Adam Smith was born in Kirkaldy, Fife, Scotland in 1723, at a time when nails were still used as a form of currency by some of the local townspeople - an unlikely start for the man who would write The Wealth of Nations some 53 years later. Smith earned a scholarship to Oxford, although instruction there was the exception at that time rather than the norm. For example, Smith was almost expelled for having a copy of David Hume's A Treatise of Human Nature which wasn't seen as fit reading matter, even for a philosopher.
In 1751, Smith was offered the chair of Logic at Glasgow, which was at the time a serious centre for the Scottish Enlightenment1. Here he developed his eccentric personality bringing levity and a 'natural religion' to what was still a Christian-based centre of learning. He rose to become Dean in 1758.
His prestige grew the following year with the publication of The Theory of Moral Sentiments. How does it happen that man, a creature of self-interest, can form moral judgments in which self-interest seems to be held in abeyance or transmitted to a higher plane? Smith held that our ability to be impartial led us to form a sympathetic notion of the moral merits of a case.
This debate spread throughout the enlightened world and is one of the foundations for modern economic thought. He earned a patronage from Charles Townsend to tutor his step-son, the son of the late Duke of Buccleauch and Townsend's wife, the countess of Dalkeith, to take the young Grace on a European tour. In France they meet Voltaire and more importantly François Quesnay, who had formed a school of economics known as physiocracy, and devised Tableau Economique or a chart of the economy. Quesnay's tableau went against the thinking that wealth came only from gold and silver, but instead from production. However, physiocracy had a problem in that only agriculture created wealth, whilst manufacturing and commerce merely altered it. However, it did advocate laissez-faire2 as opposed to the state control of the time.
The Wealth of Nations
Smith took this to the next stage realising that labour, not nature, was the source of wealth, and thus was the basis for his opus The Wealth of Nations published in 1776, a full ten years after his trip to France. The book is heavy going, wandering between, around, and back to several themes and is written not necessarily as a textbook, but it holds practical value on the macro scale3. Smith was trying to increase the wealth of whole nations; wealth being the goods that all the people of society consume. Smith also searched for the laws of the market, and, on another level, saw that society was not static and constant but an organism.
Smith's laws are simple:
- The self interest of man leads to competition. Competition will lead the provision of goods that society needs. While self-interest will lead man to provide whatever society will pay, it will be held in check by competition. So Smith had developed a self-regulatory system.
- Population can be produced according to demand. Remember that this was a time of high infant mortality and the desire to have more children was therefore directly affected by wages. The more a man earned the more likely he would be able to support more living children, when times got rough the desire was no longer there.
However, The Wealth of Nations took off slowly not even rating a mention in Parliament until eight years later. The one thing from it that still stands today is how the market forces keep society together. Smith died in 1790, and his unpretentious tombstone in Canongate churchyard, Lothian, Scotland states 'Adam Smith, author of The Wealth of Nations lies here'.