Adam Smith

Adam Smith

RUSSIAN ECONOMIC ACADEMY NAMED AFTER

G V PLEKHANOV

INTERNATIONAL BUSINESS STUDIES

ADAM SMITH

Student: Anton Skobelev

Group: 855

Moscow 1997

After two centuries, Adam Smith remains a towering figure in the history of

economic thought. Known primarily for a single work, An Inquiry into the

nature an causes of the Wealth of Nations (1776), the first comprehensive

system of political economy, Smith is more properly regarded as a social

philosopher whose economic writings constitute only the capstone to an

overarching view of political and social evolution. If his masterwork is

viewed in relation to his earlier lectures on moral philosophy and

government, as well as to allusions in The Theory of Moral Sentiments

(1759) to a work he hoped to write on “the general principles of law and

government, and of the different revolutions they have undergone in the

different ages and periods of society”, then The Wealth of Nations may be

seen not merely as a treatise on economics but as a partial exposition of a

much larger scheme of historical evolution.

Early Life

Unfortunately, much is known about Smith’s thought than about his life.

Though the exact date of his birth is unknown, he was baptised on June 5,

1723, in Kikcaldy, a small (population 1,500) but thriving fishing village

near Edinburgh, the son by second marriage of Adam Smith, comptroller of

customs at Kikcaldy, and Margaret Douglas, daughter of a substantial

landowner. Of Smith’s childhood nothing is known other than that he

received his elementary schooling in Kirkcaldy and that at the age of four

years he was said to have been carried off by gypsies. Pursuits was

mounted, and young Adam was abandoned by his captors. “He would have made,

I fear, a poor gypsy”, commented his principal biographer.

At the age of 14, in 1737, Smith entered the university of Glasgow, already

remarkable as a centre of what was to become known as the Scottish

Enlightenment. There, he was deeply influenced by Francis Hutcheson, a

famous professor of moral philosophy from whose economic and philosophical

views he was later to diverge but whose magnetic character seems to have

been a main shaping force in Smith’s development. Graduating in 1740, Smith

won a scholarship (the Snell Exhibition) and travelled on horseback to

Oxford, where he stayed at Balliol College. Compared to the stimulating

atmosphere of Glasgow, Oxford was an educational desert. His years there

were spent largely in self-education, from which Smith obtained a firm

grasp of both classical and contemporary philosophy.

Returning to his home after an absence of six years, Smith cast about for

suitable employment. The connections of his mother’s family, together with

the support of the jurist and philosopher Lord Henry Kames, resulted in an

opportunity to give a series of public lectures in Edinburgh - a form of

education then much in vogue in the prevailing spirit of “ improvement”.

The lectures, which ranged over a wide variety of subjects from rhetoric

history and economics, made a deep impression on some of Smith’s notable

contemporaries. They also had a marked influence on Smith’s own career, for

in 1751, at the age of 27, he was appointed professor of logic at Glasgow,

from which post he transferred in 1752 to the more remunerative

professorship of moral philosophy, a subject that embraced the related

fields of natural theology, ethics, jurisprudence, and political economy.

Glasgow

Smith then entered upon a period of extraordinary creativity, combined with

a social and intellectual life that he afterward described as “ by far the

happiest, and most honourable period of my life”. During the week he

lectured daily from 7:30 to 8:30 am and again thrice weekly from 11 am to

noon, to classes of up to 90 students, aged 14 and 16. (Although his

lectures were presented in English, following the precedent of Hutcheson,

rather than in Latin, the level of sophistication for so young an audience

today strikes one as extraordinarily demanding.) Afternoons were occupied

with university affairs in which Smith played an active role, being elected

dean of faculty in 1758; his evenings were spent in the stimulating company

of Glasgow society.

Among his circle of acquaintances were not only remembers of the

aristocracy, many connected with the government, but also a range of

intellectual and scientific figures that included Joseph Black, a pioneer

in the field of chemistry, James Watt, later of steam-engine fame, Robert

Foulis, a distinguished printer and publisher and subsequent founder of the

first British Academy of Design, and not least, the philosopher David Hume,

a lifelong friend whom Smith had met in Edinburgh. Smith was also

introduced during these years to the company of the great merchants who

were carrying on the colonial trade that had opened to Scotland following

its union with England in 1707. One of them, Andrew Cochrane, had been a

provost of Glasgow and had founded the famous Political Economy Club. From

Cochrane and his fellow merchants Smith undoubtedly acquired the detailed

information concerning trade and business that was to give such a sense of

the real world to The Wealth of Nations.

The Theory of Moral Sentiments

In 1759 Smith Published his first work, The Theory of Moral Sentiments.

Didactic, exhortative, and analytic by turns, The Theory lays the

psychological foundation on which The Wealth of Nations was later to be

built. In it Smith described the principles of “human nature “, which,

together with Hume and the other leading philosophers of his time, he took

as a universal and unchanging datum from which social institutions, as well

as social behaviour, could be deduced.

One question in particular interested Smith in The Theory of Moral

Sentiments. This was a problem that had attracted Smith’s teacher Hutcheson

and a number of Scottish philosophers before him. The question was the

source of the ability to form moral judgements, including judgements on

one’s own behaviour, in the face of the seemingly overriding passions for

self-preservation and self-interest. Smith’s answer, at considerable

length, is the presence within each of us of an “inner man” who plays the

role of the “impartial spectator”, approving or condemning our own and

others’ actions with a voice impossible to disregard. (The theory may sound

less naive if the question is reformulated to ask how instinctual drives

are socialized through the superego.)

The thesis of the impartial spectator, however, conceals a more important

aspect of the book. Smith saw humans as created by their ability to reason

and - no less important - by their capacity for sympathy. This duality

serves both to pit individuals against one another and to provide them with

the rational and moral faculties to create institutions by which the

internecine struggle can be mitigated and even turned to the common good.

He wrote in his Moral Sentiments the famous observation that he was to

repeat later in The Wealth of Nations: that self-seeking men are often “led

by an invisible hand... without knowing it , without intending it, to

advance the interest of the society.”

It should be noted that scholars have long debated whether Moral Sentiments

complemented or was in conflict with The Wealth of Nations, which followed

it. At one level there is a seeming clash between the theme of social

morality contained in the first and largely amoral explanation of the

manner in which individuals are socialized to become the market-oriented

and class-bound actors that set the economic system into motion.

Travels on the Continent

The Theory quickly brought Smith wide esteem and in particular attracted

the attention of Charles Townshend, himself something of an amateur

economist, a considerable wit, and somewhat less of a statesman, whose fate

it was to be the chancellor of the exchequer responsible for the measures

of taxation that ultimately provoked the American Revolution. Townshend had

recently married and was searching for a tutor for his stepson and ward,

the young Duke of Buccleuch. Influenced by the strong recommendations of

Hume and his own admiration for The Theory of Moral Sentiments, he

Approached Smith to take the Charge.

The terms of employment were lucrative (an annual salary of Ј300 plus

travelling expenses and a pension of Ј300 a year after), considerably more

than Smith had earned as a professor. Accordingly, Smith resigned his

Glasgow post in 1763 and set off for France the next year as the tutor of

the young duke. They stayed mainly in Toulouse, where Smith began working

on a book (eventually to be The Wealth of Nations) as an antidote to the

excruciating boredom of the provinces. After 18 months of ennui he was

rewarded with a two-month sojourn in Geneva, where he met Voltaire, for

whom he had the profoundest respect, thence to Paris where Hume, then

secretary to the British embassy, introduced Smith to the great literary

salons of the French Enlightenment. There he met a group of social

reformers and theorists headed by Francois Quesnay, who are known in

history as the physiocrats. There is some controversy as to the precise

degree of influence the physiocrats exerted on Smith, but it is known that

he thought sufficiently well of Quesnay to have considered dedicating The

Wealth of Nations to him, had not the French economist died before

publication.

The stay in Paris was cut short by a shocking event. The younger brother of

the Duke of Buccleuch , who had joined them in Toulouse, took ill and

perished despite Smith’s frantic ministration. Smith and his charge

immediately returned to London. Smith worked in London until the spring of

1767 with Lord Townshend, a period during which he was elected a fellow of

the Royal Society and broadened still further his intellectual circle to

include Edmund Burke, Samuel Johnson, Edward Gibbon, and perhaps Benjamin

Franklin. Late that year he returned to Kirkcaldy, where the next six years

were spent dictating and reworking The Wealth of Nations, followed by

another stay of three years in London, where the work was finally completed

and published in 1776.

The Wealth of Nations

Despite its renown as the first great work in political economy. The Wealth

of Nations is in fact a continuation of the philosophical theme begun in

The Theory of Moral Sentiments. The ultimate problem to which Smith

addresses himself is how the inner struggle between the passions and the

“impartial spectator’ - explicated in Moral Sentiments in terms of the

single individual - works its effects in the larger arena of history

itself, both in the long-run evolution of society and in terms of the

immediate characteristics of the stage of history typical of Smith’s own

day.

The answer to this problem enters in Book 5, in which Smith outlines he

four main stages of organization through which society is impelled, unless

blocked by deficiencies of resources, wars, or bad policies of government:

the original “rude’ state of hunters, a second stage of nomadic

agriculture, a third stage of feudal or manorial “farming”, and a fourth

and final stage of commercial interdependence.

It should be noted that each of these stages is accompanied by institutions

suited to its needs. For example, in the age of the huntsman, “there is

scar any established magistrate or any regular administration of justice. “

With the advent of flocks there emerges a more complex form of social