The Wealth of Nations Adam Smith installed himself as the
fountainhead of contemporary economic thought. Currents of Adam Smith ran
David Ricardo and
Karl Marx in the nineteenth century, and through
Friedman in the twentieth.
Adam Smith was born in a small village in Kirkcaldy, Scotland. There
his widowed mother raised him until he entered the University of Glasgow
at age fourteen, as was the usual practice, on scholarship. He later
attended Balliol College at Oxford, graduating with an extensive knowledge
of European literature and an enduring contempt for English schools.
He returned home, and after delivering a series of well-received
lectures, was made first chair of logic (1751), then chair of moral
philosophy (1752), at Glasgow University.
He left academia in 1764 to tutor the young duke of Buccleuch. For over
two years they lived and traveled throughout France and into Switzerland,
an experience that brought Smith into contact with contemporaries
Jean-Jacques Rousseau, François
Anne-Robert-Jacques Turgot. With the life pension he had earned in the
service of the duke, Smith retired to his birthplace of Kirkcaldy to write
The Wealth of Nations. It was published in 1776, the same year the
American Declaration of Independence was signed and in which his close
David Hume died. In 1778 he was appointed commissioner of customs.
This job put him in the uncomfortable position of having to curb
smuggling, which, in The Wealth of Nations, he had upheld as a
legitimate activity in the face of "unnatural" legislation. Adam Smith
never married. He died in Edinburgh on July 19, 1790.
Today Smith's reputation rests on his explanation of how rational
self-interest in a free-market economy leads to economic well-being. Charity, while a virtuous act, could not alone provide the essentials
for living. Self-interest was the mechanism that could remedy this
shortcoming. Said Smith: "It is not from the benevolence of the butcher,
the brewer, or the baker, that we can expect our dinner, but from their
regard to their own interest."
Someone earning money by his own labor benefits himself. Unknowingly,
he also benefits society, because to earn income on his labor in a
competitive market, he must produce something others value. In Adam
Smith's lasting imagery, "By directing that industry in such a manner as
its produce may be of 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."
The five-book series of The Wealth of Nations sought to reveal
the nature and cause of a nation's prosperity. The main cause of
prosperity, argued Smith, was increasing division of labor. Smith gave
the famous example of pins. He asserted that ten workers could produce
48,000 pins per day if each of eighteen specialized tasks was assigned
to particular workers. Average productivity: 4,800 pins per worker per
day. But absent the division of labor, a worker would be lucky to
produce even one pin per day.
Smith vehemently opposed mercantilism—the practice of artificially
maintaining a trade surplus on the erroneous belief that doing so
increased wealth. The primary advantage of trade, he argued, was that it
opened up new markets for surplus goods and also provided some commodities
at less cost from abroad than at home. With that, Smith launched a
succession of free trade economists and paved the way for David Ricardo's
and John Stuart Mill's theories of comparative advantage a generation
Some of Smith's ideas are testimony to his breadth of imagination.
Today, vouchers and school choice programs are touted as the latest reform
in public education. But it was Adam Smith who addressed the issue more
than two hundred years ago:
Were the students upon such charitable foundations left free to
choose what college they liked best, such liberty might contribute
to excite some emulation among different colleges. A regulation,
on the contrary, which prohibited even the independent members of
every particular college from leaving it, and going to any other,
without leave first asked and obtained of that which they meant to
abandon, would tend very much to extinguish that emulation.
own student days at Oxford (1740-46), whose professors, he complained, had
"given up altogether even the pretense of teaching," left Smith with
lasting disdain for the universities of Cambridge and Oxford.
Smith's writings were both an inquiry into the science of economics and
a policy guide for realizing the wealth of nations. Smith believed that
economic development was best fostered in an environment of free
competition that operated in accordance with universal "natural laws."
Because Smith's was the most systematic and comprehensive study of
economics up until that time, his economic thinking became the basis for
An Inquiry into the Nature and Causes of the Wealth of Nations,
edited by Edwin Cannan. 1976.
The Theory of Moral Sentiments, edited by D. D. Raphael and A.
L. Macfie. 1976.
For more works by Adam Smith, see the
The Wealth of Nations