Adam Smith

Adam Smith
Adam Smith
Adam Smith was the founder of the laissez-faire school of economics and traditional economic liberal theory. A graduate of Oxford University in 1746, he continued his studies in his home of Kilcaldy, Scotland.

In 1751 he became a professor of logic at the University of Glasgow and in 1752 the head of the department of moral philosophy. By 1760 his emphasis was on jurisprudence and political economy. By then he had become a charter member of the Scottish Enlightenment.

Influenced by Scottish writers such as David Hume, he believed that natural laws regulate human activities. Therefore, all forms of human endeavor could be understood by analyzing universal laws. If human institutions respected the laws of nature, all would go well. People would be guided to the goal by the application of reason.

In 1763 and 1765 Smith came into contact with the physiocrats of France, who rebelled against economic absolutism in the form of mercantilism, which put economic institutions at the disposal of the state and indicated that wealth equals power. One physiocrat, François Quesnay, compared the circulation of money to the circulation of blood.

Mercantilist controls, to him, acted like a tourniquet on the circulation of money, which cut off a natural life-giving flow. Jacques Turgot, another physiocrat, said that natural human behavior guided by national self-interest in search of a profit would result in the best service and the most goods for society.

After traveling in France, Smith published his great work, Inquiry into the Nature and Cause of the Wealth of Nations. The work, known by its shortened title, the Wealth of Nations, became the dominant theory of economic liberals in the 19th century and economic conservatives in the 20th century. Under this theory, the state was basically a “passive” policeman who intervened only when the marketplace collapsed.

Smith maintained that increased production depended on a national division of labor and specialization. Trade, therefore, was to be encouraged, as it increased specialization to meet its demands, which in turn led to greater production.

This growing value of trade also depended on personal liberty; each person should be free to pursue his or her individual self-interest. When buyer and seller met in the marketplace, they would be guided by an “invisible hand,” which basically was the law of supply and demand, where the results of buyers and sellers would be optimized.

In general Adam Smith deplored all forces that interfered with this enlightened self-interest. Therefore, he opposed all economic controls in the form of the state government, guilds, or unions as harmful to the exchange of goods and services or trade.

To him mercantilism, whether if favored gold and silver bullion for its own sake, surplus exports over imports—which weakened your neighbor’s economic status—or state control of an essential item to use as a weapon, was wrong. Ideally trade should be for everyone’s benefit. This would be the natural result of free trade unencumbered by protective tariffs.

Therefore in such a natural and free market, the prosperity of each nation would be dependent on all nature. He also departed from traditional mercantile economic theory, which regarded colonies as an economic asset; he saw them as liabilities.

This work, upon its publication in 1776, was an instant success. After being lionized for the next two years, Smith retired to live in Edinburgh. He died there in 1790. He requested at his death that all manuscripts on which he had worked be destroyed, except for his Theory of Moral Sentiments, which posited that moral sympathy derives from human sympathy. The Wealth of Nations remains his major work.