ADAM SMITH

PRESENTED BY
DEVIKA K NAIR
1190013
MAR IVANIOS COLLEGE
 CONTENT
• EARLY LIFE
• MAJOR CONTRIBUTIONS
• The theory of moral sentiments
• THE PHILOSOPHY OF FREE MARKET
• ASSEMBLY LINE PRODUCTION METHOD
• GROSS DOMESTIC PRODUCT
• FREE TRADE
• MODERN DAY RELAVANCE
• Conclusion
ADAM SMITH
Adam Smith was an 18th-century Scottish economist,
philosopher, and author, and is considered the father of modern
economics.
 EARLY LIFE
o The recorded history of Smith's life begins at this baptism on June 5, 1723 in
Kirkcaldy, Scotland.
o Smith attended the University of Glasgow in Scotland at age 13, studying moral
philosophy. Later, Smith enrolled in postgraduate studies at the prestigious
Balliol College at Oxford University.
o After returning to Scotland, Smith held a series of public lectures at the
University of Edinburgh. Later he worked as a professor in Glasglow university.
o He eventually earned the position of Chair of Moral Philosophy . In the year
1759 he published his famous work “The Theory of Moral Sentiments”.
o Smith moved to France in 1763 to accept a more remunerative position as a
personal tutor to the stepson of Charles Townshend
o Smith is most famous for his 1776 book, "The Wealth of Nations."
o He died on July 19, 1790, at age 67, but the ideas he popularized live on .
 MAJOR CONTRIBUTIONS.
• Adam smith published his most important work “THE WEALTH OF NATION” in the
year 1776
• In this work , Smith popularised many ideas that form the basis for classsical
economics
• Smith's ideas are evident in the work of David Ricardo and Karl Marx in the
nineteenth century and John Maynard Keynes and Milton Friedman in the
twentieth century
• Smith’s work discussed the evolution of human society from a hunter stage
without property rights or fixed residences to nomadic agriculture with shifting
residences. The next stage is a feudal society where laws and property rights are
established to protect privileged classes. Finally, there is modern society,
characterized by laissez-faire or free markets where new institutions are
established to conduct market transactions
 The theory of moral sentiments
o Another major work of smith was The theory of moral sentiments, in 1759. It was
his first Published work
o it lays the psychological foundation on which The Wealth of Nations was later to be
built. In it Smith described the principles of human nature
o The Theory Of Moral Sentiments was a real scientific breakthrough. It shows that
our moral ideas and actions are a product of our very nature as social creatures.It
argues that this social psychology is a better guide to moral action than is reason.
o In this work he basically talked about where morality arises from, how people make
moral decisions, and what constitutes virtue.
o The main point that Smith makes is that our sense of morality is derived from our
capacity to sympathize directly and indirectly with other people
o Though we are inherently moral, Smith warns that there are external sources of
corruption which can distort our morals, leading us to behave immorally. Chief
among these sources is the influence of the upper class, whose place in the public
eye can warp the public's behavior
The philosophy of free market
o The philosophy of free markets emphasizes minimizing the role of government
intervention and taxation in the free markets
o Although Smith advocated for a limited government, he did see the government as
responsible for the education and defense sectors of a country.
o The phrase invisible hand was introduced by Adam Smith in his book 'The Wealth of
Nations'. He assumed that an economy can work well in a free market scenario where
everyone will work for his/her own interest.
o The unobservable market force that helps the demand and supply of goods in a free
market to reach equilibrium automatically is the invisible hand.
o He explained that an economy will comparatively work and function well if the
government will leave people alone to buy and sell freely among themselves. He
suggested that if people were allowed to trade freely, self interested traders present in
the market would compete with each other, leading markets towards the positive
output with the help of an invisible hand.
o In a free market scenario where there are no regulations or restrictions imposed by the
government, if someone charges less, the customer will buy from him.
o For Smith, competition is the 'desire that comes with us from the womb, and never
leaves us, until we go into the grave
 ASSEMBLY LINE PRODUCTION METHOD
o The ideas promoted by the "The Wealth of Nations" generated international
attention and were a motivating factor in the evolution from land-based wealth to
wealth created by assembly-line production methods made possible by the
division of labor
o Division of labour is an economic concept which states that dividing the
production process into different stages enables workers to focus on specific tasks.
If workers can concentrate on one small aspect of production, this increases overall
efficiency
o Famously, he used the example of a pin factory. Adam Smith noted how the
efficiency of production was vastly increased because workers were split up and
given different roles in the making of a pin.
 Why is the division of labour more efficient?

• Workers need less training as they only have to master a small number of
tasks
• It is faster to use one particular tool and do one job.
• No time is wasted with a worker dropping a tool and then picking up
another.
• Workers can gain loyalty and a sense of achievement from their branch of
production.
• There is no need to move around the factory; the half-finished good
comes to them.
• Workers can concentrate on those jobs which best suit their skills and
temperament.
• When production has very high volumes, the division of labour is
necessary to get economies of scale.
 Potential problems of division of labour
• If workers are highly specialised, then the job can become very boring
and repetitive. This can lead to low labour morale.
• If workers lose the motivation to concentrate and do a good job,
mistakes may creep in as they get bored.
• An assembly line could grind to a halt if there is a blockage in one
particular area.
• Adam Smith himself recognised this potential problem and advocated
education of the workforce so that they wouldn’t get too demoralised by
their repetitive job.
 GROSS DOMESTIC PRODUCT
• In the book Wealth of nation, Smith presents a new idea for how the wealth of a
nation should be measured. He explains that the wealth of a country isn't in how
much gold and silver it owns, but in the goods and services that the nation creates.
• This stream of goods and services is the "gross domestic product" (GDP) of a
nation. Today, the GDP is widely used to determine the success of a nation's
economy.
• Smith was highly critical of mercantilism; he argued that countries should be
evaluated based on their levels of production and commerce. This concept was the
basis for the creation of the GDP metric for measuring a nation's prosperity.
 FREE TRADE
o At the time that "The Wealth of Nations" was published, many countries
were hesitant to trade with other countries.
o Smith argued that a free exchange should be created because both
countries are better off from the exchange.
o As a result of this shift in attitudes toward trading, there was an increase
in imports and exports.
o Smith also argued for legislation that would make trading as easy as
possible.
 MODERN DAY RELAVANCE
o Smith's most prominent ideas–the "invisible hand" and division of labor–
are now foundational economic theories
o Globalisation has enabled a division of labour by country. For example, the
developing world concentrates on the production of primary products.
This involves low-paid labour to do the labour intensive work of picking
coffee beans. The beans are then transported to developed countries,
where other workers process, package and market the product.
o The concept division of labour is used now in almost everywhere the
examples can be noticed in basic food manufacturing industry till in high
end luxuries brands like Apple.
o Smith believed a nation needed the following three elements to bring
about universal prosperity , they are Enlightened Self-Interest, limited
governmental intervention and solid currency and free market economy
 CONCLUSION.

So far we have seen about Adam smith and his major contributions to the field of
Economics. He died on July 19, 1790, at age 67, but the ideas he popularized live on in
the classical school of economics and in institutions like the Adam Smith Institute,
Britain's leading free market neoliberal think tank.1 In 2007, the Bank of England placed
Smith's image on the £20 note. Adam smith will continue to be this legendary economist
forever. His contribution to the world of economics were path breaking and revolutionary.