Biography of Adam Smith - Case Study Example

Biography of Adam Smith Adam Smith was a prominent political economist and moral philosopher. He was born in Kirkcaldy, Scotland, in 1723. His father was comptroller of customs and had died before his birth. The date of his birth is unknown, but he was baptized on June 5, 1723. Around the age of fifteen, Smith joined Glasgow University on a scholarship to study moral philosophy. His unforgettable teacher at Glasgow University was Francis Hutcheson. Then Smith studied at Balliol College, Oxford, from 1740 to 1746. After that period, Smith started his career as public lecturer in Edinburgh in 1748 under the patronage of Lord Kames. During this time he lectured on various topics, and he explained for the first time his ideas of "the obvious and simple system of natural liberty", which was the basis of his influential book entitled An Inquiry into the Nature and Causes of the Wealth of Nations (The Wealth of Nations).1 Around 1750 Smith met the philosopher, economist and historian David Hume, one of the most famous figures of the Scottish Enlightment along Smith himself. They became close friends, and Smith was influenced by his works as it has been noted by many scholars. In 1751 Smith became a professor at Glasgow University where he lectured on logic and moral philosophy. In 1759 he published his book entitled The Theory of Moral Sentiments, which is concerned with the explanation of moral approval and disapproval. Smith finds in sympathy the solution to moral problems. After the publication of The Theory of Moral Sentiments Smith payed more attention to jurisprudence and political economics in his lectures. An account of these lectures by one of Smith’s students around 1763 was edited by E. Cannan in 1896. In 1763 Smith was hired as tutor to the young Duke of Buccleuch. During the next years (1764-1766) Smith travelled with his pupil to Switzerland and France, where he met many intellectual leaders as Voltaire, Jean-Jacques Rousseau, Turgot, D’Alembert, André Morellet, Helvétius, and Francois Quesnay, who was the head of the Physiocratic school whose works influenced Smith. Later on he also met Benjamín Franklin.2 Smith retired from his post as tutor of the Duke of Buccleuch thanks to the life pension that he earned through that tutorship, and he returned home to Kirkcaldy, where he dedicated to the task of writing his most important work, The Wealth of Nations, which was published in 1776, the same year of the Declaration of Independence of the United States of America. His close friend Hume also died in that year. It is relevant to note that Smith explains to Great Britain that “her American colonies are not worth the cost of keeping” in the fourth book of The Wealth of Nations.3 In 1778 he was hired as commissioner of customs in Scotland. At this time Smith and his mother moved to Edinburgh. He died in July, 1790, in that city, after suffering a painful illness. Adam Smith was buried in the Canongate churchyard. He never married, and it is said that he devoted a great deal of his income to many secret acts of charity. Before his death Smith destroyed nearly all of his manuscripts.4 Peter Landry describes Adam Smith as follows: “Smith was a curious human being. He treasured his library, and was continually absorbed in abstractions; he was notoriously absent minded. Smith led a quiet and sheltered life; he lived with his mother (she lived to be ninety) and remained a bachelor all his life. His students loved him, and people came from far to take him in (Boswell was one).”5 In The Theory of Moral Sentiments, Smith explains the evolutionary process by which the moral sentiments develop. Individuals are shown how they can overcome the selfish impulses of the commercial activities, recognizing that there is more to life than economics and politics, and that Man possesses more than self-regarding sentiments. The author discusses the phenomena of moral sentiments and sympathetic feelings among men and their desire to please others and gain their approval. The topics of prosperity, adversity, justice, beneficence, rewards, punishments, and benevolence are studied by Smith. He states that Man is self-interested and self-commanded. In The Theory of Moral Sentiments, Smith developed the foundation for a general ethical system based on a theory of human nature. The leading principle is not self-interest but sympathy.6 Adam Smith’s The Wealth of Nations was a five-book series, and it is considered to be the first modern work in the field of political economics. This was the first comprehensive effort to study the nature of capital, the development of industry, and the effects of large-scale commerce in Europe. It combines a detailed understanding of why a free economy works best. Smith studies individuals’ own advantages, self-interest and self-love. In The Wealth of Nations, Smith made economics the study of spontaneous and unintended order, which arises when voluntary exchanges among individuals produce benefits for the parties involved. Smith and Hume were opposed to mercantilism, and Smith’s arguments against mercantilism are stated throughout the book. Accordingly Smith explains that markets are driven by four fundamental ideas: 1.- Each individual pursues his or her own self-interest. 2.- People are in natural competition with one another for their livelihoods (as any organism is a natural environment). 3.- It is imposible to do or to be everything one wants to be. The capacity to do things is limited compared with near infinite wants and desires so choices and trade-offs have to be made. 4.- People can become better off than otherwise by specializing in what they do, and trading the products (or services) with others.7 Smith’s fundamental argument was that individuals should be allowed to pursue their own private economic interests as much as possible as so long as they do not violate the basic principles of justice. This way Smith thought they would do much more to further the public good and public interests than if the same people were to try to help the public deliberately and intentionally. Smith called this the “invisible hand” of the market. Although everyone is acting in their own self-interest, they are led to achieve the good for all as if by an “invisible hand” of economic forces. Therefore, outside interference (government) will inevitably lead to disaster. Competition amongst producers would prevail resulting in reasonable prices for goods and services for consumers and a “normal” profit for producers. This is called free market economy or “laissez-faire” economic policy. Laissez-faire is a French term that means “leave it alone”.8 Regarding the “invisible hand” Smith dealt about this concept in the following terms: "Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally indeed neither intends to promote the public interest, nor knows how much he is promoting it. He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good."9 Economic regulation seeks primarily to control prices. Designed in theory to protect consumers and certain companies (usually small businesses) from more powerful companies. It is often justified on the grounds that fully competitive market conditions do not exist and therefore cannot provide such protection themselves. Social regulation promotes objectives that are not economic such as safer workplaces or a cleaner environment. Social regulations seek to discourage or prohibit harmful corporate behavior or to encourage behavior deemed socially desirable. In The Wealth of Nations, Smith spoke of the state. He said the “sovereign” should be held responsible for defense of the society above all, protecting members of society from the injustice or oppression of other members (justice) and the “erection and maintenance of those public works and institutions which are useful but not capable of bringing in a profit to individuals” or in other words, public works and institutions. Smith also discovered with the division of labor the same number of employees could produce greater output by specializing in each separate process. This was his idea of specialization. The industrialized world has followed Smith’s observation.10 Entrepreneurs always want to minimize their cost per unit through consistently increased productivity, thereby enhancing their profits. Trained and skilled workers help them to achieve these targets through their specialized knowledge of what it is required to be done. Normally, when these workers attain such proficiency they are encouraged to stay through increased efficiency wages.11 Smith’s view has undergone considerable modification by economics in the light of historical developments since Smith’s time. Many sections of The Wealth of Nations -notably those relating to the sources of income and the nature of capital- have continued to form the basis for theoretical study in the field of political economics. The Wealth of Nations has also served, perhaps more than any other single work in its field, as a guide to the formulation of governmental policies.12 It is important to note that Adam Smith was not the first thinker to deal with the ideas found on The Wealth of Nations. Sir William Pettys A Treatise on Tax (1662) and Political Arithmetic (1691), as well as Sir Dudley Norths Discourses upon Trade (1691) and Turgots Réflexions sur la Formation et la Distribution des Richesses (1766) discussed similar ideas in previous books.13 Though one main contribution of The Wealth of Nations is explained by Landry as follows: “What Adam Smith did in his book was to explain how self-interest was the engine of the economy and competition its governor. He set forth the great lesson that all economists come to sooner or later.”14 Regarding the debate about the apparent contradictions between The Theory of Moral Sentiments and The Wealth of Nations, Digna Faber states the following: “There has been considerable controversy as how far there is contradiction or contrast between Smiths emphasis in the Moral Sentiments on sympathy as a fundamental human motive, and, on the other hand, the key role of self-interest in the The Wealth of Nations. In the former he seems to put more emphasis on the general harmony of human motives and activities under a beneficent Providence, while in the latter, in spite of the general theme of "the invisible hand" promoting the harmony of interests, Smith finds many more occasions for pointing out cases of conflict and of the narrow selfishness of human motives.”15 David R. Henderson provides useful insight about the contributions of the works of Adam Smith: “Smith vehemently opposed mercantilism—the practice of artificially maintaining a trade surplus on the erroneous belief that doing so increased wealth. The primary advantage of trade, he argued, was that it opened up new markets for surplus goods and also provided some commodities at less cost from abroad than at home. (…) “Smiths writings were both an inquiry into the science of economics and a policy guide for realizing the wealth of nations. Smith believed that economic development was best fostered in an environment of free competition that operated in accordance with universal "natural laws." Because Smiths was the most systematic and comprehensive study of economics up until that time, his economic thinking became the basis for classical economics.”16 A savvy quote by Adam Smith sums up one of his most interesting ideas about the economic activity: “The real price of everything, what everything really cost to the man who wants to acquire it, is the toil and trouble of acquiring it”.17 Notes 1. Digna Faber. “Biography of Adam Smith (1723-1790).” From Revolution to Reconstruction – an HTML Project. Department of Humanities Computing, (1994-2008), http://www.let.rug.nl/usa/B/asmith/adams1.htm (accessed February 20, 2008). 2. Ibid. 3. David R. Henderson. “Biography of Adam Smith (1723-90).” The Concise Encyclopedia of Economics. The Library of Economics and Liberty, (1993, 2002), http://www.econlib.org/library/Enc/bios/Smith.html (accessed February 20, 2008). 4. Faber. “Biography of Adam Smith”. 5. Peter Landry. “Adam Smith.” (1997-2005), http://www.blupete.com/Literature/Biographies/Philosophy/Smith.htm (accessed February 21, 2008). 6. Robin Bade & Michael Parkin. “Adan Smith.” Foundations of Economics. Second edition. New Jersey: Pearson Education. New, 2004: 7-8, 151, 278, 764.. 7. Ibid. 8. Ibid. 9. Adam Smith quoted in Landry. “Adam Smith”. 10. Ian Robertson. “Adam Smith.” Sociology. Third edition. New York: Worth Publishers, Inc., 1987: 456, 459, 463.. 11. Bade & Parkin. “Adam Smith”. 12. Ibid. 13. Landry. “Adam Smith”. 14. Ibid. 15. Faber. “Biography of Adam Smith”. 16. Henderson. “Biography of Adam Smith”. 17. Adam Smith quoted in Bade & Parkin. “Adam Smith”. Bibliography Bade, Robin, & Michael Parkin. “Adan Smith.” Foundations of Economics. Second edition. New Jersey: Pearson Education. New, 2004. Faber, Digna. “Biography of Adam Smith (1723-1790).” From Revolution to Reconstruction – an HTML Project. Department of Humanities Computing, (1994-2008), http://www.let.rug.nl/usa/B/asmith/adams1.htm (accessed February 20, 2008). Henderson, David R. “Biography of Adam Smith (1723-90).” The Concise Encyclopedia of Economics. The Library of Economics and Liberty, (1993, 2002), http://www.econlib.org/library/Enc/bios/Smith.html (accessed February 20, 2008). Landry, Peter. “Adam Smith.” (1997-2005), http://www.blupete.com/Literature/Biographies/Philosophy/Smith.htm (accessed February 21, 2008). Robertson, Ian. (1987). “Adam Smith.” Sociology. Third edition. New York: Worth Publishers, Inc., 1987. Read More