Adam Smith

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For other people named Adam Smith, see Adam Smith (disambiguation).

Adam Smith FRSA (16 June [O.S. 5 June] 1723[3] – 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,[4] also known as ''The Father of Economics''[5]
or ''The Father of Capitalism''. [6] Smith wrote two classic works, The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and
Causes of the Wealth of Nations (1776). The latter, often abbreviated as The Wealth of Nations, is considered his magnum opus and the first
modern work of economics. In his work, Adam Smith introduced his theory of absolute advantage.[7]

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 the University of
Edinburgh,[8] 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 such as Horace Walpole.[9] In 2005, The Wealth of Nations was named among the 100 best Scottish books
of all time.[10]

Early life[edit]

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. [11] Smith's mother was born
Margaret Douglas, daughter of the landed Robert Douglas of Strathendry, also in Fife; she married Smith's father in 1720. Two months before
Smith was born, his father died, leaving his mother a widow.[12] The date of Smith's baptism into the Church of Scotland at Kirkcaldy was 5
June 1723[13] and this has often been treated as if it were also his date of birth, [11] 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. [a] Smith was close to his mother, who probably
encouraged him to pursue his scholarly ambitions.[15] He attended the Burgh School of Kirkcaldy—characterised by Rae as "one of the best
secondary schools of Scotland at that period" [14]—from 1729 to 1737, he learned Latin, mathematics, history, and writing. [15]

In economics and moral philosophy[edit]

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.[99] In 2005, The Wealth of Nations was named among the 100 Best Scottish Books of all time. [10]

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.[100]

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. [101]

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.[102]

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."[103]

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, Das Kapital, 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.[104][105] 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.

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.[106][107] This corresponded to the influence on the subject of mathematical methods used in
the natural sciences.[108] 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.[109]

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,[110] 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. [111]

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.