ADAM SMITH (1723-1790) Early Life Smith was born in Kirkcaldy, Scotland Attended Glasgow College at the age

14, and took up moral and political science and languages in Balliol College, Oxford 1759 published the Theory of Moral Sentiments 1776 published the An Inquiry into the Nature and Causes of the Wealth of Nations Important Influences Period of Enlightenment Two pillars: (1) people s reasoning ability, (2) concept of natural order Physiocrats His friends Quesnay and Turgot Francis Hutcheson instructor at Glasgow College David Hume one of his closest friend Man in State of Nature Man is 1. Selfish looking after own desire 2. Sympathy sorrow for someone s pain 3. Sense of Propriety quality of being socially correct or accepted 4. Freedom for economic affairs natural want for business 5. Propensity to trade and exchange tendency to exchange one item for anoth er These major reasons lead to the idea of Adam Smith specialization Division of Labor Division of labor is essential for 1. Increase in dexterity of man 2. Eliminates time lost 3. Facilitates the invention of technology Theory of Moral Sentiments Comprised of 6 editions, stand side by side presenting different but com plementary facets of his thinking Moral sentiments moral forces that restrain selfishness and bind people together in a workable society Wealth of Nations Represents the first serious attempt in the history of economic thought to divorce the study of political economy from the related fields of political s cience, ethics, and jurisprudence. The central thesis of The Wealth of Nations is that capital is best empl oyed for the production and distribution of wealth under conditions of governmen tal noninterference, or laissez-faire, and free trade. The production and exchange of goods can be stimulated, and a consequent rise in the general standard of living attained, only through the efficient ope rations of private industrial and commercial entrepreneurs acting with a minimum of regulation and control by governments. Invisible Hand : Every individual in pursuing his or her own good is led, a s if by an invisible hand, to achieve the best good for all maintaining the natu ral balance of various interests.