Monday, August 24, 2009

Economic Philosopher- Adam Smith

Economic Philosopher #1 Adam Smith



Adam Smith (5 June 1723 – 17 July 1790) was born to Margaret Douglas at Kirkcaldy, Scotland, United Kingdom. During his childhood he was particularly close to his mother, who likely encouraged him to pursue his scholarly ambitions. He attended the Burgh School of Kirkcaldy – characterized by Rae as "one of the best secondary schools of Scotland at that period" – from 1729 to 1737. There he studied Latin, mathematics, history, and writing

Smith entered the University of Glasgow when he was fourteen and studied moral philosophy under Francis Hutcheson. Here he developed his passion for liberty, reason, and free speech. In 1740, Smith was awarded the Snell exhibition and left the University of Glasgow to attend Balliol College, Oxford.

At Oxford fell incurred the displeasure of the university authorities because of his taking an approving interest in the philosophical works of David Hume. Some twelve years older than Adam Smith David Hume was a fellow Scot and a son of the "Scottish Enlightenment" becoming the author of his "A Treatise of Human Nature", which was held by influential opinion at Oxford University to be guilty of promoting an "atheistic" philosophy. He also seems to have suffered from troubles with his nerves and, as a result of the situation; Adam Smith relinquished his scholarship in 1746 returning homewards to base himself in Edinburgh. He had in any case been unimpressed with the standard of teaching he had found at oxford.

Back in Edinburgh, Adam Smith moved in intellectual circles and gave a number of public lectures that brought him to the attention of the wider intellectual public such that at the age of twenty-eight he became Professor of Logic at Glasgow University in 1751. Shortly thereafter, in 1752, Adam Smith secured the more richly rewarded professorial chair of Moral Philosophy at the University of Glasgow.

Smith was a reserved and absent minded individual much inclined to enjoy the books in his own library and continuing to live in the same house as his ageing mother. Though often awkward in social situations he acquired a great reputation as an interesting and animated lecturer. In this he was perhaps aided by following Francis Hutcheson in giving his own lectures in English rather than the previously more expected scholarly medium of Latin. In his spare time Adam Smith had opportunities to meet with many influential persons in intellectual and business circles in a city still under the influence of the "Scottish Enlightenment" and which even had its own Political Economy Club.

In 1759 a major work by Adam Smith entitled Theory of Moral Sentiments attracted much attention even beyond British shores winning him an intellectual reputation in such foreign countries as France and Germany. Adam Smith's enhanced reputation resulted in his being able, in 1763, to resign from the University of Glasgow to take on the very well paid role of private tutor to the youthful Henry Scott, heir presumptive to the Dukedom of Buccleuch, whom he was to accompany on an eighteen month "Grand Tour" on the continent of Europe as was perhaps expected for the privileged sons of the wealthy and powerful.

In 1759 he published his Theory of Moral Sentiments, embodying some of his Glasgow lectures. This work, which established Smith's reputation in his own day, is concerned with the explanation of moral approval and disapproval. His capacity for fluent, persuasive, if rather rhetorical argument is much in evidence. He bases his explanation, not as the third Lord Shaftesbury and Hutcheson had done, on a special "moral sense,"nor, like Hume, to any decisive extent on utility, but on sympathy. There has been considerable controversy as how far there is contradiction or contrast between Smith's emphasis in the Moral Sentiments on sympathy as a fundamental human motive, and, on the other hand, the key role of self-interest in the The Wealth of Nations. In the former he seems to put more emphasis on the general harmony of human motives and activities under a beneficent Providence, while in the latter, in spite of the general theme of "the invisible hand" promoting the harmony of interests, Smith finds many more occasions for pointing out cases of conflict and of the narrow selfishness of human motives.

In Geneva and Paris, Adam Smith, established philosophical author and holder of the post of tutor to an immensely wealthy lordling, met such intellectuals as Voltaire, several economic theorists such as the "Physiocrat" Quesnay and also important French economic administrators like Turgot and Necker.

On his return to London from continental Europe Smith stayed there for some time and met amongst others Edmund Burke, Samuel Johnson and Edward Gibbon. His established reputation and ongoing well-regarded ideas resulted in his being elected as member of a particularly prestigious intellectual association known as the Royal Society.

Having proven to be a satisfactory tutor to the Duke of Bucchleuch Adam Smith was awarded an annuity that had been agreed was to be his at the end of his period of service. He then returned to Scotland where he stayed quietly with his mother at his native town of Kirkcaldy and occupied himself in study and writing such his "An Inquiry into the Nature and Causes of the Wealth of Nations" was published in 1776.

Influential movements that led to the emergence of Modern Capitalism are substantially based on Smith's work and hence he deserves to be regarded as one of the most dramatically influential philosophers or philosophic writers of modern times.

In 1777 he was named lord rector of the University of Edinburgh and in 1778 was appointed as commissioner of customs in Scotland. This post was well paid and Adam Smith even contacted his former aristocratic pupil volunteering to relinquish the annuity that he had been awarded. In the event, however, the young nobleman preferred to continue with the annuity.

On July 17th, 1790, Adam Smith died at Edinburgh and was buried some days later in Canongate churchyard in that city.


Free Market Economy of Selfish People

When we think of Adam Smith’s theory, the word ‘Market’ comes in our minds. For Adam Smith, a market is the factor that makes people and their society work in terms of economy. Actually, his idea of market came from the two great problems that absorb Adam Smith’s attention. He is interested in laying bare the mechanism by which society hangs together. How is it possible for a community in which everyone is busily following his self interest not to fly apart from sheer centrifugal force? What is it that guides each individual’s private business so that it conforms to the needs of the group? With no central planning authority and no steadying influence of age-old tradition, how does society manage to get those tasks done which bare necessary for survival? (Robert L. Heilbroner, 1953)

The Laws of Market that he proposes are the answer to those questions. He pointed out the vital role of market in society especially in area of economy. And he even insists that Government should let market work itself and minimize its interference in economy and the free economic activity of business men should be promoted. This is quite opposite to communism proposed by Karl Marx that emphasizes central planning of the government on economy.

According to Adam Smith, selfishness of men is the factor that moves maintains market economy. The works of men which are motivated by selfishness bring the economic development. In a society, there are many people and they have different interest and preference from one another. And this difference of the people will bring competition among themselves. What is interesting in Adam Smith’s theory is that the motive power of economy is not cooperation and altruism but competition and egoism among people. It seems to sound strange that economic welfare of society is achieved when people freely follow their self-interest. Thus very much as in The Theory of Moral Sentiments, the selfish motives of men are transmuted by interaction to yield the most unexpected of result: Social harmony (Robert L. Heilbroner, 1953)

This fact is clearly shown in settlement of prices among producers. Robert L. Heilbroner in his book ‘The Worldly Philosophers (1953)’ gives the example of how the selfishness of people works in market economy. He said that “Suppose we have one hundred manufactures of gloves. The self-interest of each one will cause him to wish to raise his price above his cost of production and thereby to realize an extra profit. But he cannot. If he raises his price, his competitor will step in and take his market away from him by underselling him. Only if all glove manufacturers combine and agree to maintain a solid front will an unduly high price be charged.”

This is so-called “invisible hand”. There is invisible factor, or hand that controls and maintains a market economy. Without interference of government, the market is enabled to regulate prices and quantity of commodities by invisible hand. So what is “invisible hand”? It is people’s behavior in their own interest (Wikipedia, 2009).

The market is full of consumers and producers who are greedily pursuing their self-interest. However, this selfishness should not be restricted by any other factors. There should be liberty of people to freely pursue their own interest. . So Adam Smith said that “Don’t try to do good, leg good emerge as the product of selfishness” It is the free market economy. It is the system that lets market and its people work

Robert L. Heilbroner stated in his book “The Worldly Philosopher (1953)”, that “What is it that drives society to multiplication of wealth and richness? It is market mechanism which encourages and forces people to invent, innovate things.


A Great Endless Chain, Market Mechanism

I would like to more profoundly look into the market economy with practical example. According to Smith, the market economy moves and processes with certain patterns. It seems to be “A Great Endless Chain”(Robert L. Heilbroner, 1953).

So what does “A Great Endless Chain” mean? In order to understand that term, we must first know the laws of behavior which propel the market system in the ascending spiral of productivity. The Laws of Behavior is divided into two: The Law of Accumulation and Population.

First, the Law of Accumulation, Adam Smith thought that accumulation is necessary factor in market economy of capitalism. He insists people should accumulate. However he opposes the accumulation for accumulation’s sake because for him the purpose of accumulation is for it to be used as a capital for economic development. Smith saw a vast benefit to society in the accumulation of capital

Second, the Law of Population, actually Smith considers labor as a value that is necessary in economy. Webster’s Dictionary defines labor as “Productive activity, for the sake of economic gain”. Actually labor is work of men. So a large number of populations would mean abundance in labor. Abundance in labor would also mean the abundance of productive activities. It is really important factor in capitalism because by which things are produced and economic development is achieved. That is why Adam Smith sees labor as an important value in economy. So what is the law of population? It is really simple. Higher wage will cause increase in number of workmen population and decrease in wage will cause decrease in workmen population.

Based on this knowledge we may now understand “A Great Endless Chain”. The following shows the process of “A Great Endless Chain” and how the law of accumulation and labor take their parts in the chain:

Accumulation of Wealth takes place

Increased facilities for production and in a greater division of labor

Accumulation will raise wages

Accumulation begins to look unprofitable

Higher wage of workmen→ Supply increases

Population will increase

Competition among workmen will decrease the wage

Accumulation begins again

We may have noticed that the market system has its own mechanism and it enables market to work itself without any other interference and help. Economy develops as it repeats certain patterns of mechanism. This is what Adam Smith pointed out. For him, this market system was wonderful social machine which leads the economy and brings the wealth of nation.

To Adam Smith, market that wonderful social machine would take care of society’s needs if it was left alone so that the law of evolution might take over to lift society toward its promised reward. (Robert L. Heilbroner, 1953)


Labor, Productive Power

Adam Smith insists in the first part of His book “The Wealth of Nation (2001)” that “the annual labor of every nation is the fund which originally supplies it with all necessaries and convenience of life” The fact that he starts his book with the emphasis on important of labor may tell us that how important role the labor will take in economic system which Adam Smith is going to introduce.

Smith tries to find the key of economic development and increase of the wealth of nation in matter of labor. He highly values the ability of labor of men. This view even brought theoretical conflict between Francois Quesnay who was the leader of physiocracy and whom Smith respected.

Physiocracy insisted that only the agricultural worker produced true wealth (Robert L. Heilbroner, 1953). But Smith did not limit the ability of labor within agricultural area. He believes that labor can produce wealth wherever it performs.
This idea which emphasizes the importance and ability of labor leads Smith to the next idea that economic development and increase in the wealth of nation depend on how we maximize productivity of labor by using it efficiently.

At the time of Smith, there was a wave of modernization in European society. And this modernization was based on the industrialization. The remarkable industrial revolution took place from late 18th century started from the invention of a steam engine. A side from the invention of a steam engine, there is another factor that made industrial and economic development possible. It is efficient use of labor. Actually Adam Smith could not see the industrial revolution in his days. However after his death, his idea on labor was proven right during the industrial revolution.

So what is the efficient way of use of labor proposed by Adam Smith? It is “Division of Labor” or “Specialization”.


Division of Labor

Division of labor is the specialization of cooperative labor in specific, circumscribed task and roles, intended to increase the productivity of labor. (Wikipedia, 2009)

Smith considers Division of labor as essence of industrialism. During pre-industrialization period, things were manufactured by small size of home industry or manufacturing. Adam Smith says in his book “The Wealth of Nation (2001)” that in those trifling manufactures which are destined to supply the small wants of but a small number of people, the whole number of workmen must necessarily be small; and those employed in every different branch of the work can often be collected into the same workhouse, and placed at once under the view of the spectator. However in great manufactures, which are destined to supply the great wants of the great body of the people, every different branch of the work employs so great a number of workmen that it is impossible to collect them all into the same workhouse. We can seldom see more, at one time, than those employed in one single branch. Though in such manufactures, therefore, the work may really be divided into a much greater number of parts than in those of a more trifling nature, the division is not near so obvious, and has accordingly been much less observed.

This idea of Smith was applied in the industrial factories during the industrialization and it brought amazing increase in number of products and became the base of industrialization. This fact proves that division of labor is truly the way that can maximize the efficiency of labor ability.

Division of labor increase productivity power of labor by specializing works of laborers. We may as well find the effect of division of labor in example of Pin factory suggested by Adam Smith.

Smith noticed that a worker who performs all the works needed to make a pin alone was able to produce only 20 pins in a day. But in one factory he once visited, the work of making pin was divided into 18 parts and 10 specialized laborers perform one or two parts of the work. The number of products of this factory in one day was 48,000. In other words, one worker manufactured 4,800 pins.

This specialization was also applied in Ford Company. Ford divided process to make a car into 7,882 of different parts. And it hired specialized laborers and it also brought great power of productivity.

In “The Wealth of Nation (2001)” Smith states that “the improvement of the dexterity of the workman necessarily increases the quantity of the work he can perform”. A workman’s dexterity can be cultivated by repeatedly performing reduced and simplified operation. This dexterity of workman is able to reduce the time to manufacture certain things. And by gathering of this kind of people who have dexterity in their own works great quantity of things can be produced in a short time. And this may happen as a result of division of labor.

Therefore, Labor itself and efficient use of it are really important value to Adam Smith’s economic system. With technological development, it can be considered as the key of industrial development which leads society to economic development and increase the Wealth of Nation.


Adam Smith, (August 17, 2009). In Wikipedia, the Free Encyclopedia. Retrieved 15:04 August 17, 2009 from

Biography of Adam Smith (1723-1790). (2003, March 6) Revolution to Reconstruction Retrieved August 17, 2009 from

Division of labour, (August 8, 2009). In Wikipedia. The Free Encyclopedia. Retrieved 05:43 August 8, 2009 from

Adam Smith (2001). An Inquiry into the Nature and Causes of the Wealth of Nations London: The Adam Smith Institute

Alvin Toffler (1980). The Third Wave New York: Bantam Books

Robert L. Heilbroner. The World Philosophers New York: Touchstone book


  1. Good work. You are able to narrate his biography, and explain his contributions?

    But what about the historical context? What events or states (longue duree) may have influenced his thinking? I see references to the state of industrialization in 1700's in your discussion on labor. What about other events that may have been witnessed by Smith in 1700's? What about the social, political, economic and cultureal state of Scotland, Britain, Europe or the world at the period? What was happening in Korea and the Philippines during these times?

  2. I stated that Smith did not agree with the view of Francois Quesnay, the physiocrat because Quesnay too much focused on agricultural aspect
    of labor. What does it imply? compared to France, England or Schottland where Smith was living in was more industrial than France. At the time, England was already about to proceed to industrial revolution, that is why smith could not totally accept the view of Francois Quesnay about labor.

    As the indsutrial changes or revolution was coming to that society, there were also changes in social, political, economic, and cultural state.

    First, in social state, there came urbanization. The big cities emerged and population of that cities greatly increased. and As the big city emerged, there came a lot of social changes in terms of education, and status of the people. And this social changes were directly related to cultural changes.

    (Hoping that I ll be able to discuss it. After I read "The Third Wave of Alvin Toffler)

    Second, in Smith's time when the industrialization was about to begin, there was gradual economic growth. there were already factories which can greatly increase productivity and it caused ecnomic growth.

    And... in terms of politics, and the state of non-European countries, I think I need to study more... or. can you give some clue about those concerns??