Adam Smith- Biography and Information about "The Wealth of Nations"
Introduction:-
Malthus, in his less
famous work, Definitions in Political Economy, set down four
rules for formulating definitions. Lawyers will readily recognize these as
authorless rules which they and the courts have used in statutory interpretation.
The first is that when people use words we should expect others to interpret
them in their ordinary sense, or dictionary meaning. The second rule -- given
that some distinction is required -- is to adopt the meaning as used by the
"most celebrated writers."
"In adverting to the terms and
definitions of Adam Smith, in his Wealth of Nations, I think it
will be found that he has less frequently and less strikingly deviated from the
rules above laid down, and that he has more constantly and uniformly kept in
view the paramount object of explaining in the most intelligible manner the
causes of the wealth of nations, according to the ordinary acceptation of the
expression, than any of the subsequent writers in the science, who have
essentially differed from him."1
If one is interested in the study of economics
-- and one should certainly be if they are at all interested in governmental
policy, then one should begin with a good dictionary and a copy of Adam Smith's
Wealth
of Nations . This is likely all that one needs to do; and this is indeed
fortunate. For, to go beyond Adam Smith, it is to go beyond into the writings
of the thousands of economists that have written since; and, thus, to go into a
thicket full of obscure, and for the most part, meaningless terms.
"STUCK IN A FRAME"
Adam Smith's Life:-
On the Firth of Forth just across and to the north of
Edinburgh, in County Fife, will be found a town, Kirkcaldy; it is here, in the
year 1723, Adam Smith was born. Adam Smith was to become the first political
economist the world had ever known. He was to take his place at the head of the
first school of economics, one that continues and is known as the
"classical school."
Adam's father, who had died before
Adam's birth, was a "comptroller of customs." In 1740, at the age of
seventeen, Smith was sent off to Oxford on scholarship. It is here that he
learned Greek and began a "sound accumulation of Greek learning." It
is here, too, that he read Hume's A Treatise of Human
Nature, a work written during the years 1734-5. (David Hume, from Edinburgh, born twelve years before Smith, was
another of those Scottish "lights" which were so prominent in this
age.) At any rate Smith's interest in Hume's work brought him into conflict
with the authorities at Oxford.2 On
coming back home, Adam Smith joined in on "the brilliant circle in
Edinburgh which included David Hume, John Home, Hugh Blair, Lord Hailes and
Principal Robertson."3
In 1751, at age twenty-eight, Adam Smith became a professor
of Logic at Glasgow, and then, the following year, took the Chair of Moral
Philosophy. In 1759, he published his Theory of Moral Sentiments , a work that
spread to both Germany and France, a work that he kept revising right up to his
death in 1790.
One, not familiar with his life, might well consider it
surprising to learn that Adam Smith wrote his "economics" as part of
his work as a philosopher. One must appreciate that in the days of Adam Smith,
much of the study carried out at universities was history and philosophy; a
course in philosophy would include a study of jurisprudence. A study of justice
leads naturally to a study of the various legal systems, which of course, in
turn, leads to the study of government, and, finally, to a study of political
economy.
Smith was a curious human being. He treasured his library,
and was continually absorbed in abstractions; he was notoriously absent minded.
Smith lead a quiet and sheltered life; he lived with his mother (she lived to
be ninety) and remained a bachelor all his life. His students loved him, and
people came from far to take him in (Boswell
was one).
Though silent
and awkward in social situations, Adam Smith possessed, in considerable
perfection, the peculiarly Scotch gift of abstract oratory. Even in common
conversation, when once moved, he expounded his favourite ideas very admirably.
As a teacher in public he did even better; he wrote almost nothing, and though
at the beginning of a lecture he often hesitated, we are told, and seemed 'not
to be sufficiently possessed of the subject,' yet in a minute or two he became
fluent, and poured out an interesting series of animated arguments. Commonly,
indeed, the silent man, whose brain is loaded with unexpressed ideas, is more
likely to be a successful public speaker than the brilliant talker who daily
exhausts himself in sharp sayings. The point is that Adam Smith acquired a
great reputation as a lecturer.4
Smith discussed matters with his friend David Hume; and went
to London, there to discuss his ideas with the literati of the day, one
of whom was Samuel Johnson.
He met the charming and intelligent American, Benjamin Franklin (1706-90).
Franklin must have made quite an impression on Smith; it is said that The
Wealth of Nations was put together, specifically with the American colonies in
mind.
France had a
special attraction for Scottish people, for it was to France they had turned
during the course of the wars with those to the south of them, the hated
English.5 In the 1760s Smith traveled to France, met some of the
"physocrats." It was in France that he met Voltaire;
there, too, Adam Smith started to write his masterpiece, An
Inquiry into the Nature and Causes of the Wealth of Nations, a work that was
published in 1776.
For ten years, after returning from France, Smith
"stayed quietly with his mother at his native town of Kirkcaldy ... He
lived on the annuity from the Duke of Buccleugh, and occupied himself in study
only."
In 1776, after the death of his
illustrious friend, David Hume, Smith moved to London and clubed around with
"Gibbon, Burke,
Sir Joshua Reynolds (1723-92), Dr. Johnson
(with whom he was not on good terms), Boswell
and Garrick."6 He
met Benjamin Francklin, and, indeed, he read to him a draft of parts of The
Wealth of Nations.7
Having been appointed, in 1778, as commissioner of customs
for Edinburgh, Smith moved back to Scotland.
On July 17th, 1790, Adam Smith died at Edinburgh; he was
buried in the Canongate churchyard.
The Spirit of the Age:-
Adam Smith's approach to his work was first to do a
historical study of his subject, and then to advance the area, often building
on the work of his contemporaries: he was well aware of the work done by Montesquieu
and the French Physiocrats.
Adam Smith, indeed was a friend of David Hume
and watched over his friend's death in 1776, the same year Adam Smith's classic
came out, The Wealth of Nations. After Hume's death Smith edited Hume's
noncontroversial papers.
On travelling to Paris with his charge, a young Duke from an
influential English family which had chosen him as a tutor, Smith met, among
others, Quesnay
and the French Ministers, Anne Robert Jacques Turgot (1727-81) and Jacques
Necker (1732-1804). In Geneva, Adam Smith met Voltaire.
Overall Smith was of the view that the French physiocrats had the best answer
up to his time: "[The Physiocratic system] with all its imperfections is,
perhaps, the nearest approximation to the truth that has yet been published
upon the subject of political economy."
"They [the French conomistes] delighted in proving that
the whole structure of the French laws upon industry was utterly wrong; that the
prohibitions ought not to be imposed on the import of foreign manufacturers;
that bounties ought not to be given to native ones; that the exportation of
corn ought to be free; that the whole country ought to be a fiscal unit; that
there should be no duty between any province; and so on in other cases. No one
could state the abstract doctrines on which they rested everything more
clearly. "Acheter, c'est vendre,' said Quesnay, the founder of the
school, 'vendre, c'est acheter.' You cannot better express the doctrine
of modern political economy that 'trade is barter.' 'Do not attempt,' Quesnay
continues, 'to fix the price of your products, goods, or services; they will
escape your rules. Competition alone can regulate prices with equity; it alone
restricts them to a moderation which varies little; it alone attracts with
certainty provisions where they are wanted or labour where it is required.'
'That which we call dearness is the only remedy of dearness: dearness causes
plenty.'"8
The Wealth of Nations:-
Adam
Smith was not the first to express the ideas as found in The Wealth of Nations,
for example: see both works of Sir William Petty's A Treatise on Tax
(1662) and Political Arithmetic
(1691); and see, Sir Dudley North's Discourses upon Trade (1691). Also, see
Turgot's Rflexions sur la
formation et la distribution des richesses (1766) which,
it is thought, anticipated Adam Smith.9
Before dealing with Adam Smith's The
Wealth of Nations, a few words would be in order on his earlier work, Theory
of Moral Sentiments, published in 1759. It was Smith's view that the essence of
moral sensibility was that which came about through sympathy, but sympathy as
an impartial and well informed spectator. He became part of the school known as
the "moral sense thinkers," a school which the utilitarians
were to attack.
Though it has
been shown that he was a most curious human being, Adam Smith displayed, in the
writing of The Wealth of Nations, a
"profound knowledge of the real occupations of mankind."10 How did he come across this knowledge? Undoubtedly it
was because -- to the good fortunate of the rest of us through the ages -- he
left the enviroment of the university in 1764 to become the tutor to the young
Duke of Buccleuch, which resulted in a leisurely tour of France during the
years 1764-1766. England and France had just finished their Seven Years
War
with one another, so unmolested travel was presumably possible: and so to Paris
he and his charge went.
"Paris was then queen of two worlds: of that of politics
by a tradition from the past, and of literature by a force and life vigorously
evidenced in the present. France therefore thus attracted the main attention of
all travellers who cared for the existing life of the time; Adam Smith and his
pupil spent the greater part of their stay abroad there. And as a preparation
for writing the 'Wealth of Nations' he could nowhere else have been placed so
well. Macaulay
says that 'ancient abuses and new theories' flourished together in France just
before the meeting of the States-General in greater vigour than they had been
seen to be combined before or since. And the description is quite as true
economically as politically; on all economical matters the France of that time
as a sort of museum stocked with the most important errors.
By nature, then, as now, France was fitted to be a great
agricultural country, a great producer and exporter of corn and wine; but her
legislators for several generations had endeavoured to counteract the aim of
nature, and had tried to make her a manufacturing country and an exporter of
her manufacturers. Like most persons in those times, they had been prodigiously
impressed by the high position which the maritime powers, as they were then
called (the comparatively little powers of England and Holland), were able to
take in the politics of Europe. They saw that this influence came from wealth,
that this wealth was made in trade and manufacture, and therefore they
determined that France should not be behindhand, but should have as much trade
and manufacture as possible. Accordingly, they imposed prohibitive or deterring
duties on the importation of foreign manufacturers; they gave bounties to the
corresponding home manufactures."11
It was in France
that Adam Smith observed the results of "both the restraints upon the
interior commerce of the country and the number of the revenue officers
..."12 The situation which Smith observed in France was one
that was essentially brought on by taxation, a system that made the people
"exceedingly miserable," a system, which, in years to come, would
bring on the bloody French Revolution; and, to bring, in its wake, Napoleon.
Thus, Adam
Smith, steeped in history and philosophy, is exposed to both the English and
French political-economic systems of the day: "And side by side with this
museum of economical errors there was a most vigorous political economy which
exposed them."13 His experiences were capped as he met, as we have seen,
the great French thinkers of the day, such as: Voltaire, Quesnay, Turgot, and
Necker. And, so, it was during 1766, in France that Adam Smith began to write
his great work, which he continued to write on his return to Kirkcaldy and
Edinburgh, and right on to his time in London, when in 1776, he saw it through
the press.
The Wealth of Nations, "the principia of
politick operations," opens with a description of the specialization of
labour in the manufacture of pins; the book covers a variety of subjects: from
the professorships at Oxford to the statistics on the herring catch since 1771;
from stamp duties to the coined money used by the Romans (just check out the 42
page index). The book is full of detail. It was not to be just a book on
economics, such as, say, Ricardo was to write some 41 years later, in 1817, Principles
of Political Economy & Taxation. Adam Smith had a grand vision of which The
Wealth of Nations was to be only a part, this part, as a book was one of two that
was ever polished up enough for publication during his lifetime. Previously, in
1758, he had written, as I have already mentioned, Theory
of Moral Sentiments, in which "he builds up the whole moral nature of man out
of a single primitive emotion -- sympathy, and in which he gives a history of ethical
philosophy besides."14 Upon
Smith's death, his executors advised, that, all along, Smith had worked on a
plan to give "a connected history of the liberal and elegant arts."15 He
wrote on Ancient Physics and Ancient Logic; and on the Imitative Arts,
Painting, Poetry, and Music. He destroyed (which to me is a crying shame), just
shortly before his death, his Lectures on Justice.
"... we are told by a student who heard them, 'he
followed Montesquieu in endeavouring to trace the gradual progress of
jurisprudence, both public and private, from the rudest to the most refined
ages, and to point out the effects of those arts which contribute to
subsistence and to the accumulation of property in producing correspondent
alterations in law and government;' or, as he himself announces it at the
conclusion of the 'Moral Sentiments,' 'another discourse' in which he designs
'to endeavour to give an account of the general principles of law and
government, and of the different revolutions they have undergone in the
different ages and periods of society, not only in what concerns justice, but
in what concerns police, revenue, and arms, and whatever else is the subject of
law.' Scarcely any philosopher has imagined a vaster dream."16
Smith's book was considered to be revolutionary, as it did
not deal with the class structure of the age, and the eternal questions of who
had what, - And why?
"... it is not his aim to espouse the interests of any
class. He is concerned with promoting the wealth of the entire nation. And
wealth, to Adam Smith, consists of the goods which all the people of society
consume; note all - this is a democratic, and hence radical, philosophy of
wealth. Gone is the notion of gold, treasures, kingly hoards; gone the
prerogatives of merchants or farmers or working guilds. We are in the modern
world where the flow of goods and services consumed by everyone constitutes the
ultimate aim and end of economic life."17
And what drives this flow of goods and services: I quote Adam
Smith from his The Wealth of Nations:
"Every individual is continually
exerting himself to find out the most advantageous employment for whatever
capital he can command. It is his own advantage, indeed, and not that of the
society, which he has in view. But the study of his own advantage naturally, or
rather necessarily, leads him to prefer that employment which is most
advantageous to the society.
...
"He generally, indeed, neither intends to promote the
public interest, nor knows how much he is promoting it. By preferring the
support of domestic to that of foreign industry, he intends only his own
security; and by directing that industry in such a manner as its produce may be
of the greatest value, he intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an end which was no part of
his intention.
...
"In civilized society he [man] stands at all times in
need of the cooperation and assistance of great multitudes, while his whole
life is scarce sufficient to gain the friendship of a few persons. In almost
every other race of animals each individual, when it is grown up to maturity,
is entirely independent, and in its natural state has occasion for the
assistance of no other living creature. But man has almost constant occasion
for the help of his brethren, and it is in vain for him to expect it from their
benevolence only. He will be more likely to prevail if he can interest their
self-love in his favour, and show them that it is for their own advantage to do
for him what he requires of them. Whoever offers to another a bargain of any
kind, proposes to do this. Give me that which I want, and you shall have this
which you want, is the meaning of every offer; and it is in this manner that we
obtain from one another the far greater part of those good offices which we
stand in need of. It is not from the benevolence of the butcher, the brewer, or
the baker that we expect our dinner, but from their regard to their self-love,
and never talk to them of our own necessities but of their advantages."
What Adam Smith did in his book was to explain how
self-interest was the engine of the economy and competition its governor. He
set forth the great lesson that all economists come to sooner or later. I quote
Professor
Heilbroner:
"First, he [Adam Smith] has
explained how prices are kept from ranging arbitrarily away from the actual
cost of producing a good. Second, he has explained how society can induce its
producers of commodities to provide it with what it wants. Third, he has
pointed out why high prices are a self-curing disease, for they cause
production in those lines to increase. And finally, he has accounted for a
basic similarity of incomes at each level of the great producing strata of the
nation. In a word, he has found in the mechanism of the market a self-regulating
system
which provides for society's orderly provision." (p. 49.)
The difficulty I
have with Robert Heilbroner, a most interesting man to read, is his assertion
that the law of the market, is a man-made institution.18 The market
is not something that we can choose to have or not to have, it exists and will
exist no matter the political regime, and no matter the number of coercive laws
we would like to pass. One cannot help coming to this conclusion as one expands
the thoughts expressed in The Wealth of Nations.
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QUOTES:-
Invisible Hand:-
¤ "Every individual necessarily
labors 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. He intends only his own gain, and he is in this, as in
many other cases, led by an invisible hand to promote an end which was no part
of his intention. By pursuing his own interest he frequently promotes that of
the society more effectually than when he really intends to promote it. I have
never known much good done by those who affected to trade for the public
good."(The Wealth of Nations).
Government:-
¤ "All systems either of preference
or of restraint, therefore, being thus completely taken away, the obvious and
simple system of natural liberty establishes itself of its own accord. Every
man, as long as he does not violate the laws of justice, is left perfectly free
to pursue his own interest his own way, and to bring both his industry and
capital into competition with those of any other man or order of men. The
sovereign [politician] is completely discharged from a duty, in the attempting
to perform which he must always be exposed to innumerable delusions, and for
the proper performance of which no human wisdom or knowledge could ever be
sufficient: the duty of superintending the industry of private people." (The
Wealth of Nations, vol. II, bk. IV, ch. 9.)
Monopoly:-
¤ "A monopoly granted either to an
individual or to a trading company has the same effect as a secret in trade or
manufactures. The monopolists, by keeping the market constantly understocked,
by never fully supplying the effectual demand, sell their commodities much
above the natural price, and raise their emoluments, whether they consist in
wages or profit, greatly above their natural rate." (vol. I, bk. I, ch.
7.)
¤ "People of the same trade seldom
meet together, even for merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to raise prices. It is
impossible indeed to prevent such meetings by any law which either could be
executed, or would be consistent with liberty and justice." (vol. I, bk.
I, ch. 10.)
Nature of Man:-
¤ "The propensity to truck, barter
and exchange one thing for another is common to all men, and to be found in no
other race of animals."
Politicians:-
¤ "It is the highest impertinence and
presumption, therefore, in kings and ministers [read politicians] to pretend to
watch over the economy of private people, and to restrain their expense. They
are themselves always, and without any exception, the greatest spendthrifts in
the society. Let them look well after their own expense, and they may safely
trust private people with theirs." (vol. I, bk. II, ch. 3.)
Science:-
¤ "Science is the great antidote to
the poison of enthusiasm and superstition." (The
Wealth of Nations.)
¤ "A system of natural philosophy
[this is how they described science in those days] may appear very plausible,
and be for a long time very generally received in the world, and yet have no
foundation in nature, nor any sort of resemblance to the truth." (Theory
of Moral Sentiments.)
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