(1723-1790) An 18th-century Scottish economist, moral philosopher, and author (known for ‘The Wealth of Natons‘ in 1776) who is considered the father of modern economics. The recorded history of Smith’s life begins at this baptism on June 5, 1723 in Kirkcaldy, Scotland; his exact birthdate is undocumented. He was raised there by his widowed mother. 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.
After returning to Scotland, Smith held a series of public lectures at the University of Edinburgh. The success of his lecture series helped him earn a professorship at Glasgow University in 1751. He eventually earned the position of Chair of Moral Philosophy. During his years spent teaching and working at Glasgow, Smith worked on getting some of his lectures published. His book, “The Theory of Moral Sentiments,” was eventually published in 1759 book.
Smith moved to France in 1763 to accept a more remunerative position as a personal tutor to the stepson of Charles Townshend, an amateur economist and the future Chancellor of the Exchequer. During his time in France, Smith counted the philosophers David Hume and Voltaire and Benjamin Franklin as contemporaries.
In Smith’s day, people saw national wealth in terms of a country’s stock of gold and silver. Importing goods from abroad was seen as damaging because it meant that this wealth must be given up to pay for them; exporting goods was seen as good because these precious metals came back.
So countries maintained a vast network of controls to prevent this metal wealth draining out – taxes on imports, subsidies to exporters, and protection for domestic industries. The same protectionism ruled at home too. Cities prevented artisans from other towns moving in to ply their trade; manufacturers and merchants petitioned the king for protective monopolies; labour-saving devices were banned as a threat to existing producers.
Smith showed that this vast ‘mercantilist’ edifice was folly. He argued that in a free exchange, both sides became better off. Quite simply, nobody would trade if they expected to lose from it. The buyer profits, just as the seller does. Imports are just as valuable to us as our exports are to others.
Because trade benefits both sides, said Smith, it increases our prosperity just as surely as do agriculture or manufacture. A nation’s wealth is not the quantity of gold and silver in its vaults, but the total of its production and commerce – what today we would call gross national product.
The Wealth of Nations deeply influenced the politicians of the time and provided the intellectual foundation of the great nineteenth-century era of free trade and economic expansion. Even today the common sense of free trade is accepted worldwide, whatever the practical difficulties of achieving it.
Smith had a radical, fresh understanding of how human societies actually work. He realised that social harmony would emerge naturally as human beings struggled to find ways to live and work with each other. Freedom and self-interest need not produce chaos, but – as if guided by an ‘invisible hand’ – order and concord. And as people struck bargains with each other, the nation’s resources would be drawn automatically to the ends and purposes that people valued most highly.
So a prospering social order did not need to be controlled by kings and ministers. It would grow, organically, as a product of human nature. It would grow best in an open, competitive marketplace, with free exchange and without coercion.
The Wealth Of Nations was therefore not just a study of economics but a survey of human social psychology: about life, welfare, political institutions, the law, and morality.
It was not The Wealth Of Nations which first made Smith’s reputation, but a book on ethics, The Theory Of Moral Sentiments. Once again, Smith looks to social psychology to discover the foundation of human morality. Human beings have a natural ‘sympathy’ for others. That enables them to understand how to moderate their behaviour and preserve harmony. And this is the basis of our moral ideas and moral actions.
Some people wonder how the self-interest that drives Smith’s economic system can be squared with the ‘sympathy’ that drive his ethics. Here is his answer:
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
In other words, human nature is complex. We are self-interested, but we also like to help others too. Smith’s books are complementary: they show how self-interested human beings can live together peacefully (in the moral sphere) and productively (in the economic).
The Wealth Of Nations is no endorsement of economic greed, as sometimes caricatured. Self-interest may drive the economy, but that is a force for good – provided there is genuinely open competition and no coercion. And it is the poor that economic and social freedom benefits most.