland. His father, also
Adam Smith, was a Scottish Writer to the Signet (senior solicitor),advocate,
and prosecutor (Judge Advocate) and also served as comptroller of the Customs in
Kirkcaldy. In 1720 he married Margaret Douglas, daughter of the landed Robert Douglas
of Strathendry, also in Fife. His father died two months after he was born, leaving his
mother a widow. The date of Smith's baptism into the Church of Scotland at Kirkcaldy
was 5 June 1723, and this has often been treated as if it were also his date of birth,
which is unknown. Although few events in Smith's early childhood are known, the
Scottish journalist John Rae, Smith's biographer, recorded that Smith was abducted by
gypsies at the age of three and released when others went to rescue him. Smith was
close to his mother, who probably encouraged him to pursue his scholarly ambitions. He
attended the Burgh School of Kirkcaldycharacterized by Rae as "one of the best
secondary schools of Scotland at that period"from 1729 to 1737, he learned Latin,
mathematics, history, and writing.
Smith is best known for two classic works: The Theory of Moral
Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of
Nations (1776). The latter, usually abbreviated as The Wealth of Nations, is considered
his magnum opus and the first modern work of economics. Smith is cited as the father
of modern economics and is still among the most influential thinkers in the field of
economics today.
Smith studied social philosophy at the University of Glasgow and at Balliol
College, Oxford, where he was one of the first students to benefit from scholarships set
up by fellow Scot, John Snell. After graduating, he delivered a successful series of
public lectures at Edinburgh, leading him to collaborate with David Hume during
the Scottish Enlightenment. Smith obtained a professorship at Glasgow 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 laid the foundations of classical free market economic theory. The Wealth
of Nations was a precursor to the modern academic discipline of economics. In this and
other works, he expounded upon 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 William
Hogarth and Jonathan Swift. In 2005, The Wealth of Nations was named among the
100 Best Scottish Books of all time. The minor planet 12838 Adam Smith was named in
his memory.

Published Works
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 dynamic and interactive social relationships through which
people seek "mutual sympathy of sentiments." His goal in writing the work was to
explain the source of mankind's ability to form moral judgement, given that people begin
life with no moral sentiments at all. Smith proposes a theory of sympathy, in which the
act of observing others and seeing the judgements they form of both others and one self
makes people aware of themselves and how others perceive their behavior. The
feedback we receive from perceiving (or imagining) others' judgements creates an
incentive to achieve "mutual sympathy of sentiments" with them and leads people to
develop habits, and then principles, of behavior, which come to constitute one's
conscience.
Some scholars have 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, some
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 their sentiments. Rather than viewing The
Theory of Moral Sentiments and The Wealth of Nations as presenting incompatible

views of human nature, some Smith scholars regard the works as emphasizing different
aspects of human nature that vary depending on the situation. Otteson argues that both
books are Newtonian in their methodology and deploy a similar "market model" for
explaining the creation and development of large-scale human social orders, including
morality, economics, as well as language. Ekelund and Hebert offer a differing view,
observing that self-interest is present in both works and that "in the former, sympathy is
the moral faculty that holds self-interest in check, whereas in the latter, competition is
the economic faculty that restrains self-interest."

The Wealth of Nations

There is disagreement 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 (1776). Neoclassical economists emphasize Smith's invisible
hand, a concept mentioned in the middle of his work Book IV, Chapter II and
classical economists believe that Smith stated his programmed for promoting the
"wealth of nations" in the first sentences, which attributes the growth of wealth and
prosperity to the division of labor.
Smith used the term "the invisible hand" in "History of Astronomy" referring to "the
invisible hand of Jupiter," and once in each of his The Theory of Moral
Sentiments (1759) and The Wealth of Nations (1776). This last statement about "an
invisible hand" has been interpreted in numerous ways.
As every individual, therefore, endeavors 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 labors 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 cases, 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. It is
an affectation, indeed, not very common among merchants, and very few words need
be employed in dissuading them from it.

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" may be 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 under
conditions of justice, he unintentionally 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, fixing the highest price "which can be squeezed out of the
buyers". Smith also warned that a business-dominated political system would allow 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." Thus Smith's chief worry seems to be when business is given special
protections or privileges from government; by contrast, in the absence of such special
political favors, he believed that business activities were generally beneficial to the
whole society:
It is the great multiplication of the production of all the different arts, in
consequence of the division of labor, which occasions, in a well-governed society, that
universal opulence which extends itself to the lowest ranks of the people. Every
workman has a great quantity of his own work to dispose of beyond what he himself has
occasion for; and every other workman being exactly in the same situation, he is
enabled to exchange a great quantity of his own goods for a great quantity, or, what
comes to the same thing, for the price of a great quantity of theirs. He supplies them
abundantly with what they have occasion for, and they accommodate him as amply with

what he has occasion for, and a general plenty diffuses itself through all the different
ranks of society. (The Wealth of Nations, I.i.10)
The neoclassical interest in Smith's statement about "an invisible hand"
originates in the possibility to see it as a precursor of neoclassical economics and
its General Equilibrium concept. Samuelson's "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 "public 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."
Very differently, classical economists see in Smith's first sentences his
programmed 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 labor as they do not contribute to
growth. This is what Smith had heard in France from, among others, Quesnay. To this
French insight that unproductive labor should be pushed back to use labor more
productively, Smith added his own proposal, that productive labor should be made even
more productive by deepening the division of labor. Smith argued that deepening the
division of labor under competition leads to greater productivity, which leads to lower
prices and thus an increasing standard of living"general plenty" and "universal
opulence"for all. Extended markets and increased production lead to continuous
reorganization of production and inventing new ways of producing, which lead to further
increased production, lower prices, and increased standards of living. Smith's central
message is therefore that under dynamic competition a growth machine secures "The
Wealth of Nations". Smith's argument predicted Britain's evolution as the workshop of
the world, underselling and out producing 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. This produce bears a
greater or smaller proportion to the number of those who are to consume it. But 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 labor, and that of those who are not so employed [emphasis added].

Smith added, however, that the "abundance or scantiness of this supply too seems to
depend more upon the former of those two circumstances than upon the latter."