Adam Smith's Wealth of Nations: Capitalism and Enlightenment

Introduction: Smith's Vision of Self-Interest and the Market

Adam Smith, whose Wealth of Nations was published in 1776, is widely regarded as the father of modern economics and capitalism. He argued that the free operation of market forces was the best recipe for a flourishing and growing economy. If everyone is as free as possible to pursue his or her own self-interest, that person will be led by an "invisible hand" to promote the welfare of society as a whole.

There are many reasons why self-interest is the most effective mechanism for increasing wealth in society. Within any community, society, or nation, there are two main assemblies: the government and the citizens. Both play an important role in the marketplace. The government is there to regulate conflicts, minimize problems, and bring social justice to society; beyond that, it has no place in the marketplace. The citizen's main role in society, on the other hand, is to produce as many goods as possible and meet society's needs and wants in order to increase wealth. As Smith once stated, "Government should not repress self-interested people, for self-interest is a rich natural source." The individual knows what is best through their own self-view, and by being a productive individual, they are able not only to actualize but also to improve society as a whole. Individuals in society know best what is good for them, and under the influence of profit, they are motivated to understand what society wants and needs and to transform their self-interest into the products society desires.

In a well-governed society, Smith argued, opulence extends itself to the lowest ranks of the people:

"Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity of his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of theirs. He supplies them abundantly with what they have occasion for, and they accommodate him as amply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of the society…." (I:1)

A clear sign of the success of Smith's theory of capitalism can be seen in contrast with Karl Marx's theory of communism. A capitalist belief holds that each individual is continually exerting himself to find the most advantageous employment for whatever capital he can command. In Smith's view, each person has the right to the pursuit of happiness and must take it into his or her own hands to advance within society. Marx disagreed, arguing that when a person betters himself, he does not improve but instead endangers society. In Smith's conception, each person can do whatever they wish to advance themselves and may pursue happiness in whatever fashion they believe best. Technology creates new and better ways to accomplish things, allowing society to grow and become more advanced and the individual more self-actualized.

Smith as a Product of the Enlightenment

We must also place Adam Smith in the context of the Enlightenment and the social debates surrounding the work of Locke, Hobbes, and Rousseau. To understand Smith's legacy and importance, we must first understand some of the prevailing issues of the Enlightenment. For instance, when Thomas Hobbes described the life of man in wartime as "nasty, brutish, and short," he was speaking to the manner in which the majority of the population lived in 16th- and 17th-century Europe. Life was quite different during this time for 90% of the populace: there was a small merchant and middle class, an even smaller aristocratic class, and a large peasant and poor class. This, too, was the world of Jean-Jacques Rousseau and John Locke, and one cannot but comment briefly on the contemporary world of the time and the way what they witnessed in society influenced their thinking and philosophical writings.

What was urban life like? Cities were crowded, there was no sewer system or plumbing, and night soil and trash were thrown from windows onto the streets; horse offal was everywhere. Refrigeration did not exist — meat was fly-ridden and often rotten by the time it was purchased, and produce was similarly so. There was no regular medical care; most people had few teeth left by age thirty, and pox, disease, and deformity were rampant. The stench of the cities has been described as worse than rot, worse than privy smells — the odor seemed to hang over the city like a cloud of filth (Cockayne, 2007). With birth being a matter of chance, disease, lack of nutrition, and widespread illiteracy, life expectancy in Hobbes' time was 35 to 40 years, with the major factors being poor hygiene, disease from drinking unpotable water, and lack of consistent good nutrition. In fact, the rural peasant fared far better — they typically had fresher produce, cleaner water, and were not as plagued with the burdens of urban life (Life Expectancy, 2010).

War, too, was a constant threat; peasant men and boys were regularly drafted and used as cannon fodder. The way of warfare was to line up regiments of men and fire — what bullets did not kill, the bayonet would. There was little strategy; it was a war of numbers, and most of the infantry were killed or maimed (Warfare in the 1700s, 2006). Thus, for Hobbes, the overall view of mankind was not pleasant. The state of humanity he observed was one in which technology had not yet produced pleasant effects for the majority, and he saw the masses as born with instincts that needed to be controlled and ruled. He believed it was the responsibility of the State to control the "animals of humanity" (Hobbes, 2003). This nasty, brutish, and short way of life was his view of humanity — one he sought, through metaphysics and philosophy, to address by finding a way for the State to help the masses move forward.

In contrast, Rousseau, looking at the same brutish and ugly urban life, did not see humanity as in need of control. He saw a natural state of being — and the state of urbanity was not that natural state. Rousseau saw optimism and articulated the theory of the social contract of the individual with the state, envisioning a process that brought more and more positive actualization to everyday life and thus improved society as a whole (Gay, 1996).

Making Economic Sense of Human Nature

What, then, were the educated to do with these contradictions in human nature? And since the Age of Discovery and the Enlightenment were products of economics, the basic question became how to organize society. The Age of Discovery — and the resultant Columbian Exchange, in which the Old World traveled to the New World spreading culture, economic systems, religion, genetic disposition, and disease — required a new way of dealing with wealth. Essentially, this period signaled the beginnings of the modern era, an era in which the world became smaller, discoverable, and, of course, exploitable. It was this rise of the great colonial empires — justified by the spreading of religious ideas but in truth focused on the acquisition of wealth — that created so many determined explorers. This sharing of the ecology of the Old World and the New World certainly changed the New World and its indigenous populations (The European Voyages of Exploration, 2001). Modern capitalism, and the rapid and enormous development engendered by these voyages, along with the advantages of weapons and warfare technology, resulted in a change so vast that no other regions had a chance to catch up (Diamond, 2005). Yet it would take the philosophical prose of Adam Smith to help make sense of all this complexity.

First, Smith had to take this view of human nature and help us understand how economic systems develop and function over time. He identified a normal hierarchy: a hunter-gatherer society, nomadic but increasingly stable agriculture, feudalism, and finally business independence or capitalism. Different stages require different levels of social and economic structure. For instance, during the hunter stage, a political-legal system is unnecessary because "there is scarce any property… to [justify] any established magistrate or any regular administration of justice" (482). However, as society moves upward through this hierarchy and becomes more complex, people begin to acquire property — that is, wealth — and therefore require a legal system to protect it. Smith resembles Locke in that he frowns upon an overreliance on governmental control, but also sees "the need for law enforcement for the defense of the rich against the poor, or of those who have some property against those who have none at all" (486). Feudalism, which for Smith represents the logical next stage in the evolution of human economic organization, is really a transition period from a guild-driven market to a market-driven economy, primarily because of advances in technology and production. The final phase — commercial capitalism — is a self-correcting system of perfect liberty. This phase-based structure is important for two reasons: first, The Wealth of Nations was published in 1776, in the midst of a vast agricultural revolution in England and a series of revolts from American colonialists; and second, this new influx of capital — more food, more people, more goods, more specialization, more labor — had never before been "managed."

What could tangibly transform this combination of wealth and a larger population into a better life for individuals? Something deceptively simple: the division of labor, something that has existed as long as recorded history. Some till the soil, others make bread, others make the dishes and utensils to eat the bread, and a very select few do little more than direct everyone else in their proper tasks. Smith takes this idea of the division of labor to an extreme. In primitive society, the one who made the sharpest or most robust spear usually brought home the meat — that person lived longer, had more children, and passed those traits on. Once one skill and then another and another was perfected, a stratified society emerged in which one person makes or does one thing while another person makes or does yet another, and everyone wants all the goods and services they can possibly attain.

To move these goods, however, requires not just a division of labor and a managerial hierarchy but also trade. Since it is unlikely that any one group of people possesses 100% of all they need, the answer is to trade with one's neighbor for something he covets. For Smith, though, this trade had to be conducted as a win-win scenario for both parties — mutually beneficial. The value of goods is transitional: in a society in which winter lasts a long time, food, heat, and warmth are essential; conversely, individuals' wants and needs are two very different things.

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