Adam Smith's life, economic theories, and philosophical contributions

Adam Smith (1723-1790), Scottish philosopher and economist, is widely regarded as the father of modern economics and capitalism. His celebrated treatise an Inquiry into the Nature and Causes of the Wealth of Nations, considered as "the first modern work in the field of economics," contains a comprehensive defense of free market policies and gives a still-valid explanation of how rational self-interest and competition can lead to economic well-being and prosperity. Adam Smith's ideas on economics, formulated as they were in the later half of the 18th century, provided the ideological and intellectual background for the Industrial Revolution -- the sweeping material transformation in Western society and many parts of the world that characterized the 19th century.

This paper gives an overview of the life and works of Adam Smith including an account of his early life, boyhood, his education, major influences as well as a review of his two major books. It also analyzes the seeming contradiction in his theories of 'self-interest' and 'sympathy for others' and outlines Smith's views on the 'invisible hand,' mercantalism, slavery, and colonialism.

Early Life

Adam Smith was born at Kirkcaldy, Scotland, on June 5, 1723. His father, also named Adam Smith, was Writer to the Signet, Judge Advocate for Scotland and Comptroller of the Customs in the Kirkcaldy district, while his mother, Margaret Douglas, was daughter of Lt. Col. John Douglas -- a prominent landowner in Strathendry, Scotland (Rae, Ch. I, p. 1). Comptroller Smith died almost six months before the birth of his son and the young Adam Smith was brought up by his mother and the guardians appointed in his father's will. The elder Smith had left behind enough money and property to enable his widow and heirs to survive comfortably (Ross 9).

Childhood and Early Education

Adam Smith, being an only child, was particularly attached to his mother and remained so throughout her life as he never married. He was a sickly child and often suffered from various illnesses from an early age. Perhaps, due to this reason, his mother took extra care of him and is sometimes blamed for treating him with 'unlimited indulgence' (Ross 19).

Kirkcaldy, the Scottish town where Smith was born and continued to live with his mother at a young age, did not have a reputation for being a healthy place for children because of its 'sea air.' Probably due to this reason, his mother often took him to visit her sisters and to her own hometown, Strathenry, where her brother lived. During one such visit to Strathenry, a young 3-year-old Smith is reputed to have been 'kidnapped' by gypsies. One of his early biographers, John Rae narrates that a passerby saw a gypsy woman carrying a piteously crying child a few miles down the road from the Douglas residence; his uncle organized a search party and when they came upon the gypsy woman, she threw the child down and escaped (Rae, Ch. I, p. 4).

As he grew up and his health improved, Smith was sent to the Burgh School of Kirkcaldy, which was one of the best secondary schools of Scotland at that time. He is believed to have undergone quality tutoring in classical Latin and elementary mathematics in the school from 1731 to 1737 under the direction of David Miller -- a schoolmaster of high repute (Ross 19). Although Kirkcaldy was a small town with only 1500 inhabitants, there were a couple of naileries in town, which the young Smith was fond of visiting. He may well have subconsciously acquired the idea about the value of 'division of labor' that he so famously expound in the 'Wealth of Nations' by his keen observance of the workers in the process of nail making in these small Kirkcaldy naileries (Ibid. 20-22).

Glasgow College (1737-40): By the age of fourteen, Smith had learned enough classic Latin and mathematics to be sent to Glasgow College for higher studies in October 1737, where he remained until 1740. Since the degree requirement at the College was 5 years and Smith only attended 3 years at the college, he was unable to earn a formal degree. However, in the three years at Glasgow College, he got a thorough grounding in Latin, Greek, Mathematics, and Moral Philosophy, as the teaching at the College was of a high quality and the level of intellectual activity among its students was of a similarly high standard.

Smith was already well-versed in the basics of Latin and Mathematics; hence the learning of Greek was to be a new experience for him at Glasgow College. Smith's favorite subject during his student days at Glasgow College appears to have been Mathematics, which was taught by Dr. Robert Simson. In the new edition of his Theory of Moral Sentiments (published in 1790) Smith pays high tribute to the professor by counting him among the two greatest mathematicians [along with Dr. Matthew Stewart of Edinburgh] that he "ever have had the honor to be known to" (Quoted by Rae, Ch. II, p. 2). Despite his ardor for Mathematics and admiration for Dr. Simson, however, Smith's most enduring influence at Glasgow was Francis Hutcheson -- the famous Scottish-Irish philosopher. Although unpopular with the older generation, who considered his ideas a threat to the existing beliefs, Hutcheson was virtually worshipped by the students at Glasgow. He was probably the first lecturer at the college who abandoned Latin to speak to the students in their own language during his lectures and not only had an impressive style of delivery but also had fresh and inspiring ideas to impart. He was the original author of the famous Utilitarian phrase, "the greatest happiness of the greatest number" and imparted his benevolent philosophy of seeking human welfare, liberty, reason and free speech into the young and impressionable mind of Adam Smith who became a life-long disciple of Hutcheson. Smith was recognized as a special student by Hutcheson, and he is probably the one who introduced his bright young pupil to the great Scottish philosopher of the time, David Hume, who later became Smith's life-long friend (Rae, Ch. II, pp. 3-4).

Oxford (1740-47): Smith left Scotland for Oxford in June 1740, and was immediately struck with the richness of England compared with that of Scotland, particularly by the vast superiority of its agriculture. He remained at Oxford from July of 1740 until August 15, 1746 during which he never visited Scotland (even during term breaks) due to the expense involved in traveling.

Smith happened to have attended Oxford at a time when the standard of learning at the famous institute had fallen considerably. Smith was, therefore, particularly disappointed with the quality of lectures at Oxford and has noted in the Wealth of Nations that the lecturers had given up all pretense of lecturing. Elaborating on the reasons for the stagnating standard of learning which prevailed in the English universities at the time, Smith concluded that it was their very wealth that was responsible for the decline as it was distributed on a bad system. Other famous people, such as Gibbon and Bentham, who attended Oxford a few years later also have similar tales to tell. Bentham, for instance has noted that it was absolutely impossible to learn anything at Oxford, and the years he spent there were the most barren and unprofitable of his life. However, unlike Bentham and Gibbon, Smith did not believe that his years at Oxford were wasted (Rae, Ch. III, p. 5).

He read deeply and widely on many subjects and in many languages mostly at the local College library at Balliol. Although Smith's favorite subject at Glasgow was Mathematics, he concentrated on the study of Latin and Greek classics rather than Math at Oxford. The learning environment at Oxford was far from liberal and students were forbidden to read or discuss works of modern rationalism. Smith himself is said to have been severely reprimanded when he was caught reading Hume's Treatise of Human Nature.

Another reason for Smith's unhappiness at Oxford was his generally poor health during his stay at the University. He mentions "an inveterate scurvy and shaking in the head" in his letters to his mother from Oxford and reveals that he was trying to cure it with tar-water -- considered to be a panacea for almost all diseases at the time. Apart from ill-health, another reason for his unhappiness was the apparent discrimination suffered by Scottish students at Oxford at the hands of the College authorities and fellow students. This may be one of the reasons why Smith made almost no permanent friends at Oxford. (Ross 75-76)

There is some evidence to suggest that Smith took the B.A. degree from Oxford although for some strange reason, his name is omitted from the official graduation records. Smith returned to Scotland in August 1746, and never set foot in Oxford again.

Public Lectures at Edinburgh

After his return to Scotland in 1746, Smith stayed at home with his mother at Kirkcaldy and was without a job for almost two years. During the winter of 1748-49 he started to deliver public lectures in English literature and criticism at Edinburgh under the patronage of Lord Kames, one of the leaders of the Edinburgh bar. His lectures were a success as many eminent people of Edinburgh attended them and earned him a decent income.

During the course of his lectures on English literature, Smith perhaps realized that his real vocation was economics. Hence, addition to English literature, he started to deliver lectures in economics in 1750-51 in which he advocated the doctrines of commercial liberty, based largely on the ideas of Hutcheson. It was also during this period that Smith renewed his acquaintance with the philosopher, David Hume, sharing a close intellectual alliance and friendship that led to the emergence of the so-called "Scottish Enlightenment."

As a result of the success of his Edinburgh public lectures Smith was elected to the chair of logic at the University of Glasgow in 1751, which was lying vacant since the death of its previous occupant, John Loudoun, on November 1, 1750. Smith spent the next 13 years at the University and described them later as "by far the most useful and therefore by far the happiest and most honorable period" of his life (Quoted in Rae, Ch. V p.1). Soon after Smith's appointment to the chair of logic, Professor Craigie of the Moral Philosophy chair also fell ill and died in the following year. Since Smith had been lecturing on jurisprudence and politics during his Edinburgh public lectures, it was decided to give him the moral philosophy chair in 1752 -- a chair once occupied by his famous teacher, Frances Hutheson.

Smith's lectures in moral philosophy were divided into four parts. The first contained natural theology, in which he considered the proofs of the being and attributes of God, and those principles of the human mind upon which religion is founded. The second part consisted of his views on ethics; the third part dealt with the branch of morality relating to justice, and the fourth part related to political economy.

The style of his lectures at Glasgow have been described by those who heard him as being entirely spontaneous and delivered with "extemporary elocution." His manner of speaking was "plain and unaffected, and as he seemed to be always interested in the subject, he never failed to interest his hearers." (Millar, quoted by Rae, Chapter V, p. 22)

Smith's popularity as a lecturer grew every year and students came from far and wide to attend courses in moral philosophy at Glasgow. He managed to inculcate a spirit of free inquiry among his students and taught the young people to think for themselves. John Rae states in his biography of Smith that his fame as a lecturer grew to such an extent that his opinions became the subject of general discussion in Glasgow town; the branches of study he lectured on became fashionable, and the sons of the wealthier citizens used to go to College to take his class even though they had no intention of completing a university course (Rae, Chapter V, p. 25).

Theory of Moral Sentiments

Smith published his first major work, Theory of Moral Sentiments in 1759 and almost immediately received universal recognition. In fact, although the "Wealth of Nations" is now considered to be Adam Smith's greatest work, it was the Theory of Moral Sentiments, which had an immediate impact when it was published and made Adam Smith famous, catapulting him into the first rank of contemporary writers. Smith's trademark style of fluent, persuasive, and rhetorical argument, is very much evident in Theory. The book is basically a systematized collection of the ethical teachings he had propounded in his lectures at the University of Glasgow and deals with a fundamental ethical question: Why do we regard certain actions or intentions with approval and condemn others? (Butler, in his "Preface to the Theory of Moral Sentiments.")

This was by far a settled question at the time. Conservative thinkers were of the opinion that the only standard of right and wrong was the existing law as stipulated by the sovereign. Others believed that moral principles could be worked out rationally, just as a mathematical problem could be solved when it is thought through, rationally.

Smith agreed with neither of the two explanations and proposed in Theory that people have an innate sense of morality called "conscience" and it is this conscience that tells them the difference between right and wrong, rather than something given to us by the law, sovereigns or even by rational analysis. Smith also stated in his book that the inborn sense of morality in man is further reinforced by a natural fellow-feeling, which he termed as "sympathy" for fellow human beings. (Ibid.). The book's underlying philosophy of 'sympathy' is vividly encapsulated in the following quote:

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.

Hence, according to Smith it is because of these natural senses of conscience and sympathy that human beings are able to live together in orderly and beneficial social organizations, which are the outcome of human action but not necessarily of human design.

The Status of "The Wealth of Nations" as a Classic in Economics

While the Wealth is no doubt an important book, does it really meet the criteria of a true classic in economics? Richard E. Gift and Joseph Krislov, professors of economics at the University of Kentucky have developed a checklist of six characteristics to judge whether a book on economics is a classic and the Wealth of Nations meets all the requirements of a true classic. A quick summary of the criteria and how the Wealth of Nation fulfills them follows:

The first test for a classic in economics, according to Gift and Krislov is: "the work must have advanced the methodology of the discipline and must have used this advance to produce new insights." The Wealth does all of this and more: the integrated theory of value presented in the book is a definite advance in the discipline of economics and a number of economic hypotheses and policies are derived from it. Furthermore, almost every major school of economics that followed is either heavily reliant on or an extension of the theories presented in Wealth (e.g., theories of Thomas Malthus, David Ricardo, and John Stuart Mill) or were developed in conscious opposition to Smith's system of thought (e.g., optimism and utopianism)

The work must incorporate, either by synthesis or antithesis, previous understandings of its topics. Smith has condensed centuries of inquiry in the Wealth of Nations and there is no major question in earlier economic thought that is not addressed in the Wealth of Nations. For example, justice and welfare are discussed in the integrated theory of value and its implied system of natural law; scholasticism and mercantilism are reviewed in the book's basic theory of production and an analysis of public policy.

The book must be used as source material on economic issues by noneconomists: The easy-to-understand prose used in the Wealth of Nations makes it a favorite with non-economists who wish to get acquainted with the basics of economics. Besides, some students enroll in economics classes with the primary goal of understanding the Wealth of Nations.

The book must be source material for economists and others on broad questions of methodology, philosophy, and policy. The Wealth of Nations is often quoted in political policy debates and, therefore, easily meets this criterion.

There must be evidence that the book has actually influenced research outside of economics. The influence of the book on research in legal theory, public-policy administration, and sociology is undeniable. It is one of the most commonly cited sources in treatises in sociology, social philosophy, political theory, and ethics.

The impact of the work must be cross-cultural and timeless, and it must invite rereading. Two centuries after its publication, the Wealth of Nations is still widely read and discussed by economists from almost every country in the world. It has been translated in at least eight languages; it is cited widely in contemporary textbooks in economics, and rereading of the book is far from rare. (Gift and Krislov, 30-32)

Self-Interest' and 'Sympathy for Others': Contradiction in Terms?

Smith's theory of 'self-interest' presented in "The Wealth of Nations" and his premise of human beings having a natural 'sympathy' for others in "The Theory of Moral Sentiments" seem to be a contradiction in terms at first sight. Even prominent writers such as Jacob Viner have said, "Many writers, including the present author at an early stage of his study of Smith, have found these two works in some measure basically inconsistent" (Viner 250). This is not really so, if we examine Smith's writings closely.

The impression is created when readers of the Wealth of Nations misinterpret Smith's referral to "self-interest" as "selfishness." Smith, in fact, thinks of self-interest in a much broader perspective than just a narrow 'selfishness.' He recognizes that showing sympathy towards other human beings is itself in our own self-interest. If we are blatantly selfish in our exchange with others, whether such exchange is in the field of commerce or in social interaction, we will be at a disadvantage in the long-run as the one who has been taken advantage of by our selfishness will reciprocate in kind. Therefore, it is in our own 'self-interest' to display sympathy in our dealings with others and such a propensity to be sympathetic to others is built-in to human nature. On the other hand, when Smith talks of 'sympathy' in the Theory, he does not mean that people display sympathy towards others as charity: they do so because they realize, perhaps subconsciously, that they will receive a similar 'beneficial' response in return. Smith was too keen an observer of human psyche not to recognize this and both his major works, i.e., the Theory of Moral Sentiments and the Wealth of Nations, when read together contain this thread of thought (Vernon Smith, pp. 2-12).

Adam Smith's Views on Mercantilism

Smith was a vehement opponent of mercantilism -- a popular economic theory at the time that focused on the self-interest of the sovereign / the state rather than the self-interest of the individual owners of economic resources, accumulating national wealth in the form of gold and silver, and called for artificially maintaining a trade surplus on the belief that doing so increased wealth. To achieve these objectives, the government exercised strict control over production, exchange, and consumption (Peterson, para on 'Mercantilism'). Mercantilist states also favored maintaining low wages, believing that this would discourage imports, contribute to the export surplus, and increase the country's gold reserves.

Smith attacked the doctrine of mercantilism by trying to show the existence of a "natural" economic order that functions most effectively if the state played a highly limited role. He saw the possibility of almost limitless expansion of wealth in the society by promoting free trade and industrialization through division of labor and expansion of markets (Ibid.)

Smith's View on Slavery and Colonialism

Smith was opposed to the institutions of slavery and colonialism. Having closely studied human nature, he knew that the instinct of self-interest was always stronger than a man's inner conscience and sense of morality. Faced with a situation in which there was conflict of man's self-interest and morality, the majority would choose self-interest. Smith, therefore, gave an economic argument against slavery in the Wealth of Nations by observing: "From the experience of all ages and nations, I believe, that the work done by free men comes cheaper in the end than the work performed by slaves." (Smith 85) He attributed this to the fact that a worker works most efficiently when he does so for 'self-interest'; a slave only works under duress due to threat of violence. Similarly, Smith also believed that colonialism was economically unviable and entailed greater economic cost than possible benefits derived from it.

Conclusion

As we saw in this paper, Adam Smith is without doubt one of the most influential figures in the history of mankind. He presented the deceptively simple ideas of free markets, rational self-interest and division of labor at a time when their practical application led to arguably the most far-reaching economic transformation in human history -- the industrial revolution. The litmus test of Smith's greatness lies in the fact that most of his economic theories, outlined in his classic treatise, an Inquiry into the Nature and Causes of the Wealth of Nations, formed the basis of all economic theories that followed and are still valid. Moreover, no better economic system than "Capitalism," that he had proposed more than two centuries ago, has been devised yet.