In economics and moral philosophyhttps://en.wikipedia.org/wiki/Adam_Smith
The Wealth of Nations was a precursor to the modern academic discipline of economics. In this and other works, Smith expounded 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 Hogarth and Swift, as a discussion at the University of Winchester suggests. In 2005, The Wealth of Nations was named among the 100 Best Scottish Books of all time.
In light of the arguments put forward by Smith and other economic theorists in Britain, academic belief in mercantilism began to decline in Britain in the late 18th century. During the Industrial Revolution, Britain embraced free trade and Smith's laissez-faire economics, and via the British Empire, used its power to spread a broadly liberal economic model around the world, characterised by open markets, and relatively barrier free domestic and international trade.
George Stigler attributes to Smith "the most important substantive proposition in all of economics". It is that, under competition, owners of resources (for example labour, land, and capital) will use them most profitably, resulting in an equal rate of return in equilibrium for all uses, adjusted for apparent differences arising from such factors as training, trust, hardship, and unemployment.
Paul Samuelson finds in Smith's pluralist use of supply and demand as applied to wages, rents, and profit a valid and valuable anticipation of the general equilibrium modelling of Walras a century later. Smith's allowance for wage increases in the short and intermediate term from capital accumulation and invention contrasted with Malthus, Ricardo, and Karl Marx in their propounding a rigid subsistence–wage theory of labour supply.
Joseph Schumpeter criticised Smith for a lack of technical rigour, yet he argued that this enabled Smith's writings to appeal to wider audiences: "His very limitation made for success. Had he been more brilliant, he would not have been taken so seriously. Had he dug more deeply, had he unearthed more recondite truth, had he used more difficult and ingenious methods, he would not have been understood. But he had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along."
Classical economists presented competing theories of those of Smith, termed the "labour theory of value". Later Marxian economics descending from classical economics also use Smith's labour theories, in part. The first volume of Karl Marx's major work, Capital, was published in German in 1867. In it, Marx focused on the labour theory of value and what he considered to be the exploitation of labour by capital. The labour theory of value held that the value of a thing was determined by the labour that went into its production. This contrasts with the modern contention of neoclassical economics, that the value of a thing is determined by what one is willing to give up to obtain the thing.
A brown building
The Adam Smith Theatre in Kirkcaldy
The body of theory later termed "neoclassical economics" or "marginalism" formed from about 1870 to 1910. The term "economics" was popularised by such neoclassical economists as Alfred Marshall as a concise synonym for "economic science" and a substitute for the earlier, broader term "political economy" used by Smith. This corresponded to the influence on the subject of mathematical methods used in the natural sciences. Neoclassical economics systematised supply and demand as joint determinants of price and quantity in market equilibrium, affecting both the allocation of output and the distribution of income. It dispensed with the labour theory of value of which Smith was most famously identified with in classical economics, in favour of a marginal utility theory of value on the demand side and a more general theory of costs on the supply side.
The bicentennial anniversary of the publication of The Wealth of Nations was celebrated in 1976, resulting in increased interest for The Theory of Moral Sentiments and his other works throughout academia. After 1976, Smith was more likely to be represented as the author of both The Wealth of Nations and The Theory of Moral Sentiments, and thereby as the founder of a moral philosophy and the science of economics. His homo economicus or "economic man" was also more often represented as a moral person. Additionally, economists David Levy and Sandra Peart in "The Secret History of the Dismal Science" point to his opposition to hierarchy and beliefs in inequality, including racial inequality, and provide additional support for those who point to Smith's opposition to slavery, colonialism, and empire. They show the caricatures of Smith drawn by the opponents of views on hierarchy and inequality in this online article. Emphasised also are Smith's statements of the need for high wages for the poor, and the efforts to keep wages low. In The "Vanity of the Philosopher: From Equality to Hierarchy in Postclassical Economics", Peart and Levy also cite Smith's view that a common street porter was not intellectually inferior to a philosopher, and point to the need for greater appreciation of the public views in discussions of science and other subjects now considered to be technical. They also cite Smith's opposition to the often expressed view that science is superior to common sense.
Smith also explained the relationship between growth of private property and civil government:
Men may live together in society with some tolerable degree of security, though there is no civil magistrate to protect them from the injustice of those passions. But avarice and ambition in the rich, in the poor the hatred of labour and the love of present ease and enjoyment, are the passions which prompt to invade property, passions much more steady in their operation, and much more universal in their influence. Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security. He is at all times surrounded by unknown enemies, whom, though he never provoked, he can never appease, and from whose injustice he can be protected only by the powerful arm of the civil magistrate continually held up to chastise it. The acquisition of valuable and extensive property, therefore, necessarily requires the establishment of civil government. Where there is no property, or at least none that exceeds the value of two or three days' labour, civil government is not so necessary. Civil government supposes a certain subordination. But as the necessity of civil government gradually grows up with the acquisition of valuable property, so the principal causes which naturally introduce subordination gradually grow up with the growth of that valuable property. (...) Men of inferior wealth combine to defend those of superior wealth in the possession of their property, in order that men of superior wealth may combine to defend them in the possession of theirs. All the inferior shepherds and herdsmen feel that the security of their own herds and flocks depends upon the security of those of the great shepherd or herdsman; that the maintenance of their lesser authority depends upon that of his greater authority, and that upon their subordination to him depends his power of keeping their inferiors in subordination to them. They constitute a sort of little nobility, who feel themselves interested to defend the property and to support the authority of their own little sovereign in order that he may be able to defend their property and to support their authority. Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all. (Source: The Wealth of Nations, Book 5, Chapter 1, Part 2)
In British Imperial debates
Smith's chapter on colonies in turn would help shape British imperial debates from the mid-nineteenth century onward. The Wealth of Nations would become an ambiguous text regarding the imperial question. In his chapter on colonies, Smith pondered how to solve the crisis developing across the Atlantic among the empire's thirteen American colonies. He offered two different proposals for easing tensions. The first proposal called for giving the colonies their independence and, by thus parting on a friendly basis, Britain would be able to develop and maintain a free-trade relationship with them, and possibly even an informal military alliance. Smith's second proposal called for a theoretical imperial federation that would bring the colonies and the metropole closer together through an imperial parliamentary system and imperial free trade.
Smith's most prominent disciple in nineteenth-century Britain, peace advocate Richard Cobden, preferred the first proposal. Cobden would lead the Anti-Corn Law League in overturning the Corn Laws in 1846, shifting Britain to a policy of free trade and empire "on the cheap" for decades to come. This hands-off approach toward the British Empire would become known as Cobdenism or the Manchester School. By the turn of the century, however, advocates of Smith's second proposal such as Joseph Shield Nicholson would become ever more vocal in opposing Cobdenism, calling instead for imperial federation. As Marc-William Palen notes: "On the one hand, Adam Smith’s late nineteenth and early twentieth-century Cobdenite adherents used his theories to argue for gradual imperial devolution and empire ‘on the cheap’. On the other, various proponents of imperial federation throughout the British World sought to use Smith’s theories to overturn the predominant Cobdenite hands-off imperial approach and instead, with a firm grip, bring the empire closer than ever before." Smith's ideas thus played an important part in subsequent debates over the British Empire.
Portraits, monuments, and banknotes
A statue of Smith in Edinburgh's High Street, erected through private donations organised by the Adam Smith Institute
Smith has been commemorated in the UK on banknotes printed by two different banks; his portrait has appeared since 1981 on the £50 notes issued by the Clydesdale Bank in Scotland, and in March 2007 Smith's image also appeared on the new series of £20 notes issued by the Bank of England, making him the first Scotsman to feature on an English banknote.
Statue of Smith built in 1867–1870 at the old headquarters of the University of London, 6 Burlington Gardens
A large-scale memorial of Smith by Alexander Stoddart was unveiled on 4 July 2008 in Edinburgh. It is a 10 feet (3.0 m)-tall bronze sculpture and it stands above the Royal Mile outside St Giles' Cathedral in Parliament Square, near the Mercat cross. 20th-century sculptor Jim Sanborn (best known for the Kryptos sculpture at the United States Central Intelligence Agency) has created multiple pieces which feature Smith's work. At Central Connecticut State University is Circulating Capital, a tall cylinder which features an extract from The Wealth of Nations on the lower half, and on the upper half, some of the same text but represented in binary code. At the University of North Carolina at Charlotte, outside the Belk College of Business Administration, is Adam Smith's Spinning Top. Another Smith sculpture is at Cleveland State University. He also appears as the narrator in the 2013 play The Low Road, centred on a proponent on laissez-faire economics in the late eighteenth century but dealing obliquely with the financial crisis of 2007–2008 and the recession which followed—in the premiere production, he was portrayed by Bill Paterson.
A bust of Smith is in the Hall of Heroes of the National Wallace Monument in Stirling.
Adam Smith resided at Panmure house from 1778 to 1790. This residence has now been purchased by the Edinburgh Business School at Heriot Watt University and fundraising has begun to restore it. Part of the Northern end of the original building appears to have been demolished in the 19th century to make way for an iron foundry.
As a symbol of free market economics
A sculpture of an upside down cone
Adam Smith's Spinning Top, sculpture by Jim Sanborn at Cleveland State University
Smith has been celebrated by advocates of free market policies as the founder of free market economics, a view reflected in the naming of bodies such as the Adam Smith Institute in London, the Adam Smith Society and the Australian Adam Smith Club, and in terms such as the Adam Smith necktie.
Alan Greenspan argues that, while Smith did not coin the term laissez-faire, "it was left to Adam Smith to identify the more-general set of principles that brought conceptual clarity to the seeming chaos of market transactions". Greenspan continues that The Wealth of Nations was "one of the great achievements in human intellectual history". P. J. O'Rourke describes Smith as the "founder of free market economics".
Other writers have argued that Smith's support for laissez-faire (which in French means leave alone) has been overstated. Herbert Stein wrote that the people who "wear an Adam Smith necktie" do it to "make a statement of their devotion to the idea of free markets and limited government", and that this misrepresents Smith's ideas. Stein writes that Smith "was not pure or doctrinaire about this idea. He viewed government intervention in the market with great skepticism...yet he was prepared to accept or propose qualifications to that policy in the specific cases where he judged that their net effect would be beneficial and would not undermine the basically free character of the system. He did not wear the Adam Smith necktie." In Stein's reading, The Wealth of Nations could justify the Food and Drug Administration, the Consumer Product Safety Commission, mandatory employer health benefits, environmentalism, and "discriminatory taxation to deter improper or luxurious behavior".
Similarly, Vivienne Brown stated in The Economic Journal that in the 20th century United States, Reaganomics supporters, the Wall Street Journal, and other similar sources have spread among the general public a partial and misleading vision of Smith, portraying him as an "extreme dogmatic defender of laissez-faire capitalism and supply-side economics". In fact, The Wealth of Nations includes the following statement on the payment of taxes:
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Some commentators have argued that Smith's works show support for a progressive, not flat, income tax and that he specifically named taxes that he thought should be required by the state, among them luxury goods taxes and tax on rent. Yet Smith argued for the "impossibility of taxing the people, in proportion to their economic revenue, by any capitation" (The Wealth of Nations, V.ii.k.1). Smith argued that taxes should principally go toward protecting "justice" and "certain publick institutions" that were necessary for the benefit of all of society but that could not be provided by private enterprise (The Wealth of Nations, IV.ix.51).
Additionally, Smith outlined the proper expenses of the government in The Wealth of Nations, Book V, Ch. I. Included in his requirements of a government is to enforce contracts and provide justice system, grant patents and copy rights, provide public goods such as infrastructure, provide national defence and regulate banking. It was the role of the government to provide goods "of such a nature that the profit could never repay the expense to any individual" such as roads, bridges, canals, and harbours. He also encouraged invention and new ideas through his patent enforcement and support of infant industry monopolies. He supported partial public subsidies for elementary education, and he believed that competition among religious institutions would provide general benefit to the society. In such cases, however, Smith argued for local rather than centralised control: "Even those publick works which are of such a nature that they cannot afford any revenue for maintaining themselves . . . are always better maintained by a local or provincial revenue, under the management of a local and provincial administration, than by the general revenue of the state" (Wealth of Nations, V.i.d.18). Finally he outlined how the government should support the dignity of the monarch or chief magistrate, such that they are equal or above the public in fashion. He even states that monarchs should be provided for in a greater fashion than magistrates of a republic because "we naturally expect more splendor in the court of a king than in the mansion-house of a doge". In addition, he allowed that in some specific circumstances retaliatory tariffs may be beneficial:
The recovery of a great foreign market will generally more than compensate the transitory inconvenience of paying dearer during a short time for some sorts of goods.
However, he added that in general a retaliatory tariff "seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them" (The Wealth of Nations, IV.ii.39).
Economic historians such as Jacob Viner regard Smith as a strong advocate of free markets and limited government (what Smith called "natural liberty") but not as a dogmatic supporter of laissez-faire.
Economist Daniel Klein believes using the term "free market economics" or "free market economist" to identify the ideas of Smith is too general and slightly misleading. Klein offers six characteristics central to the identity of Smith's economic thought and argues that a new name is needed to give a more accurate depiction of the "Smithian" identity. Economist David Ricardo set straight some of the misunderstandings about Smith's thoughts on free market. Most people still fall victim to the thinking that Smith was a free market economist without exception, though he was not. Ricardo pointed out that Smith was in support of helping infant industries. Smith believed that the government should subsidise newly formed industry, but he did fear that when the infant industry grew into adulthood it would be unwilling to surrender the government help. Smith also supported tariffs on imported goods to counteract an internal tax on the same good. Smith also fell to pressure in supporting some tariffs in support for national defence.
Some have also claimed, Emma Rothschild among them, that Smith would have supported a minimum wage, although there is no direct textual evidence supporting the claim. Indeed, Smith wrote:
The price of labour, it must be observed, cannot be ascertained very accurately anywhere, different prices being often paid at the same place and for the same sort of labour, not only according to the different abilities of the workmen, but according to the easiness or hardness of the masters. Where wages are not regulated by law, all that we can pretend to determine is what are the most usual; and experience seems to show that law can never regulate them properly, though it has often pretended to do so. (The Wealth of Nations, Book 1, Chapter
However, Smith also noted, to the contrary, the existence of an imbalanced, inequality of bargaining power:
A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.