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Adam Smith

2007 Schools Wikipedia Selection. Related subjects: Economics; Historical
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                            Western Philosophers
   18th-century philosophy
   (Modern Philosophy)
   Adam Smith
         Name:       Adam Smith
        Birth:       June 5, 1723 (baptised) ( Kirkcaldy, Fife, Scotland)
        Death:       July 17, 1790 (Edinburgh, Scotland)
   School/tradition: Classical economics
    Main interests:  Political philosophy, ethics, economics
    Notable ideas:   Classical economics, modern free market, division of
                     labour
      Influences:    Aristotle, Hobbes, Locke, Mandeville, Hutcheson, Hume,
                     Montesquieu
      Influenced:    Malthus, Ricardo, Mill, Keynes, Marx, Engels, American
                     Founding Fathers

   Adam Smith, FRSE, (baptised and probably born June 5, 1723 O.S. ( June
   16 N.S.) – July 17, 1790) was a Scottish political economist and moral
   philosopher. His Inquiry into the Nature and Causes of the Wealth of
   Nations was one of the earliest attempts to study the historical
   development of industry and commerce in Europe. That work helped to
   create the modern academic discipline of economics and provided one of
   the best-known intellectual rationales for free trade, capitalism, and
   libertarianism.

Biography

   Smith was a son of the controller of the customs at Kirkcaldy, Fife,
   Scotland. The exact date of his birth is unknown, but he was baptised
   at Kirkcaldy on June 5, 1723, his father having died some six months
   previously. At around the age of 4, he was kidnapped by a band of
   Gypsies, but he was quickly rescued by his uncle and returned to his
   mother. Smith recovered from this ordeal quickly and resumed his close
   relationship with his mother on his safe return home. Smith's
   biographer, John Rae, commented wryly that he feared Smith would have
   made "a poor Gypsy." He is thought to have been an only child as there
   is no record of him having had siblings.

   At the age of fourteen, Smith proceeded to the University of Glasgow,
   studying moral philosophy under "the never-to-be-forgotten" (as Smith
   called him) Francis Hutcheson. Here Smith developed his strong passion
   for liberty, reason, and free speech. In 1740 he entered Balliol
   College, Oxford, but as William Robert Scott has said, "the Oxford of
   his time gave little if any help towards what was to be his lifework,"
   and he left the university in 1746, becoming a public critic of its
   process of tenure. In 1748 he began delivering public lectures in
   Edinburgh under the patronage of Lord Kames. Some of these dealt with
   rhetoric and belles-lettres, but later he took up the subject of "the
   progress of opulence," and it was then, in his middle or late 20s, that
   he first expounded the economic philosophy of "the obvious and simple
   system of natural liberty" which he was later to proclaim to the world
   in his Inquiry into the Nature and Causes of the Wealth of Nations. In
   about 1750 he met David Hume, who was his senior by over a decade. The
   alignments of opinion that can be found within the details of their
   respective writings covering history, politics, philosophy, economics,
   and religion indicate that they both shared a closer intellectual
   alliance and friendship than with the others who were to play important
   roles during the emergence of what has come to be known as the Scottish
   Enlightenment; he frequented The Poker Club of Edinburgh.

   Smith's father had a strong interest in Christianity and belonged to
   the moderate wing of the Church of Scotland (the national church of
   Scotland since 1690). Smith may have gone to England with the intention
   of a career in the Church of England: this is controversial and depends
   on the status of the Snell Scholarship. How he lost belief and why
   remains uncertain. But it is definite that he returned to Scotland as a
   Deist.
   Adam Smith
   Enlarge
   Adam Smith

   Coase, Professor of Economics and journal editor, challenged the view
   that Smith was a Deist, stating that, whilst Smith may have referred to
   the " Great Architect of the Universe", other scholars have "very much
   exaggerated the extent to which Adam Smith was committed to a belief in
   a personal God". He based this on analysis of a remark in The Wealth of
   Nations where Smith writes that the curiosity of mankind about the
   "great phenomena of nature" such as "the generation, the life, growth
   and dissolution of plants and animals" has led men to "enquire into
   their causes". Coase notes Smith's observation that: "Superstition
   first attempted to satisfy this curiosity, by referring all those
   wonderful appearances to the immediate agency of the gods. Philosophy
   afterwards endeavoured to account for them, from more familiar causes,
   or from such as mankind were better acquainted with than the agency of
   the gods." Coase argues that this is "hardly a remark which would have
   been made by a strong, or even a mild, deist".

   In 1751 Smith was appointed chair of logic at the University of
   Glasgow, transferring in 1752 to the Chair of Moral Philosophy, once
   occupied by his famous teacher, Francis Hutcheson. His lectures covered
   the fields of ethics, rhetoric, jurisprudence, political economy, and
   "police and revenue". In 1759 he published his The Theory of Moral
   Sentiments, embodying some of his Glasgow lectures. This work, which
   established Smith's reputation in his day, was concerned with how human
   communication depends on sympathy between agent and spectator (that is,
   the individual and other members of society). His analysis of language
   evolution was somewhat superficial, as shown only 14 years later by a
   more rigorous examination of primitive language evolution by Lord
   Monboddo in his Of the Origin and Progress of Language. Smith's
   capacity for fluent, persuasive, if rather rhetorical argument, is much
   in evidence. He bases his explanation, not as the third Lord
   Shaftesbury and Hutcheson had done, on a special "moral sense", nor (as
   Hume did) on utility, but on sympathy.

   Smith now began to give more attention to jurisprudence and economics
   in his lecture and less to his theories of morals. An impression can be
   obtained as to the development of his ideas on political economy from
   the notes of his lectures taken down by a student in about 1763 which
   were later edited by Edwin Cannan, and from what Scott, its discoverer
   and publisher, describes as "An Early Draft of Part of The Wealth of
   Nations", which he dates about 1763. Cannan's work appeared as Lectures
   on Justice, Police, Revenue and Arms. A fuller version was published as
   Lectures on Jurisprudence in the Glasgow Edition of 1976.

   At the end of 1763 Smith obtained a lucrative offer from Charles
   Townshend (who had been introduced to Smith by David Hume), to tutor
   his stepson, the young Duke of Buccleuch. Smith subsequently resigned
   from his professorship and from 1764-66 traveled with his pupil, mostly
   in France, where he came to know intellectual leaders such as Turgot,
   Jean D'Alembert, André Morellet, Helvétius and, in particular, Francois
   Quesnay, the head of the Physiocratic school whose work he respected
   greatly. On returning home to Kirkcaldy he devoted much of the next ten
   years to his magnum opus, An Inquiry into the Nature and Causes of the
   Wealth of Nations, which appeared in 1776. It was very well-received
   and popular, and Smith became famous. In 1778 he was appointed to a
   comfortable post as commissioner of customs in Scotland and went to
   live with his mother in Edinburgh. He died there on July 17, 1790,
   after a painful illness and was buried in the Canongate Kirkyard, Royal
   Mile, Edinburgh. He had apparently devoted a considerable part of his
   income to numerous secret acts of charity.

   Smith's literary executors were two old friends from the Scottish
   academic world; physicist/chemist Joseph Black and pioneering geologist
   James Hutton. Smith left behind many notes and some unpublished
   material, but gave instructions to destroy anything that was not fit
   for publication. He mentioned an early unpublished History of Astronomy
   as probably suitable, and it duly appeared in 1795, along with other
   material, as Essays on Philosophical Subjects.

Works

   Shortly before his death Smith had nearly all his manuscripts
   destroyed. In his last years he seemed to have been planning two major
   treatises, one on the theory and history of law and one on the sciences
   and arts. The posthumously published Essays on Philosophical Subjects
   (1795) probably contain parts of what would have been the latter
   treatise.

   The Wealth of Nations was influential since it did so much to create
   the field of economics and develop it into an autonomous systematic
   discipline. In the Western world, it is arguably the most influential
   book on the subject ever published. When the book, which has become a
   classic manifesto against mercantilism (the theory that large reserves
   of bullion are essential for economic success), appeared in 1776, there
   was a strong sentiment for free trade in both Britain and America. This
   new feeling had been born out of the economic hardships and poverty
   caused by the American War of Independence. However, at the time of
   publication, not everybody was immediately convinced of the advantages
   of free trade: the British public and Parliament still clung to
   mercantilism for many years to come.

   The Wealth of Nations also rejects the Physiocratic school's emphasis
   on the importance of land; instead, Smith believed labour was
   paramount, and that a division of labour would effect a great increase
   in production. Nations was so successful, in fact, that it led to the
   abandonment of earlier economic schools, and later economists, such as
   Thomas Malthus and David Ricardo, focused on refining Smith's theory
   into what is now known as classical economics. Both Modern economics
   and, separately, Marxian economics owe significantly to classical
   economics. Malthus expanded Smith's ruminations on overpopulation,
   while Ricardo believed in the " iron law of wages" — that
   overpopulation would prevent wages from topping the subsistence level.
   Smith postulated an increase of wages with an increase in production, a
   view considered more accurate today.

   One of the main points of The Wealth of Nations is that the free
   market, while appearing chaotic and unrestrained, is actually guided to
   produce the right amount and variety of goods by a so-called "
   invisible hand" (an image that Smith had previously employed in Theory
   of Moral Sentiments, but which has its original use in his essay, "The
   History of Astronomy"). If a product shortage occurs, for instance, its
   price rises, creating a profit margin that creates an incentive for
   others to enter production, eventually curing the shortage. If too many
   producers enter the market, the increased competition among
   manufacturers and increased supply would lower the price of the product
   to its production cost, the " natural price". Even as profits are
   zeroed out at the "natural price," there would be incentives to produce
   goods and services, as all costs of production, including compensation
   for the owner's labour, are also built into the price of the goods. If
   prices dip below a zero profit, producers would drop out of the market;
   if they were above a zero profit, producers would enter the market.
   Smith believed that while human motives are often selfish and greedy,
   the competition in the free market 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 argued against the formation of monopolies.

   Smith vigorously attacked the antiquated government restrictions which
   he thought were hindering industrial expansion. In fact, he attacked
   most forms of government interference in the economic process,
   including tariffs, arguing that this creates inefficiency and high
   prices in the long run. This theory, now referred to as "
   laissez-faire", which means "let them do", influenced government
   legislation in later years, especially during the 19th century.
   (However this was not opposition to government. Smith advocated a
   Government that was active in sectors other than the economy: he
   advocated public education of poor adults; institutional systems that
   were not profitable for private industries; a judiciary; and a standing
   army.)

   Two of the most famous and often-quoted passages in The Wealth of
   Nations are:

          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.

          As every individual, therefore, endeavours 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 labours to render
          the annual value of 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 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.

The "Adam Smith-Problem"

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   In the Wealth of Nations Smith claims that self-interest alone (in a
   proper institutional setting) can lead to socially beneficial results.
   But in his Theory of Moral Sentiments Smith says that sympathy is
   required to achieve socially beneficial results. On the surface it
   appears that a contradiction exists. Economist Joseph Schumpeter
   referred to this in German as das 'Adam Smith-Problem'.

   In recent years, however, most students of Adam Smith's work have
   argued that no such contradiction exists. In the Theory of Moral
   Sentiments, Smith develops a theory of psychology in which individuals
   in society find it in their self-interest to develop sympathy as they
   seek approval of what he calls the "impartial spectator." The
   self-interest he speaks of is not a narrow selfishness but something
   that involves sympathy.

   Economists, and others, who have read The Wealth of Nations commonly
   presume that when Smith speaks of "self-interest" in that book he is
   speaking of selfishness. Although in some contexts, such as buying and
   selling, sympathy generally need not be considered, Smith makes it
   clear that he regards selfishness as inappropriate--if not immoral--and
   that the self-interested actor has sympathy for others. The
   self-interest of any actor also includes the interest of the rest of
   society, as the society is the only means to reflect the
   (in-)appropriateness of one's actions as he argues in The Theory of
   Moral Sentiments. That is, no Adam Smith Problem exists.

   In any case, Adam Smith himself cannot have seen any contradiction,
   since he produced a slightly revised edition of Moral Sentiments after
   the publication of The Wealth of Nations. Both sets of ideas are to be
   found in his Lectures on Jurisprudence. He apparently believed that
   moral sentiments and self-interest would always add up to the same
   thing.

   Some scholars, however, have given another explanation: Adam Smith was
   trying to illustrate the complicated economy with two simple
   dimensions. It was the people who, due to historical limitations,
   emphasized the "wealth" part. In the future, due to the change of world
   economy, the emphasis may well change.

Influence

   The Wealth of Nations, one of the earliest attempts to study the rise
   of industry and commercial development in Europe, was a precursor to
   the modern academic discipline of economics. It provided one of the
   best-known intellectual rationales for free trade and capitalism,
   greatly influencing the writings of later economists.

   There has been some controversy over the extent of Smith's originality
   in The Wealth of Nations. Some argue that the work added only modestly
   to the already established ideas of thinkers such as Anders Chydenius (
   The National Gain (1765), David Hume and the Baron de Montesquieu.
   Indeed, many of the theories Smith set out simply described historical
   trends away from mercantilism and towards free trade that had been
   developing for many decades and had already had significant influence
   on governmental policy. Nevertheless, Smith's work organized their
   ideas comprehensively, and so remains one of the most influential and
   important books in the field today.

   Smith was ranked #30 in Michael H. Hart's list of the most influential
   figures in history.

   A portrait of Smith can be seen on a Bank of Scotland fifty pound
   sterling note.

   He will become the first Scotsman to appear on an English note.

Major works

     * The Theory of Moral Sentiments (1759)
     * The Wealth of Nations (1776)
     * Essays on Philosophical Subjects (published posthumously 1795)

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