Adam Smith FRSA (c.16 June 1723 NS (c. 5 June 1723 OS) – 17 July 1790) was a Scottish economist, philosopher and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment era. Smith is best known for two classic works: An Inquiry into the Nature and Causes of the Wealth of Nations (1776) and The Theory of Moral Sentiments (1759). The former, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics.
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 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 developed the concept of division of labour and 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 satirised by Tory writers in the moralising 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 Adamsmith was named in his memory.
Portrait of Smith's mother, Margaret Douglas
Smith was born in Kirkcaldy, in the County of Fife, 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.[N 1] Smith was close to his mother, who probably encouraged him to pursue his scholarly ambitions. He attended the Burgh School of Kirkcaldy—characterised 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.
A plaque of Smith
A commemorative plaque for Smith is located in Smith's home town of Kirkcaldy
Smith entered the University of Glasgow when he was fourteen and studied moral philosophy under Francis Hutcheson. Here, Smith developed his passion for liberty, reason and free speech. In 1740, Smith was the graduate scholar presented to undertake postgraduate studies at Balliol College, Oxford, under the Snell Exhibition.
Smith considered the teaching at Glasgow to be far superior to that at Oxford, which he found intellectually stifling. In Book V, Chapter II of The Wealth of Nations, Smith wrote: "In the University of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching." Smith is also reported to have complained to friends that Oxford officials once discovered him reading a copy of David Hume's Treatise on Human Nature, and they subsequently confiscated his book and punished him severely for reading it. According to William Robert Scott, "The Oxford of [Smith's] time gave little if any help towards what was to be his lifework." Nevertheless, Smith took the opportunity while at Oxford to teach himself several subjects by reading many books from the shelves of the large Bodleian Library. When Smith was not studying on his own, his time at Oxford was not a happy one, according to his letters. Near the end of his time there, Smith began suffering from shaking fits, probably the symptoms of a nervous breakdown. He left Oxford University in 1746, before his scholarship ended.
In Book V of The Wealth of Nations, Smith comments on the low quality of instruction and the meager intellectual activity at English universities, when compared to their Scottish counterparts. He attributes this both to the rich endowments of the colleges at Oxford and Cambridge, which made the income of professors independent of their ability to attract students, and to the fact that distinguished men of letters could make an even more comfortable living as ministers of the Church of England.
Smith's discontent at Oxford might be in part due to the absence of his beloved teacher in Glasgow, Francis Hutcheson. Hutcheson was well regarded as one of the most prominent lecturers at the University of Glasgow in his day and earned the approbation of students, colleagues, and even ordinary residents with the fervor and earnestness of his orations (which he sometimes opened to the public). His lectures endeavoured not merely to teach philosophy but to make his students embody that philosophy in their lives, appropriately acquiring the epithet, the preacher of philosophy. Unlike Smith, Hutcheson was not a system builder; rather it was his magnetic personality and method of lecturing that so influenced his students and caused the greatest of those to reverentially refer to him as "the never to be forgotten Hutcheson"—a title that Smith in all his correspondence used to describe only two people, his good friend David Hume and influential mentor Francis Hutcheson.
Smith began delivering public lectures in 1748 in Edinburgh, sponsored by the Philosophical Society of Edinburgh under the patronage of Lord Kames. His lecture topics included rhetoric and belles-lettres, and later the subject of "the progress of opulence". On this latter topic he first expounded his economic philosophy of "the obvious and simple system of natural liberty". While Smith was not adept at public speaking, his lectures met with success.
A man posing for a painting
David Hume was a friend and contemporary of Smith
In 1750, Smith met the philosopher David Hume, who was his senior by more than a decade. In their writings covering history, politics, philosophy, economics and religion, Smith and Hume shared closer intellectual and personal bonds than with other important figures of the Scottish Enlightenment.
In 1751, Smith earned a professorship at Glasgow University teaching logic courses, and in 1752 he was elected a member of the Philosophical Society of Edinburgh, having been introduced to the society by Lord Kames. When the head of Moral Philosophy in Glasgow died the next year, Smith took over the position. He worked as an academic for the next thirteen years, which he characterised as "by far the most useful and therefore by far the happiest and most honorable period [of his life]".
Smith published The Theory of Moral Sentiments in 1759, embodying some of his Glasgow lectures. This work was concerned with how human morality depends on sympathy between agent and spectator, or the individual and other members of society. Smith defined "mutual sympathy" as the basis of moral sentiments. He based his explanation, not on a special "moral sense" as the Third Lord Shaftesbury and Hutcheson had done, nor on utility as Hume did, but on mutual sympathy, a term best captured in modern parlance by the twentieth-century concept of empathy, the capacity to recognise feelings that are being experienced by another being.
Following the publication of The Theory of Moral Sentiments, Smith became so popular that many wealthy students left their schools in other countries to enroll at Glasgow to learn under Smith. After the publication of The Theory of Moral Sentiments, Smith began to give more attention to jurisprudence and economics in his lectures and less to his theories of morals. For example, Smith lectured that the cause of increase in national wealth is labour, rather than the nation's quantity of gold or silver, which is the basis for mercantilism, the economic theory that dominated Western European economic policies at the time.
A drawing of a man sitting down
François Quesnay, one of the leaders of the Physiocratic school of thought
In 1762, the University of Glasgow conferred on Smith the title of Doctor of Laws (LL.D.). At the end of 1763, he obtained an offer from Charles Townshend—who had been introduced to Smith by David Hume—to tutor his stepson, Henry Scott, the young Duke of Buccleuch. Smith then resigned from his professorship to take the tutoring position. He subsequently attempted to return the fees he had collected from his students because he resigned in the middle of the term, but his students refused.
Tutoring and travels
Smith's tutoring job entailed touring Europe with Scott, during which time he educated Scott on a variety of subjects—such as etiquette and manners. He was paid £300 per year (plus expenses) along with a £300 per year pension; roughly twice his former income as a teacher. Smith first travelled as a tutor to Toulouse, France, where he stayed for one and a half years. According to his own account, he found Toulouse to be somewhat boring, having written to Hume that he "had begun to write a book to pass away the time". After touring the south of France, the group moved to Geneva, where Smith met with the philosopher Voltaire.
From Geneva, the party moved to Paris. Here Smith came to know several great intellectual leaders of the time; invariably having an effect on his future works. This list included: Benjamin Franklin, Turgot, Jean D'Alembert, André Morellet, Helvétius, and, notably, François Quesnay, the head of the Physiocratic school. Smith was so impressed with his ideas that he might have dedicated The Wealth of Nations to Quesnay had he not died beforehand. Physiocrats were opposed to mercantilism, the dominating economic theory of the time. Illustrated in their motto Laissez faire et laissez passer, le monde va de lui même! (Let do and let pass, the world goes on by itself!). They were also known to have declared that only agricultural activity produced real wealth; merchants and industrialists (manufacturers) did not. However, this did not represent their true school of thought, but was a mere "smoke screen" manufactured to hide their actual criticisms of the nobility and church; arguing that they made up the only real clients of merchants.
The wealth of France was virtually destroyed by Louis XIV and Louis XV in ruinous wars, by aiding the American insurgents against the British, and perhaps most destructive (in terms of public perceptions) was what was seen as the excessive consumption of goods and services deemed to have no economic contribution—unproductive labour. Assuming that nobility and church are essentially detractors from economic growth, the feudal system of agriculture in France was the only sector important to maintain the wealth of the nation. Given that the English economy of the day yielded an income distribution that stood in contrast to that which existed in France, Smith concluded that the teachings and beliefs of Physiocrats were, "with all [their] imperfections [perhaps], the nearest approximation to the truth that has yet been published upon the subject of political economy". The distinction between productive versus unproductive labour—the physiocratic classe steril—was a predominant issue in the development and understanding of what would become classical economic theory.
In 1766, Henry Scott's younger brother died in Paris, and Smith's tour as a tutor ended shortly thereafter. Smith returned home that year to Kirkcaldy, and he devoted much of the next ten years to his magnum opus. There he befriended Henry Moyes, a young blind man who showed precocious aptitude. As well as teaching Moyes, Smith secured the patronage of David Hume and Thomas Reid in the young man's education. In May 1773, Smith was elected fellow of the Royal Society of London, and was elected a member of the Literary Club in 1775. The Wealth of Nations was published in 1776 and was an instant success, selling out its first edition in only six months.
In 1778, Smith was appointed to a post as commissioner of customs in Scotland and went to live with his mother in Panmure House in Edinburgh's Canongate. Five years later, as a member of the Philosophical Society of Edinburgh when it received its royal charter, he automatically became one of the founding members of the Royal Society of Edinburgh, and from 1787 to 1789 he occupied the honorary position of Lord Rector of the University of Glasgow.
Smith died in the northern wing of Panmure House in Edinburgh on 17 July 1790 after a painful illness. His body was buried in the Canongate Kirkyard. On his death bed, Smith expressed disappointment that he had not achieved more.
Smith's literary executors were two friends from the Scottish academic world: the physicist and chemist Joseph Black, and the 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 such as Essays on Philosophical Subjects.
Smith's library went by his will to David Douglas, Lord Reston (son of his cousin Colonel Robert Douglas of Strathendry, Fife), who lived with Smith. It was eventually divided between his two surviving children, Cecilia Margaret (Mrs. Cunningham) and David Anne (Mrs. Bannerman). On the death of her husband, the Reverend W. B. Cunningham of Prestonpans in 1878, Mrs. Cunningham sold some of the books. The remainder passed to her son, Professor Robert Oliver Cunningham of Queen's College, Belfast, who presented a part to the library of Queen's College. After his death the remaining books were sold. On the death of Mrs. Bannerman in 1879, her portion of the library went intact to the New College (of the Free Church) in Edinburgh and the collection was transferred to the University of Edinburgh Main Library in 1972.
Personality and beliefs
An enamel paste medallion, depicting a man's head facing the right
James Tassie's enamel paste medallion of Smith provided the model for many engravings and portraits that remain today
Not much is known about Smith's personal views beyond what can be deduced from his published articles. His personal papers were destroyed after his death at his request. He never married, and seems to have maintained a close relationship with his mother, whom he lived with after his return from France and who died six years before his own death.
Smith was described by several of his contemporaries and biographers as comically absent-minded, with peculiar habits of speech and gait, and a smile of "inexpressible benignity". He was known to talk to himself, a habit that began during his childhood when he would smile in rapt conversation with invisible companions. He also had occasional spells of imaginary illness, and he is reported to have had books and papers placed in tall stacks in his study. According to one story, Smith took Charles Townshend on a tour of a tanning factory, and while discussing free trade, Smith walked into a huge tanning pit from which he needed help to escape. He is also said to have put bread and butter into a teapot, drunk the concoction, and declared it to be the worst cup of tea he ever had. According to another account, Smith distractedly went out walking in his nightgown and ended up 15 miles (24 km) outside of town, before nearby church bells brought him back to reality.
James Boswell who was a student of Smith's at Glasgow University, and later knew him at the Literary Club, says that Smith thought that speaking about his ideas in conversation might reduce the sale of his books, and so his conversation was unimpressive. According to Boswell, he once told Sir Joshua Reynolds that 'he made it a rule when in company never to talk of what he understood'.
A drawing of a man standing up, with one hand holding a cane and the other pointing at a book
Portrait of Smith by John Kay, 1790
Smith has been alternately described as someone who "had a large nose, bulging eyes, a protruding lower lip, a nervous twitch, and a speech impediment" and one whose "countenance was manly and agreeable." Smith is said to have acknowledged his looks at one point, saying, "I am a beau in nothing but my books." Smith rarely sat for portraits, so almost all depictions of him created during his lifetime were drawn from memory. The best-known portraits of Smith are the profile by James Tassie and two etchings by John Kay. The line engravings produced for the covers of 19th century reprints of The Wealth of Nations were based largely on Tassie's medallion.
There has been considerable scholarly debate about the nature of Smith's religious views. Smith's father had shown a strong interest in Christianity and belonged to the moderate wing of the Church of Scotland. The fact that Adam Smith received the Snell Exhibition suggests that he may have gone to Oxford with the intention of pursuing a career in the Church of England.
Anglo-American economist Ronald Coase has challenged the view that Smith was a deist, based on the fact that Smith's writings never explicitly invoke God as an explanation of the harmonies of the natural or the human worlds. According to Coase, though Smith does sometimes refer to the "Great Architect of the Universe", later scholars such as Jacob Viner have "very much exaggerated the extent to which Adam Smith was committed to a belief in a personal God", a belief for which Coase finds little evidence in passages such as the one in the Wealth of Nations in which 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", and 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".
Some other authors argue that Smith's social and economic philosophy is inherently theological and that his entire model of social order is logically dependent on the notion of God's action in nature.
Smith was also a close friend and later the executor of David Hume, who was commonly characterised in his own time as an atheist. The publication in 1777 of Smith's letter to William Strahan, in which he described Hume's courage in the face of death in spite of his irreligiosity, attracted considerable controversy.
The Theory of Moral Sentiments
Main article: The Theory of Moral Sentiments
1922 printing of An inquiry into the nature and causes of the wealth of nations
In 1759, Smith published his first work, The Theory of Moral Sentiments, sold by co-publishers Andrew Millar of London and Alexander Kincaid of Edinburgh. Smith continued making extensive revisions to the book, up until his death.[N 2] 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 oneself makes people aware of themselves and how others perceive their behaviour. 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 behaviour, 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 emphasises 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 sympathise 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 emphasising 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
Main article: The Wealth of Nations
A brown building
Later building on the site where Smith wrote 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 emphasise 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 programme for promoting the "wealth of nations" in the first sentences, which attributes the growth of wealth and prosperity to the division of labour.
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, 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 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.
The first page of a book
The first page of The Wealth of Nations, 1776 London edition
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 favours, 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 labour, 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 of seeing it as a precursor of neoclassical economics and its concept of general equilibrium – Samuelson's "Economics" refers six times to Smith's "invisible hand". To emphasise this connection, Samuelson quotes Smith's "invisible hand" statement substituting "general interest" for "public interest". Samuelson concludes: "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 programme to promote "The Wealth of Nations". Using the physiocratical concept of the economy as a circular process, to secure growth the inputs of Period 2 must exceed the inputs of Period 1. Therefore, those outputs of Period 1 which are not used or usable as inputs of Period 2 are regarded as unproductive labour, 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 labour should be reduced to use labour more productively, Smith added his own proposal, that productive labour should be made even more productive by deepening the division of labour. Smith argued that deepening the division of labour 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 the continuous reorganisation of production and the invention of new ways of producing, which in turn lead to further increased production, lower prices, and improved 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 outproducing all its competitors. The opening sentences of the "Wealth of Nations" summarise this policy:
The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes ... . [T]his produce ... bears a greater or smaller proportion to the number of those who are to consume it ... .ut this proportion must in every nation be regulated by two different circumstances;
first, by the skill, dexterity, and judgment with which its labour is generally applied; and,
secondly, by the proportion between the number of those who are employed in useful labour, and that of those who are not so employed [emphasis added].
However, Smith added that the "abundance or scantiness of this supply too seems to depend more upon the former of those two circumstances than upon the latter."
Criticism and dissent
Alfred Marshall criticised Smith's definition of the economy on several points. He argued that man should be equally important as money, services are as important as goods, and that there must be an emphasis on human welfare, instead of just wealth. The "invisible hand" only works well when both production and consumption operates in free markets, with small ("atomistic") producers and consumers allowing supply and demand to fluctuate and equilibrate. In conditions of monopoly and oligopoly, the "invisible hand" fails. Nobel Prize-winning economist Joseph E. Stiglitz says, on the topic of one of Smith's better-known ideas: "the reason that the invisible hand often seems invisible is that it is often not there."
Smith's burial place in Canongate Kirkyard
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, a history of astronomy down to Smith's own era, plus some thoughts on ancient physics and metaphysics, probably contain parts of what would have been the latter treatise. Lectures on Jurisprudence were notes taken from Smith's early lectures, plus an early draft of The Wealth of Nations, published as part of the 1976 Glasgow Edition of the works and correspondence of Smith. Other works, including some published posthumously, include Lectures on Justice, Police, Revenue, and Arms (1763) (first published in 1896); and Essays on Philosophical Subjects (1795).