Adam Smith was a British philosopher and a Scottish Enlightenment figure. He was also among the pioneers of political economy, a term that is often used in describing the study of production and trade, as well as their relationship with government, custom and the law (Copley and Kathryn 120). At the age of 14, Smith enrolled at the University of Glasgow, where he studied on scholarship. Upon graduating, he entered the Balliol College at Oxford, where he graduated with broad knowledge of European literature. With his 1776 treatise titled An Inquiry into the Nature and Causes of the Wealth of Nations, often foreshortened as The Wealth of Nations, Smith proved himself as the leading pundit of economic thought. His works inspired other renowned philosophers and economists, such as Karl Marx, David Ricardo, Milton Friedman, and John Maynard Keynes. His 1959 exposition titled The Theory of Moral Sentiments (hereafter referred to as Moral Sentiments), together with his work The Wealth of Nations, are considered among his best works (Keppler 17; Rima 112). As noted before, the latter is regarded not only as Smith’s magnum opus, but as the first contemporary work of economics, as well. Even though Smith was a philosopher and not an economist, he is considered the founding father of modern economics and ranks among the most influential theorists of economics to date.
Moral Sentiments, which was Smith’s first work, was published in 1759. It was both informative and hortatory, and it laid the foundations upon which his second treatise, The Wealth of Nations, would be written (Sandmo 32). In Moral Sentiments, Smith explained in detail the nature of humans, which he, together with other prominent philosophers of his time, regarded as an ecumenical and static benchmark for deducing social behavior. A prominent question that was of interest to Smith in Moral Sentiments concerned the origin of the capacity to form moral judgments, such as judgments of an individual’s own conduct when faced with seemingly preponderating passion for self-interest and preservation instincts. His response was that within each man is an inner being who acts as an “impartial spectator,” and who admonishes or approves one’s actions with a voice that cannot be ignored (Haakonssen 181; Dransfield and Don 4). Smith’s “impartial spectator” would later inform Sigmund Freud’s theory of the ‘superego,’ which described guilt feelings, or an inner conscience, that condemns individuals and often prevents them from acting on baser impulses. However, it is imperative to note that the premise of “impartial spectator” obscures a key element of Smith’s thought. While he viewed humans as animals driven by passions, he also thought their actions to be self-regulated by their capacity for compassion, as well as through their ability for rational thought. This dichotomy not only puts individuals against one another, but provides them with the moral and rational abilities to establish institutions through which the civil struggles are mitigated and made to contribute towards the common good.
Despite being widely acclaimed as the first outstanding work in the field of political economy, Smith’s The Wealth of Nations is an extension of the philosophical discourse contained in Moral Sentiments. In The Wealth of Nations, he addresses himself to the problem of how peoples’ innate struggles between the “impartial spectator” and raw passions, which he addresses in the previous treatise on a personal level, works with regard to the evolution of the broader society. Smith provides the answer to this problem by summarizing the four principal phases of an organization that drives the society, unless encumbered by warfare, scarcity of resources, or poor government policies. These include the preceding phase of hunters, which was succeeded by the stage of nomadic agriculture. The third stage was that of manorial (or feudal) farming, and the final phase was typified by commercial interdependence (Malloy 111). In other words, Smith identified the various stages of social transformation as the age of hunters, of herdsmen, of agriculture, and of commerce. The four stages of human history are not a mere narrative of social and economic development, but of moral development, as well, with social organization adjusting along with the expansion of human experience, as well as the broadening of moral judgments.
Smith notes that each of the four stages is attended by the establishment of institutions fitting for its needs. For instance, he observes that “among nations of hunters, as there is scarce any property… so there is seldom any magistrate, or any regular administration of justice” (Smith 625). The arrival of the age of herdsmen occasioned the emergence of a more sophisticated social system, which comprised of fearsome armies, as well as the institution of private property that operated on the concept of law and order. He argued that it was “under the shelter of the civil magistrate, that the owner of valuable property… can sleep a single night in security,” and that “avarice and ambition in the rich, in the poor the hatred for labor and the love of present ease and enjoyment, are the passions which prompt to invade property” (Smith 625). Smith argued that the essence of the institution of the magistrate was to protect privilege. He viewed civil government as existing for the defense of the affluent against the impoverished, or of individuals who have property against those with none. Such sentiments were to find place in America’s Civil Rights Movement, in which leaders such as Martin Luther King Jr. and Malcolm X charged that the law was there to make certain that no one robbed the rich (Dyson 191). Smith also describes how the society evolved to require institutions that were free and market-determined, which later came to constitute what is known in contemporary terms as laissez-faire capitalism.
Smith also contributed greatly to the field of economics. He challenged the established economic theories of his time that were based on mercantilism, and set out his theories that were informed by free market capitalism. The Wealth of Nations established an agenda for the analysis of economic concepts that continues to reflect in modern economic systems. Smith’s contribution to economics was in four principal areas of economic theory, namely the sources of economic growth, the role of the government (or state) in the economy, the connection between the market and public interest, as well as the theory of price formation (Sandmo 35). With regard to price theory, for instance, Smith analyzed how the relative prices of services and goods are determined with a tale of price formation in the primeval society of hunters. This example serves as pedagogical case intended to lead the reader to grasp more complex issues, and not to present any specific theory per se. He argues that in the society of hunters, men killed deer and beavers because consumers desired such foods. He further observed that if it took twice the time to hunt down and kill a beaver than it took to kill a deer, then the price of the beaver would be twice the price of a deer since the labor time determined the prices (Nicholson 8). This example was a clear illustration of what is now the labor theory of value, which holds that the economic value of a service or good depends upon the amount of socially necessary labor needed in its production and not the pleasure or use that the owners derive from it.
Smith’s used the metaphor of “the invisible hand” in describing the inadvertent social benefits that result from individual actions. He used the phrase with regard to production and income distribution. According to the notion of the invisible hand:
…every individual necessarily labours 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… By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (Smith and Germain 184).
In the above passage, Smith explains the mechanisms by which the economic society of the time operated. Every individual endeavored to amass wealth, intending only their personal gain. However, they had to exchange what they produced or owned with others who valued them more. In such a manner, through the operation of a free market and the effective division of labor, public interest was served and advanced. These views continue to find relevance even in the modern world, with “invisible hand” explanations being brought into play in explaining various phenomena, including environmental degradation and scientific progress. For example, with regard to environmental degradation and climate change, a number of authors have argued that successful environmental management occurs only when parochial, self-interested behavior is in harmony with the common good and, therefore, those interested in common good should seek opportunities to promote such linkages (Hackett 187; Gilbert and Sue 252). This line of argument is akin to Smith’s notion that the invisible hand of the marketplace can transform self-serving behaviors into efficient outcomes.
In Moral Sentiments, Smith wrote the famed observation that would also appear in The Wealth of Nations. He noted that self-serving men are frequently driven by an unseen hand, without being aware, and without purposing it, to work towards the interests of the wider society (Moss and George 20). It is imperative to note that scholars have for a long time perceived a lack of harmony between Moral Sentiments and The Wealth of Nations. While there appears to be a conflict between the notion of social morality exposited in the former and the largely carnal account of economic systems in the latter, the first treatise is seen as a rationalization of how people are socialized to become class-bound, market-oriented actors that give impetus to the economic system (Viner and Douglas 19). In other words, while Moral Sentiments gives emphasis to sympathy for others, The Wealth of Nations concentrates on the role of individual self-interest. However, some thinkers have in the recent years argued that there is no incongruity in Smith’s works. They contend that in the former, Smith formulates a theory of psychology, explaining that individuals often seek the consent of the “impartial spectator” due to their natural desire for sympathy from outside observers. Instead of viewing the two works as offering irreconcilable perspectives of the human nature, some scholars of Smith’s works view them as highlighting dissimilar aspects of human nature, which vary according to the situation.
Smith advocated for laissez-faire capitalism in The Wealth of Nations, even though his argument was directed against the government as much as it was directed against monopoly. Even though he exalted the social outcomes of the acquisitive process, Smith treated all manners of maneuvers by capitalists with disdain and did not consider the commercial system as deserving admiration (Berry, Maria, and Craig 274). However, in all this, it must be noted that he was writing during the period of preindustrial capitalism and, therefore, had no premonition of the looming Industrial Revolution. Today, Smith’s repute hinge on his account of how self-interest works in conjunction with the free market to promote economic well-being. Nevertheless, beyond the few details of his life, which have been detailed both in his works and by a number of authors, gallingly little is known about Smith’s private life. Without a doubt, he enjoyed a large measure of eminence, and even during his years at the University of Glasgow, his repute drew students from nations as far as Russia. He later earned the reverence and admiration of a number of European thinkers, and the British governing class considered his work as being of tremendous import for pragmatic economic policy.
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