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Adam Smith

Statue of Adam Smith in Edinburgh Scotland

Edinburgh, Scotland

A part of the innovation that came in the 1700s was work by the Scotsman Adam Smith (1723-1790). Smith studied moral philosophy at the University of Glasgow and Oxford University. He collaborated intellectually with his fellow Scotsman David Hume. Smith became a professor at Glasgow teaching moral philosophy.

He and other Scots were responding to the awareness during the past couple of centuries of indigenous peoples in South and North America. He developed historical narrative that traced people organized first as hunter-gatherers, then to herding, to sedentary farmers and followed by commercial society.

While a professor at Glasgow, Smith wrote The Theory of Moral Sentiments. Later he took a job tutoring which allowed him to travel through Europe and meet a variety of intellectuals. He returned home, in his early 40s, and during the next ten years put together a book titled An Inquiry into the Nature and Causes of the Wealth of Nations, which was published in 1776 – the year England's colonies declared independence.

Many believed at that time that wealth was land, precious metals and gems. Adam Smith proposed a new and broader view of wealth. He saw wealth in the great variety of goods that people traded and consumed. Smith viewed gold and silver as not having an absolute value. Instead there were commodities whose value rose and fell with supply and demand. Smith held that it is not the possession of gold and silver or other items of wealth that creates a nation's economic power; it is its production of that which people want and can use.

Before Smith, many believed that without poverty people would not want to work in the mills and at other jobs, that everyone would be lazy and pursue leisure as did many aristocrats. The view prevailed among conservatives that the poor were poor because God meant them to be. In Britain the Protestant ethic held that God looked with favor upon people of wealth and success in business. Smith had not been one to let religion restrict his thinking. He believed that more wealth to common people would benefit the nation's economy and society as a whole.

In The Wealth of Nations, Smith described wealth produced in a self-regulating market. It was self-regulating because people produced according to what people would buy and people consumed according to what they wanted and could afford. Freedom to trade was part of the self-regulating market – a freedom believed in by some Frenchmen in the 1700s using the phrase laissez faire.

Competition was a part of the self-regulating market. If a grocer charged too much, people could go farther down the street and buy from someone trying to attract more customers by selling at a lower price. Smith was opposed to business people joining together to stifle competition and maintain higher prices. He favored government intervention to prevent this, to prevent various dishonest practices and to promote matters that benefited society. Smith saw competition in the market place as better discipline than poverty. Competition he saw as creating incentives for efficiency.

And Smith saw greater efficiency in labor specialization. Greater productivity, he believed, created greater wealth for society as a whole.

Smith didn't write of government having no need to intervene in an economy. (And government’s role in Britain’s economy, including the maintenance of a money system and laws regarding debt, was well known.) In his The Wealth of Nations, Smith used the phrase “invisible hand” once, as follows:

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.

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