Adam Smith (1723–July 17, 1790) was a Scottish 
political economist and moral philosopher. His Inquiry into the 
Nature and Causes of the Wealth of Nations was one of the earliest 
attempts to study the historical development of industry and 
commerce in Europe. That work helped to create the modern academic 
discipline of economics and provided one of the best-known 
intellectual rationales for free trade and capitalism.

Biography

Smith was the son of the comptroller of the customs at Kirkcaldy, 
Fife, Scotland. The exact date of his birth is unknown, but he was 
baptized at Kirkcaldy on June 5, 1723, his father having died some 
six months previously. At around the age of 4, he was kidnapped by 
a band of Gypsies, but he was quickly rescued by his uncle and 
returned to his mother. Smith's biographer, John Rae, commented 
wryly that he feared Smith would have made "a poor Gypsy."

At the age of about fifteen, Smith proceeded to the University of 
Glasgow, studying moral philosophy under "the never-to-be-forgotten" 
(as Smith called him) Francis Hutcheson. In 1740 he entered the 
Balliol College of the University of Oxford, but as William Robert 
Scott has said, "the Oxford of his time gave little if any help 
towards what was to be his lifework," and he left the university 
in 1746. In 1748 he began delivering public lectures in Edinburgh 
under the patronage of Lord Kames. Some of these dealt with 
rhetoric and belles-lettres, but later he took up the subject of 
"the progress of opulence," and it was then, in his middle or late 
20s, that he first expounded the economic philosophy of "the 
obvious and simple system of natural liberty" which he was later 
to proclaim to the world in his Inquiry into the Nature and 
Causes of the Wealth of Nations. About 1750 he met David Hume, 
who became one of the closest of his many friends.

In 1751 Smith was appointed professor on logic at the University 
of Glasgow, transferring in 1752 to the chair of moral philosophy. 
His lectures covered the fields of ethics, rhetoric, jurisprudence, 
political economy, and "police and revenue." In 1759 he published 
his The Theory of Moral Sentiments, embodying some of his Glasgow 
lectures. This work, which established Smith's reputation in his 
day, was concerned with how human communication depends on sympathy 
between speaker and listener. 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) on utility, but 
on sympathy.

Smith now began to give more attention to jurisprudence and 
economics in his lecture and less to his theories of morals. An 
impression can be obtained as to the development of his ideas on 
political economy from the notes of his lectures taken down by a 
student in about 1763 which were later edited by E. Cannan (Lectures 
on Justice, Police, Revenue and Arms, 1896), and from what Scott, 
its discoverer and publisher, describes as "An Early Draft of Part 
of The Wealth of Nations", which he dates about 1763.

At the end of 1763 Smith obtained a lucrative post as tutor to the 
young duke of Buccleuch and resigned his professorship. From 
1764-66 he traveled with his pupil, mostly in France, where he 
came to know such intellectual leaders as Anne Turgot, Jean 
D'Alembert, André Morellet, Helvétius and, in particular, Francois 
Quesnay, the head of the Physiocratic school whose work he much 
respected. On returning home to Kirkcaldy he devoted much of the 
next ten years to his magnum opus, An Inquiry into the Nature 
and Causes of the Wealth of Nations, which appeared in 1776. It 
was very well-received and popular, and Smith became famous. In 
1778 he was appointed to a comfortable post as commissioner of 
customs in Scotland and went to live with his mother in Edinburgh. 
He died there on July 17, 1790, after a painful illness. He had 
apparently devoted a considerable part of his income to numerous 
secret acts of charity. He neither married nor fathered children.


Works

Shortly before his death Smith had nearly all his manuscripts 
destroyed. In his last years he seemed to have been planning 
two major treatises, one on the theory and history of law and 
one on the sciences and arts. The posthumously published Essays 
on Philosophical Subjects (1795) probably contain parts of what 
would have been the latter treatise.

The Wealth of Nations was influential since it did so much to 
create the field of economics and develop it into an autonomous 
systematic discipline. In the Western world, it is arguably the 
most influential book on the subject ever published. When the 
book, which has become a classic manifesto against mercantilism 
(the theory that large reserves of bullion are essential for 
economic success), appeared in 1776, there was a strong sentiment 
for free trade in both Britain and America. This new feeling had 
been born out of the economic hardships and poverty caused by 
the war. However, at the time of publication, not everybody was 
immediately convinced of the advantages of free trade: the 
British public and Parliament still clung to mercantilism for 
many years to come.

The Wealth of Nations also rejects the Physiocratic school's 
emphasis on the importance of land; instead, Smith believed 
labour was tantamount, and that a division of labour would 
effect a great increase in production. Nations was so 
successful, in fact, that it led to the abandonment of earlier 
economic schools, and later economists, such as Thomas Malthus 
and David Ricardo, focused on refining Smith's theory into 
what is now known as classical economics. (Modern economics 
evolved from this.) Malthus expanded Smith's ruminations on 
overpopulation, while Ricardo (and Karl Marx) believed in the 
"iron law of wages" — that overpopulation would prevent wages 
from topping the subsistence level. Smith postulated an 
increase of wages with an increase in production, a view 
considered more accurate today.

One of the main points of The Wealth of Nations is that the 
free market, while appearing chaotic and unrestrained, is 
actually guided to produce the right amount and variety of 
goods by a so-called "invisible hand." If a product shortage 
occurs, for instance, its price rises, creating incentive for 
its production, and eventually curing the shortage. The 
increased competition among manufacturers and increased supply 
would also lower the price of the product to its production 
cost, the "natural price." Smith believed that while human 
motives are often selfish and greedy, the competition in the 
free market would tend to benefit society as a whole anyway. 
Nevertheless, he was wary of businessmen and argued against 
the formation of monopolies.

Smith vigourously attacked the antiquated government restrictions 
which he thought were hindering industrial expansion. In fact, 
he attacked most forms of government interference in the 
economic process, including tariffs, arguing that this creates 
inefficiency and high prices in the long run. This theory, now 
referred to as "laissez-faire," influenced government legislation 
in later years, especially during the 19th century. However, 
Smith criticised a number of practices that later became 
associated with laissez-faire capitalism, such as the power and 
influence of big business and the emphasis on capital at the 
expense of labour.


"Das Adam-Smith-Problem"

There has been considerable controversy as to whether there is 
a contradiction between Smith's emphasis on sympathy in his 
Theory of Moral Sentiments and the key role of self-interest 
in the Wealth of Nations. Economist Joseph Schumpeter referred 
to this in German as das Adam Smith Problem.[1] 
(http://de.wikipedia.org/wiki/Adam-Smith-Problem) In his Moral 
Sentiments Smith seems to emphasize the broad synchronization 
of human intention and behavior under a beneficent Providence, 
while in the Wealth of Nations, in spite of the general theme 
of "the invisible hand" creating harmony out of conflicting 
self-interests, he finds many more occasions for pointing out 
cases of conflict and of the narrow selfishness of human 
motives. Yet it would be inaccurate to describe the Adam Smith of 
the Moral Sentiments as unaware of the essential selfishness of 
most human motives, for he writes that:

    "Thus self-preservation, and the propagation of the species, 
    are the great ends which Nature seems to have proposed in the 
    formation of all animals. Mankind are endowed with a desire 
    of those ends, and an aversion to the contrary; with a love 
    of life, and a dread of dissolution; with a desire of the 
    continuance and perpetuity of the species, and with an aversion
    to the thoughts of its intire extinction. But though we are in 
    this manner endowed with a very strong desire of those ends, it 
    has not been intrusted to the slow and uncertain determinations 
    of our reason, to find out the proper means of bringing them 
    about. Nature has directed us to the greater part of these by 
    original and immediate instincts. Hunger, thirst, the passion 
    which unites the two sexes, the love of pleasure, and the dread 
    of pain, prompt us to apply those means for their own sakes, and 
    without any consideration of their tendency to those beneficent 
    ends which the great Director of nature intended to produce by 
    them."



Influence

The Wealth of Nations, and to a lesser extent The Theory of Moral 
Sentiments, have become the starting point for any defence or 
critique of forms of capitalism, most influentially in the writings 
of Marx and Humanist economists. Because laissez-faire capitalism is 
so often associated with unbridled selfishness, there is a recent 
movement to emphasize the moral philosophy of Smith, with its focus 
on sympathy with one's fellows.

There has been some controversy over the extent of Smith's 
originality in The Wealth of Nations; some argue that the work 
added modestly to the already established ideas of thinkers such as 
David Hume and the Baron de Montesquieu. Indeed, many of the theories 
Smith sets out simply describe historical trends away from mercantilism, 
towards free-trade, that had been developing for many decades, and had 
already had significant influence on governmental policy. Nevertheless, 
it organises their ideas comprehensively, and remains one of the most 
influential and important books in the field today.


Bibliography

   1. Smith, Adams. An Inquiry into the Nature and Causes of the Wealth 
   of Nations (The Wealth of Nations). 1776.
   2. Smith, Adams. The Theory of Moral Sentiments. 1759.