Smith, Adam (1723–1790)

Scottish economist. Until comparatively recently, Adam Smith was known only as the author of a single book, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), published in the same year as the American Revolution. This book is said to have established economics as an autonomous subject and, at the same time, to have launched the doctrine of free enterprise upon an unsuspecting world. It is true that he also published another major treatise, The Theory of Moral Sentiments (1759), a work about those standards of ethical conduct that hold society together, but this was a book that economists generally left unread. However, the recent publication of his many essays on philosophical and literary subjects suggests that he may have been working towards a complete system of social science, which he never lived to complete.

Smith took a deeply cynical view of the behaviour of businessmen and legislators, and reserved for government the provision of those social services which could not or would not be provided by private action. Yet it was as an exponent of free trade, free enterprise, the free movement of people and goods – in short, laissez-faire and the untrammelled operation of the market – that he made his mark on the history of economics and on the dominant intellectual outlook of the western world.

Adam Smith was born in Kirkcaldy, a small fishing and mining town across the Firth of Forth from Edinburgh. He was the only son of a Comptroller of Customs who died shortly after Adam Smith was born. Smith lived with his mother whenever he was in Scotland until her death in 1784. He never married. He entered the University of Glasgow at the age of 14, which was common practice in Scotland in those days, graduating at the age of 17 with an MA. He then spent six years at Balliol College, Oxford. On his return to Scotland he was elected to the professorship of logic at the University of Glasgow in 1751, followed almost immediately by election to the more prestigious professorship of moral philosophy.

His reputation firmly established by the publication of The Theory of Moral Sentiments, he resigned his chair in 1763 to accompany and tutor the young Duke of Buccleuch on a grand tour of Europe. He spent almost three years in France and met all the leading figures of his day, including Quesnay, Rousseau, and Voltaire. Returning to England in 1766, he retired to Kirkcaldy to work on The Wealth of Nations, financed by the life pension he had been awarded by the Duke of Buccleuch. He died in Edinburgh in 1790, shortly after supervising the burning of almost all his unpublished manuscripts, said to run to 16 folio volumes.

The Wealth of Nations was the most comprehensive attempt up to his time to analyse the workings of a ‘commercial society’ (as it was then called) or the ‘capitalist economy’ (as it is now called). It laid down a mode of treating questions of value and distribution that shaped the entire course of economic thinking until the ‘marginal revolution’ of the 1870s, founding, in fact, a distinct School of English Classical Political Economy. Its crusading attack on existing economic policies – the vestiges of what he labelled the ‘mercantile system’ – set a pattern of involvement in the affairs of the day that characterizes economics to the present day.

Much of the book must strike a modern reader as stretching the bounds of economics to encompass history, political theory, and even anthropology. The work is organized in five books and only the first two genuinely inspired subsequent generations. It is here that he explained his understanding of the fundamental cause of the wealth of nations – namely, the division of labour – introduced the equally fundamental distinction between the ‘natural’ and the ‘market’ price of commodities, and developed his theories of value and distribution. Some of it planted endless puzzles that taxed later writers, such as the distinction between the measure and the cause of value, and between productive and unproductive labour. Much of it became ‘classical’ in the literal sense of the word, such as the masterful explanation of the structure of relative wages (Book I, Chapter 10) and the defence of the so-called saving-is-spending theorem (Book II, Chapter 3). Books III to V are full of material one would not expect to find in an economic treatise, such as an account of the economic development of Europe since the fall of the Roman Empire, a criticism of the colonial policies of European nations, a history of education in the Middle Ages, and the growth and decline of the temporal power of the Church.