Adam Smith

James R. Otteson

• Publisher: Continuum
• Year: 2013
• ISBN:
  9781623565930
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Political Ideologies
• Index: Politics & International Relations

The Scottish philosopher Adam Smith (1723-1790) was as a pioneer of political economy. In fact, his economic thought became the foundation of classical economics and his key work, An Inquiry into the Nature and Causes of the Wealth of Nations, is considered to be the first modern work in economics. For Smith, a free competition environment was the best way to foster economic development that would work in accordance with natural laws. The framework he set up to explain the free market remains true to this day.

Part I

Biography

Chapter 1

Adam Smith’s Life and Works

In the Beginning

Adam Smith was born in 1723 in Kirkcaldy, Scotland, and died in Edinburgh in 1790. Along with figures like his teacher Francis Hutcheson (1694–1746) and his friend David Hume (1711–76), Smith was one of the principals of a period of astonishing learning that has become known as the Scottish Enlightenment. He is the author of two published books: the 1759 Theory of Moral Sentiments (TMS) and the 1776 Inquiry into the Nature and Causes of the Wealth of Nations (WN). TMS brought Smith considerable acclaim during his lifetime and was soon considered one of the great works of moral theory—impressing, for example, such luminaries as Immanuel Kant (1724–1804), who called Smith his “Liebling” or “favorite,” and Charles Darwin (1809–82), who in his 1871 Descent of Man endorsed and accepted several of Smith’s “striking” conclusions. TMS went through fully six revised editions during Smith’s lifetime. Yet since the nineteenth century, Smith’s fame has largely rested on his second book, which, whether judged by its influence or its greatness, must be considered one of the most important works of the second millennium.

Not many details of Smith’s boyhood are known. He was born on the 5th of June and was an only child, his father, also named Adam Smith, having died shortly before he was born. In his 1793 Account of the Life and Writings of Adam Smith, LL.D., Smith’s student Dugald Stewart reports that Smith’s “constitution during infancy was infirm and sickly, and required all the tender solicitude of his surviving parent. She was blamed for treating him with an unlimited indulgence; but it produced no unfavourable effects on his temper or his dispositions” (EPS, 269). Perhaps one anecdote from Smith’s childhood bears repeating. Margaret, Smith’s mother, would regularly take him to Strathenry, about seven miles northwest of Kirkaldy, to visit her brother, Smith’s uncle. On one visit, when the wee Smith was but 3 years old, he was playing in front of his uncle’s house and was kidnapped by a passing group of gypsies. The alarm was raised and the gypsies were discovered and overtaken in the nearby Leslie wood, whereupon the wailing toddler was safely returned to his family. Stewart writes that Smith’s uncle, who recovered Smith, “was the happy instrument of preserving to the world a genius, which was destined, not only to extend the boundaries of science, but to enlighten and reform the commercial policy of Europe” (EPS, 270). In his 1895 Life of Adam Smith, John Rae notes dryly, “He would have made, I fear, a poor gipsy” (LAS, 5).

Smith matriculated at the University of Glasgow in 1737 at the age of 14. His instruction there, which was heavy in the classics, Smith considered quite good; the influence of Hutcheson, to whom Smith later referred as “the never to be forgotten Dr Hutcheson” (C, 309), was pronounced. After Glasgow, Smith was elected as a Snell exhibitioner at Balliol College, Oxford. Smith was not so impressed with the quality of instruction at Oxford: “In the university of Oxford, the greater part of the public professors have, for these many years, given up altogether even the pretence of teaching” (WN V.i.f.8).¹ Smith was able to make good use of the libraries at Oxford, however, studying widely in English, French, Greek, and Latin literature. He left Oxford and returned to Kirkcaldy in 1746.

In 1748, at the invitation of Henry Home, Lord Kames (1696–1782), Smith began giving in Edinburgh “Lectures on Rhetoric and the Belles Lettres,” as Kames’s biographer Alexander Tytler reports, focusing on literary criticism and the arts of speaking and writing well. It was during this time that Smith met and befriended David Hume, who was to become Smith’s closest confidant and greatest philosophical influence. Smith left Edinburgh to become Professor of Logic at the University of Glasgow in 1751 and then Professor of Moral Philosophy there in 1752. The lectures he gave at Glasgow eventually crystallized into TMS, first published in 1759.

Smith’s First Book: TMS

In TMS, Smith argues that human beings naturally desire a “mutual sympathy of sentiments” with their fellows, which means that they long to see their own judgments and sentiments echoed in others. Because we all seek out this “sympathy” (TMS I.i.2.1)²—or “harmony” or “concord” of sentiments—much of social life is a give-and-take whereby people alternately try to moderate their own sentiments so that others can “enter into them” and try to arouse others’ sentiments so that they match their own. This process of mutual adjustment results in the gradual development of shared habits, and then rules, of judgment about matters ranging from etiquette to moral duty. This process also gives rise, Smith argues, to an ultimate standard of moral judgment, the “impartial spectator,” whose imagined perspective we use to judge both our own and others’ conduct. When we use it to judge our own, it constitutes our conscience. We consult the impartial spectator simply by asking ourselves what a fully informed but disinterested person would think about our conduct. If such a person would approve, then we may proceed; if he would disapprove, then we should desist. If we heed the impartial spectator, then we feel a pleasurable satisfaction, which reinforces our behavior; by contrast, if we disobey, then we feel an unpleasant guilt, which provides a disincentive for the behavior.

Morality on Smith’s account is thus an earthly, grounded affair. Although Smith makes frequent reference to God and the “Author of Nature,” scholars disagree over to what extent such references do any real work in his theory—and thus to what extent Smith’s theory of moral sentiments is a relativistic account, eschewing reliance on transcendent, objective rules of morality. We take this issue up in Chapter 3 and 4.

One important concern with Smith’s moral theory will be the extent to which Smith is merely describing the phenomenon of human morality, as a natural scientist or anthropologist might, or whether he is also making moral endorsements, as a person concerned to help people lead good or righteous lives might. Smith is doing at least the former: one of his central goals is to describe the origins, maintenance, and development of the human social institution of commonly shared morality. But is he also making or recommending moral judgments? Students of TMS disagree about this. I will argue that Smith is offering a hypothetical imperative: given your nature and given the nature of human social institutions, your best chance of being happy is to follow, at least for the most part, your community’s moral traditions.

Interregnum: between TMS and WN

In 1763 Smith resigned his post at Glasgow to become the personal tutor of Henry Scott, the Third Duke of Buccleuch, whom Smith then accompanied on an 18-month tour of France and Switzerland. It was during these travels with the Duke that Smith met the French philosophe Voltaire (1694–1778), on whom Smith apparently made quite an impression: Voltaire later wrote, “This Smith is an excellent man! We have nothing to compare with him, and I am embarrassed for my dear compatriots” (Muller 1993: 15). During these travels Smith also met François Quesnay (1694–1774), Jacques Turgot (1727–81), and others among the so-called French Physiocrats, who were arguing for a relaxation of trade barriers and generally laissez-faire economic policies. Although Smith had already been developing his own similar ideas, conversations with the Physiocrats no doubt helped him refine and sharpen them. In 1767, Smith returned to Kirkcaldy to care for his ailing mother and to continue work on what would become his WN. During that time he was supported by a generous pension from the Duke of Buccleuch, enabling him to focus on his scholarly work. It was known that the celebrated author of TMS was working furiously on a new book, and the 10 years he labored on it raised expectations high indeed. Finally, at long last, Smith’s magnum opus was published March 9, 1776.

The reactions to the publication of WN were swift and, among the principals of the Scottish Enlightenment at least, highly laudatory. Here is Hume’s reaction:

Euge! Belle! Dear Mr. Smith: I am much pleas’d with your Performance, and the Perusal of it has taken me from a State of great Anxiety. It was a Work of so much Expectation, by yourself, by your Friends, and by the Public, that I trembled for its Appearance; but am now much relieved. Not but that the Reading of it necessarily requires so much Attention, and the Public is disposed to give so little, that I shall still doubt for some time of its being very popular: But it has Depth and Solidity and Acuteness, and is so much illustrated by curious Facts, that it must at last take the public Attention. (C, 150)

Here is Hugh Blair (1718–1800), Moderator of the General Assembly of the Church of Scotland and Professor of Rhetoric at the University of Edinburgh: “You have given me full and Compleat Satisfaction and my Faith is fixed. I do think the Age is highly indebted to you, and I wish they may be duly Sensible of the Obligation” (C, 151). William Robertson (1721–93), eminent historian and Principal of the University of Edinburgh: “You have formed into a regular and consistent system one of the most intricate and important parts of political science, and [. . .] I should think your Book will occasion a total change in several important articles in police and finance” (C, 153). And Adam Ferguson (1723–1816), Professor of Moral Philosophy at the University of Edinburgh and author of the 1767 Essay on the History of Civil Society: “You are surely to reign alone on these subjects, to form the opinions, and I hope to govern at least the coming generations” (C, 154). Somewhat later, Thomas Malthus (1766–1834), author of An Essay on the Principle of Population, went so far as to claim that Smith’s WN “has done for political economy, what the Principia of Newton did for physics” (1986: 257).

Smith’s Second Book: WN

In WN, Smith argues, against the school of economic thought called Mercantilism, that real wealth does not consist in pieces of metal: it consists rather in the relative ability to satisfy one’s needs and desires. Since each person always wishes to “better his own condition” (see, for example, WN II.iii.31), the argument of WN is that those policies and public institutions should be adopted that best allow each of us to do so. Hence the task of the political economist is to conduct empirical, historical investigations to discover what these policies and institutions are. His own investigation led Smith to argue that markets, in which the division of labor is allowed to progress, in which trade is free, and in which taxes and regulations are light, are the most conducive to this end. Smith argues that in market-oriented economies based on private property, each person working to better his own condition will increase the supply, and thus lower the price, of whatever good he is producing; this means that others will in turn be a better position to afford his goods. Thus each person serving his own ends is led, in Smith’s famous phrase, “by an invisible hand” (WN IV.ii.9) simultaneously to serve everyone else’s ends as well, both by providing more plentiful and a greater diversity of goods and by thereby lowering prices. The market, Smith believed, could harness people’s industry in the service of their own ends and make it serve everyone else’s welfare, even if the welfare of others was not part of the individuals’ own motivations.

Smith did not think that everyone is fundamentally selfish in any narrow sense. In opposition to Bernard Mandeville (1670–1733), whose 1714 Fable of the Bees Smith called “licentious,” Smith argued that people’s “self-interest” in fact includes the interests of others, in particular their family and friends, even their country or countrymen. Nevertheless Smith did believe that natural benevolence is limited and that, whatever other motivations people feel, their desire to better their own conditions is always present. Thus “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 own interest” (WN I.ii.2). The genius of the Smithian market mechanism was that it could coordinate the disparate individual efforts of indefinitely many persons and derive an overall benefit for the good of society from them.

The conclusions of WN are therefore largely in favor of limiting political interference in markets. Each individual knows his own situation—including his goals and desires, as well as the opportunities available to him—better than anyone else does, and certainly better than any distant legislator. Hence Smith argues that individuals themselves should be allowed to decide how best to apply and sell their labor or goods, with whom to trade and on what terms, and so on. Smith is withering in his condemnation of meddling legislators who overestimate their ability to direct the lives of others, who legislatively substitute their own distant judgment for that of the individuals with actual local knowledge over whom they rule, and who then use the predictable failures of their decisions as excuses for yet more imprudent intervention.

Yet Smith is equally condemnatory of grasping merchants and businessmen who seek legal protections of their industries or prices. “People of the same trade seldom meet together,” Smith writes, “even for merriment and diversion, but the conversation ends in a conspiracy against the publick, or in some contrivance to raise prices” (WN I.x.c.27). Such merchants proclaim that trade barriers, tariffs, and other legal protections are for the good of the country, but Smith exposes these claims as special pleading, since they work to increase those particular merchants’ profits at the expense not only of their competitors but also of the public at large. Keeping prices up and limiting competition will certainly benefit the favored businessmen, but such policies just as certainly impose artificial costs on everyone else. Smith argues that the way to deal with such attempts at legalized monopoly is typically not to regulate them, however, but rather to disallow legally enforced privileges in the first place. Markets and open competition are, Smith thinks, better providers of social benefit than short-sighted regulation by politically motivated legislators—who are, after all, often remunerated handsomely by the very merchants and businesses from whom they profess to protect the public.

But Smith is no anti-government anarchist, nor even a modern-day libertarian...

Table of contents

• Cover
• Series
• Part I: Biography
• Part II: Ideas
• Part III: Enduring Significance
• Epilogue  Smith: Conservative or Libertarian?
• Bibliography
• Index