Adam Smith - History

Adam Smith - History


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Known for his Wealth of Nations (1776), Scottish economist, Adam Smith held a professorship in logic, followed by a chair inmoral philosophy at Glasgow University. In his masterpiece ofpolitical economics, Smith contended that if people were permittedto pursue their own economic self-interests without governmentinterference, they would attain what is best for the society as awhole, as if led by an 'invisible hand'. This notion of theinvisible hand guiding economies, forms the basis of the concept oflaissez-faire. Smith was much admired even in his own times; at adinner, the Prime Minister invited him to be seated first since,'we are all your scholars.' He served as commissioner of customsand was lord rector of Glasgow University. Among his other workswere essays on the arts, linguistics, logic, classical physics, and astronomy.

Invisible hand

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Invisible hand, metaphor, introduced by the 18th-century Scottish philosopher and economist Adam Smith, that characterizes the mechanisms through which beneficial social and economic outcomes may arise from the accumulated self-interested actions of individuals, none of whom intends to bring about such outcomes. The notion of the invisible hand has been employed in economics and other social sciences to explain the division of labour, the emergence of a medium of exchange, the growth of wealth, the patterns (such as price levels) manifest in market competition, and the institutions and rules of society. More controversially, it has been used to argue that free markets, made up of economic agents who act in their own self-interest, deliver the best possible social and economic outcomes.

Smith invokes the phrase on two occasions to illustrate how a public benefit may arise from the interactions of individuals who did not intend to bring about such a good. In Part IV, chapter 1, of The Theory of Moral Sentiments (1759), he explains that, as wealthy individuals pursue their own interests, employing others to labour for them, they “are led by an invisible hand” to distribute the necessities that all would have received had there been an equal division of the earth. In Book IV, chapter 2, of An Inquiry into the Nature and Causes of the Wealth of Nations (1776), arguing against import restrictions and explaining how individuals prefer domestic over foreign investments, Smith uses the phrase to summarize how self-interested actions are so coordinated that they advance the public interest. In those two instances, a complex and beneficial structure is explained by invoking basic principles of human nature and economic interaction.

However, on other occasions Smith employs the idea of the invisible hand without using the phrase itself. In the opening paragraph of chapter 2 of Book I of The Wealth of Nations, for example, he describes how the division of labour is not the result of far-seeing wisdom but a gradual outcome of a natural “propensity to truck, barter, and exchange one thing for another.” Later in the same treatise, he delineates how individuals are so guided by prices that the supply of goods tends to meet demand. More generally, Smith explains how the patterns of commerce, including the overall creation of wealth, arise out of individuals responding to and endeavouring to succeed in their own local circumstances.

Although Smith often refers to economic agents as self-interested, he does not mean to suggest that their motivations are selfish. Rather, the agents are motivated by beliefs and intentions that manifest their local knowledge and particular concerns (including those relating to their families) rather than some broader conception of a public good.


1. Methodology

Smith&rsquos Theory of Moral Sentiments (TMS) tends to arouse sharply divergent reactions among the philosophers who pick it up. Kant is said to have considered it his favorite among Scottish moral sense theories (Fleischacker 1991), but others have dismissed it as devoid of systematic argument, or derivative, in its theoretical aspirations, of Hume. What explains these disparate reactions is one and the same feature of the book: that it consists largely of what Smith himself calls &ldquoillustrations&rdquo of the workings of the moral sentiments (TMS, &ldquoAdvertisement&rdquo)&mdashshort vignettes, elegantly described, that attempt to show what frightens us about death, what we find interesting and what dull or distasteful about other people&rsquos love affairs, how moral luck factors into our assessment of various actions (Garrett 2005 Hankins 2016), or how and why we deceive ourselves. To some, this provides the detail and psychological acuity that they find lacking in most moral philosophy to others, it seems something more properly taken up by novelists or empirical psychologists, not the business of a philosopher. Indeed, one prominent view of TMS is that it is a work in descriptive psychology or sociology, not a contribution to normative moral theory (Campbell 1971 Raphael 2007). This reading is hard to square with the many normative judgments in TMS (see Hanley 2009, chapter 2 and Otteson 2002, chapter 6). It also misses the force of Smith&rsquos insistence that the proper way to make normative judgments is to consider the details of a phenomenon from an impartial perspective: to judge the workings of our moral faculties, then, we need to consider them, and their uses, in appropriate detail. Laying out in detail how they work can help us see how they can be corrupted, and therefore to avoid that corruption, at least to some extent (see TMS 61&ndash6, 92&ndash104). If this was Smith&rsquos goal&mdashand it fits the text of TMS very well&mdashthen he was engaged not in the sociology or psychology but the phenomenology of morals, describing the workings of our modes of moral judgment as carefully as possible from within, and believing that the comprehensive view that results can itself help guide us in moral judgment. Moral phenomenology is normative moral theory, for him, and there is no more foundational theory&mdashno set of general principles&mdashof which we might avail ourselves. Justification for how we make moral judgments can only be found within the way we actually do make moral judgments both moral justification and moral critique must be immanent to, not transcendent of, our moral practice (compare TMS 313&ndash4).

A few implications of this approach. First, Smith is an anti-reductionist. He does not think morality can be reduced to a set of natural or divine laws, nor that it is simply a means for producing &ldquothe greatest happiness for the greatest number of people,&rdquo in the phrase coined by his teacher, Frances Hutcheson. He indeed says explicitly, against the proto-utilitarianism of Hutcheson and Hume, that philosophers in his day have paid too much attention to the consequences of actions, and he wants to focus instead on their propriety: the relation they bear to the motive that inspires them (18&ndash19). At the same time, he argues that the moral systems proposed by Samuel Clarke, William Wollaston, and Lord Shaftesbury overstress propriety, which is just one &ldquoessential ingredient&rdquo in virtuous action (294 see also 265 and 326). His own view attempts to take account of all the essential ingredients in virtue and moral judgment, and to resist the temptation to reduce those ingredients to a single principle (see 326&ndash7).

Second, and relatedly, Smith&rsquos way of approaching virtue often resembles Aristotle&rsquos&mdashwho has also sometimes been seen as too fond of the description of virtue, and who tried to acknowledge the many diverse elements of virtue, and the judgment of virtue, rather than to reduce them to a single principle. Smith says at the end of TMS that his system corresponds &ldquopretty exactly&rdquo with Aristotle&rsquos (271). The attentive reader of TMS will have noticed this earlier: when he characterizes propriety as lying between the excess and defect of passion (27), for instance, or when he distinguishes the restraint of appetite out of self-interest from the virtue of temperance (28), or when he emphasizes habit (152, 324), or the superiority of friendships of virtue over friendships of pleasure (224&ndash5).

Finally, Smith&rsquos phenomenological method is interwoven with his strong leanings toward particularism. He insists that general moral rules are &ldquofounded upon experience of what, in particular instances, our moral faculties, our natural sense of merit and propriety, approve, or disapprove of&rdquo (159 see also 160 and 320), and that our notions of right and wrong bottom out in these reactions to particular cases (320 see also 187 and Gill 2014). His account of virtue as depending on our attempts to adjust ourselves as closely as possible to the feelings of the particular others we encounter also suggests that what is virtuous in one set of circumstances may not be so in different circumstances. These commitments entail that moral theorists will give us little moral guidance if they present just the general structure of right and wrong (and Smith thinks that moral theory should help guide moral practice: TMS 293, 315). A fine-grained phenomenology of how we carry out various kinds of moral judgment, and the errors or infelicities to which we are prone in this process, will be far more helpful.


Why Was Adam Smith so Important?

Adam Smith was important because he wrote "The Wealth of Nations," which is a bible of capitalism, and he also achieved the firm comprehensive system of political economy. He was born in Scotland and was a known philosopher and political economist. He studied moral philosophy at Glasgow University. Smith first published a volume called "An Inquiry into the Nature and Causes of the Wealth of Nations."

During his time, a country's wealth was estimated by the amount of gold and silver it owned. Smith proposed that the nation's wealth should not be measured through this metric, but through its total production and commerce, which today is known as gross national product. He also talked about the concept of division of labor, which would help to increase production through specialization.

Smith believed that free market economies are productive and helpful to the society. He said that if people were set free to work by themselves, it would lead to economic property and growth to all. He earned a stable reputation after writing "The Wealth of Nations," which is one of the most influential books ever written. Smith was named the rector of Glasgow University in 1787. He died 3 years later.


Legacy of Adam Smith

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 of 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 James Tassie it gives a glimpse of the older man with his somewhat heavy-lidded eyes, aquiline nose, and a hint of a 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 “inexpressible 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 expressions 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 generalizations, and the boldness of his vision have never ceased to attract the admiration of all social scientists, economists in particular. 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.


4. John Maynard Keynes (1883-1946)

Historians sometimes refer to John Maynard Keynes as the "giant economist." The six-foot-six Brit accepted a lectureship at Cambridge that was personally funded by Alfred Marshall, whose supply and demand curves were the basis for much of Keynes' work. He is particularly remembered for advocating government spending and monetary policy to mitigate the adverse effects of economic recessions, depressions, and booms.

During World War I, Keynes worked on the credit terms between Britain and its allies and was a representative at the peace treaty signed in Versailles.

Keynes was almost bankrupted by the stock market crash of 1929, but he was able to rebuild his fortune. In 1936, Keynes wrote his seminal work, the "General Theory of Employment, Interest and Money," which advocated government intervention to promote consumption and investing it also pushed to alleviate the global Great Depression that was raging at the time. This work has been deemed as the launch of modern macroeconomics.

Friedman and Keynes

John Keynes' work is often considered antithetical to the laissez-faire philosophy promoted by economists like Milton Friedman. While Keynes advocated government spending as a form of economic stimulus, Friedman opposed government interventions.


Early Life Of Adam Smith

The recorded history of Smith's life begins at this baptism on June 5, 1723 in Kirkcaldy, Scotland his exact birthdate is undocumented.   Smith attended the University of Glasgow in Scotland at age 13, studying moral philosophy. Later, Smith enrolled in postgraduate studies at the prestigious Balliol College at Oxford University.  

After returning to Scotland, Smith held a series of public lectures at the University of Edinburgh. The success of his lecture series helped him earn a professorship at Glasgow University in 1751. He eventually earned the position of Chair of Moral Philosophy. During his years spent teaching and working at Glasgow, Smith worked on getting some of his lectures published. His book, "The Theory of Moral Sentiments," was eventually published in 1759 book.  

Smith moved to France in 1763 to accept a more remunerative position as a personal tutor to the stepson of Charles Townshend, an amateur economist and the future Chancellor of the Exchequer. During his time in France, Smith counted the philosophers David Hume and Voltaire and Benjamin Franklin as contemporaries.  

Key Takeaways

  • Adam Smith was an 18th-century Scottish economist, philosopher, and author, and is considered the father of modern economics.
  • Smith is most famous for his 1776 book, "The Wealth of Nations."
  • Smith's ideas–the importance of free markets, assembly-line production methods, and gross domestic product (GDP)–formed the basis for theories of classical economics.

The first revolutionary idea

Smith challenged this idea by addressing several economic issues without taking into account the government’s involvement in their resolution. The first revolutionary idea of the Scottish philosopher is exactly this. He detached from politics and ethics, thus enhancing the independency of economics as a science.

In other words, before Adam Smith, the issue of economic policy was typically framed in a moral form, in terms of the benevolence of the king towards the citizens. This conception of economics relied on a fundamental assumption according to which the effect of an economic policy depends on the intentions of the policy-maker. Smith challenged this assumption. He introduced the idea that — sometimes — even though we have very good intentions, our policies might lead to negative outcomes. Economics, thus, should not depend on the intentions of the policy-maker.


Most Recent Additions by Adam Smith

Intellectual Founder of Capitalism

He capitalism , As a reasoned economic system, can not be considered as founded by a man from the feudalism Commercial practices were carried out that showed signs of what would be capitalism centuries later.

However, Adam Smith is considered to be the first to develop his mechanisms theoretically.

Smith approached economic processes on all possible scales, and allowed to elucidate how some commercial methods had the capacity to increase or decrease the wealth of an individual, a company or a state.

With these investigations the Scottish economist allowed himself to sketch a scheme of social order based on the commercial and production relations that were born of his thought, they began to see practiced during the Industrial Revolution, and eventually antagonized with the first communist ideas.

Theory of moral feelings

Smith's first work, and second in importance behind The Wealth of Nations . Before deepening economic systems and business relations, Smith developed his own conception of man in society.

Smith regarded man as a being who was guarding his own interests above all others. However, it is able to recognize the need to offer or accept help and cooperation from others, as long as this also reports a maximization in their moral, spiritual, or monetary return.

For Smith, individuality prevailed over collective values, at the human and business level.

To justify how such a society could remain functional, Adam Smith resorted to the presence of an"invisible hand"that regulated human phenomena and behaviors, subjectifying his thinking.

The Wealth of Nations

His most important work, from which all his economic thought is born and broken.

The ideas presented by Smith were shaped so that for the first time could be understood by any person, and thus improve the general notion that was had on the classic economic system.

Smith studied, as it happened, European industrial development. His theory of the mechanisms of classical economics would remain strong until the early twentieth century, when the Great Depression would push for a rethinking.

He managed to adapt the individual interests of the man to the business field, they affirm that to watch over the own, a collective environment is guaranteed profitable.

In this work Smith develops individual points such as the conception of free market, capital, division of labor, etc. It is these factors themselves that reinforce the importance of the thinking of its author.

Free market

Smith was considered a critic of the mercantilism and the economic hermetism, reason why it looked for to impel the free market through its concepts and exemplifications, in an era in which the nations saw the foreign trade with some suspicion.

The free-market economic theory proposed by Adam Smith consisted in the determination of prices to the products according to their level of production and consumption As well as the implicit laws of supply and demand.

The free market proposed by Smith appears open and without the intervention or regulations of state entities like the government.

Division of Labour

Smith pushed the specialization of tasks in the work and commercial environment, not so much for the democratization of the working conditions, but to reduce the costs of production, creating a chain of simple mechanisms that would maximize the speed of production, and would reduce the risks.

This outline in classical economics would be strengthened over time, generating structures that do not function except under a system of hierarchical and vertical division.

It was the basis of these postulates that would then confront Smith's economic thinking with ideas that seek greater economic equity.

Usage value and exchange value

Adam Smith qualified the commercial valuation of a product according to its potential of use and the time of work and effort that was necessary to produce it.

The economist worked an abstract equation of time and effort to determine the value that that product could have in the market.

Then it was faced with the capacity or potential of use that that product could have for man. These two factors allowed a better understanding of the commercial value of the products.

Gross Domestic Product (GDP)

Developed in his work, The Wealth of Nations , Smith decided to leave aside the national conception that existed at that time to measure national wealth according to the deposits and reserves of silver gold that had, and give way to the classification according to the internal levels of production and trade.

From this foundation is born the outline of one of the economic indicators most used in today's society: GDP or Gross Domestic Product, which encompasses in general the trade and production relations of a country, yielding an approximate income as a result Of all trade.


The American Rebels – a Prophecy

The Oxford Companion to English Literature comments on the importance of the appearance of The Wealth of Nations on the actual day of the Declaration of Independence of the American rebels. In Book IV, Smith says:

“They will be one of the foremost nations of the world”

The Oxford Companion adds: “To obviate the danger he proposed the representation of the colonies in the British Parliament.”

The Wealth of Nations has influenced political thought for many generations, including Marxist theory. According to the Cambridge GuideSmith’s economics provided a manifesto for British politicians seeking to reduce state intervention in economic life.”

While individualistic, self-interest is advocated as the correct criteria for a proper economic system, this universal attention to a person’s own advantage does, in Adam Smith’ view, benefit society as a whole.

Comments

The capitalism of Smith has morphed into the monster it has become today.Pure self interest has led to a world where the minority with capital dominate and dictate the rest leading to huge disparities in income locally and poverty and dispossession in the rest of the world. The “Occupy Wall Street” movements in America and similar movements in other parts of the world attest to this. The rabid capitalism prevalent today has been unsuccessful as the socialist or the communist systems. It looks as if there is no system that can satisfy all the sections of people all the time.

Janet Cameron says

It is with some sadness that I have to agree you make many valid points. Although. I like the idea of free enterprise, I dislike the fact that there is such a depressing disparity between rich and poor. Unfortunately, self-interest can become a synonym for “greed.’ At the same time, I cannot deny that Adam Smith demonstrated great feeling for his fellow-man – as quoted in the article: “No society can surely be flourishing and happy of which the far greater part of the members are poor and miserable.” He must have believed it would work and that “unintended consequences of intended actions” would benefit society in general. Maybe it isn’t possible to create a political system that is totally fair to all, while managing not to crush individuality.

Janet, I have to agree with your last sentence.
It is my belief that the “Robin Hood” system may be fair to all, but does not nurture entrepreneurship, individuality, introspection, etc. However, a dog-eat-dog world is harmful, dangerous and scary. Should we, as humans, let society run its course, or try to interfere and establish artificial castes and give every person a “free ride?”
What is fair, anyway?

Janet Cameron says

Thanks for commenting Liz. It’s a tough one. We aren’t clones, and our human individuality and entrepreneurial freedom are fundamental to our well-being. And, yes, you are right, people cannot agree about what is fair when they’re trying to protect their own interest.

I think that what Adam Smith had in mind was an economic system that trusted human nature and had a certain faith that the rational self-interest of an individual would collectively amount to societal benevolence. He envisaged the individual entrepreneur liberating himself from the unfairness of mercantilism – a system that unarguably gave favorable treatment to the elite and had a propensity for monopoly. Monopoly was not just bad for the consumer and worker but bad for society as a whole.

Ok now fast forward more than a hundred years and I think Adam Smith today would be ironically calling for a new economic system. He would acknowledge that our current plutocratic capitalism has led to unprecedented production and distribution of goods and services and it has encouraged entrepreneurial spirit. However, he would be deeply disturbed by the inequity and unfairness of a system so favorable to the very wealthy and he would be dismayed by the effect this system has on the environment. When an economic system so utterly fails to bring fairness and environmental sustainability it’s done – it needs a replacement. He might wonder what is taking us so long to acknowledge this. I don’t see him that different from Marx in his disdain for unfairness and optimistic faith in human nature

Janet Cameron says

Hi Nevin, thanks so much for these valuable insights. I must say I think you have a point, and he would certainly be horrified at the unfairness of our current political system. I just keep waiting for things to get better but maybe my optimism is misplaced. I do hope not.



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