RUSSIAN
ECONOMIC ACADEMY NAMED AFTER G V PLEKHANOV
Moscow
1997
After
two centuries, Adam Smith remains a towering figure in the history of economic
thought. Known primarily for a single work, An Inquiry into the nature an
causes of the Wealth of Nations (1776), the first comprehensive system of
political economy, Smith is more properly regarded as a social philosopher
whose economic writings constitute only the capstone to an overarching view of
political and social evolution. If his masterwork is viewed in relation to his
earlier lectures on moral philosophy and government, as well as to allusions in
The Theory of Moral Sentiments (1759) to a work he hoped to write on “the
general principles of law and government, and of the different revolutions they
have undergone in the different ages and periods of society”, then The Wealth
of Nations may be seen not merely as a treatise on economics but as a partial
exposition of a much larger scheme of historical evolution.
Early
Life
Unfortunately,
much is known about Smith’s thought than about his life. Though the exact date
of his birth is unknown, he was baptised on June 5, 1723, in Kikcaldy, a small
(population 1,500) but thriving fishing village near Edinburgh, the son by
second marriage of Adam Smith, comptroller of customs at Kikcaldy, and Margaret
Douglas, daughter of a substantial landowner. Of Smith’s childhood nothing is
known other than that he received his elementary schooling in Kirkcaldy and
that at the age of four years he was said to have been carried off by gypsies.
Pursuits was mounted, and young Adam was abandoned by his captors. “He would
have made, I fear, a poor gypsy”, commented his principal biographer.
At
the age of 14, in 1737, Smith entered the university of Glasgow, already
remarkable as a centre of what was to become known as the Scottish
Enlightenment. There, he was deeply influenced by Francis Hutcheson, a famous
professor of moral philosophy from whose economic and philosophical views he
was later to diverge but whose magnetic character seems to have been a main
shaping force in Smith’s development. Graduating in 1740, Smith won a
scholarship (the Snell Exhibition) and travelled on horseback to Oxford, where
he stayed at Balliol College. Compared to the stimulating atmosphere of
Glasgow, Oxford was an educational desert. His years there were spent largely
in self-education, from which Smith obtained a firm grasp of both classical and
contemporary philosophy.
Returning
to his home after an absence of six years, Smith cast about for suitable
employment. The connections of his mother’s family, together with the support
of the jurist and philosopher Lord Henry Kames, resulted in an opportunity to
give a series of public lectures in Edinburgh - a form of education then much
in vogue in the prevailing spirit of “ improvement”.
The
lectures, which ranged over a wide variety of subjects from rhetoric history
and economics, made a deep impression on some of Smith’s notable
contemporaries. They also had a marked influence on Smith’s own career, for in
1751, at the age of 27, he was appointed professor of logic at Glasgow, from
which post he transferred in 1752 to the more remunerative professorship of
moral philosophy, a subject that embraced the related fields of natural
theology, ethics, jurisprudence, and political economy.
Glasgow
Smith
then entered upon a period of extraordinary creativity, combined with a social
and intellectual life that he afterward described as “ by far the happiest, and
most honourable period of my life”. During the week he lectured daily from 7:30
to 8:30 am and again thrice weekly from 11 am to noon, to classes of up to 90
students, aged 14 and 16. (Although his lectures were presented in English,
following the precedent of Hutcheson, rather than in Latin, the level of
sophistication for so young an audience today strikes one as extraordinarily
demanding.) Afternoons were occupied with university affairs in which Smith
played an active role, being elected dean of faculty in 1758; his evenings were
spent in the stimulating company of Glasgow society.
Among
his circle of acquaintances were not only remembers of the aristocracy, many
connected with the government, but also a range of intellectual and scientific
figures that included Joseph Black, a pioneer in the field of chemistry, James
Watt, later of steam-engine fame, Robert Foulis, a distinguished printer and
publisher and subsequent founder of the first British Academy of Design, and
not least, the philosopher David Hume, a lifelong friend whom Smith had met in
Edinburgh. Smith was also introduced during these years to the company of the
great merchants who were carrying on the colonial trade that had opened to
Scotland following its union with England in 1707. One of them, Andrew
Cochrane, had been a provost of Glasgow and had founded the famous Political
Economy Club. From Cochrane and his fellow merchants Smith undoubtedly acquired
the detailed information concerning trade and business that was to give such a
sense of the real world to The Wealth of Nations.
The
Theory of Moral Sentiments
In
1759 Smith Published his first work, The Theory of Moral Sentiments. Didactic,
exhortative, and analytic by turns, The Theory lays the psychological
foundation on which The Wealth of Nations was later to be built. In it Smith
described the principles of “human nature “, which, together with Hume and the
other leading philosophers of his time, he took as a universal and unchanging
datum from which social institutions, as well as social behaviour, could be
deduced.
One
question in particular interested Smith in The Theory of Moral Sentiments. This
was a problem that had attracted Smith’s teacher Hutcheson and a number of
Scottish philosophers before him. The question was the source of the ability to
form moral judgements, including judgements on one’s own behaviour, in the face
of the seemingly overriding passions for self-preservation and self-interest.
Smith’s answer, at considerable length, is the presence within each of us of an
“inner man” who plays the role of the “impartial spectator”, approving or
condemning our own and others’ actions with a voice impossible to disregard.
(The theory may sound less naive if the question is reformulated to ask how
instinctual drives are socialized through the superego.)
The
thesis of the impartial spectator, however, conceals a more important aspect of
the book. Smith saw humans as created by their ability to reason and - no less
important - by their capacity for sympathy. This duality serves both to pit
individuals against one another and to provide them with the rational and moral
faculties to create institutions by which
the internecine struggle can be
mitigated and even turned to the
common good. He wrote in his Moral Sentiments the famous observation that he
was to repeat later in The Wealth of Nations: that self-seeking men are often
“led by an invisible hand... without knowing it , without intending it, to
advance the interest of the society.”
It
should be noted that scholars have long debated whether Moral Sentiments
complemented or was in conflict with The Wealth of Nations, which followed it.
At one level there is a seeming clash between the theme of social morality
contained in the first and largely
amoral explanation of the manner in which individuals are socialized to become
the market-oriented and class-bound actors that set the economic system into motion.
Travels
on the Continent
The
Theory quickly brought Smith wide esteem and in particular attracted the
attention of Charles Townshend, himself something of an amateur economist, a
considerable wit, and somewhat less of a statesman, whose fate it was to be the
chancellor of the exchequer responsible for the measures of taxation that
ultimately provoked the American Revolution. Townshend had recently married and
was searching for a tutor for his stepson and ward, the young Duke of
Buccleuch. Influenced by the strong recommendations of Hume and his own
admiration for The Theory of Moral Sentiments, he Approached Smith to take the
Charge.
The
terms of employment were lucrative (an annual salary of £300 plus
travelling expenses and a pension of £300 a year after), considerably
more than Smith had earned as a professor. Accordingly, Smith resigned his
Glasgow post in 1763 and set off for France the next year as the tutor of the
young duke. They stayed mainly in Toulouse, where Smith began working on a book
(eventually to be The Wealth of Nations) as an antidote to the excruciating
boredom of the provinces. After 18 months of ennui he was rewarded with a
two-month sojourn in Geneva, where he met Voltaire, for whom he had the
profoundest respect, thence to Paris where Hume, then secretary to the British
embassy, introduced Smith to the great literary salons of the French
Enlightenment. There he met a group of social reformers and theorists headed by
Francois Quesnay, who are known in history as the physiocrats. There is some
controversy as to the precise degree of influence the physiocrats exerted on
Smith, but it is known that he thought sufficiently well of Quesnay to have
considered dedicating The Wealth of Nations to him, had not the French
economist died before publication.
The
stay in Paris was cut short by a shocking event. The younger brother of the
Duke of Buccleuch , who had joined them in Toulouse, took ill and perished
despite Smith’s frantic ministration. Smith and his charge immediately returned
to London. Smith worked in London until the spring of 1767 with Lord Townshend,
a period during which he was elected a fellow of the Royal Society and
broadened still further his intellectual circle to include Edmund Burke, Samuel
Johnson, Edward Gibbon, and perhaps Benjamin Franklin. Late that year he
returned to Kirkcaldy, where the next six years were spent dictating and
reworking The Wealth of Nations, followed by another stay of three years in
London, where the work was finally completed and published in 1776.
The
Wealth of Nations
Despite
its renown as the first great work in political economy. The Wealth of Nations
is in fact a continuation of the philosophical theme begun in The Theory of
Moral Sentiments. The ultimate problem to which Smith addresses himself is how
the inner struggle between the passions and the “impartial spectator’ -
explicated in Moral Sentiments in terms of the single individual - works its
effects in the larger arena of history itself, both in the long-run evolution
of society and in terms of the immediate characteristics of the stage of
history typical of Smith’s own day.
The
answer to this problem enters in Book 5, in which Smith outlines he four main
stages of organization through which society is impelled, unless blocked by
deficiencies of resources, wars, or bad policies of government: the original
“rude’ state of hunters, a second stage of nomadic agriculture, a third stage
of feudal or manorial “farming”, and a fourth and final stage of commercial
interdependence.
It
should be noted that each of these stages is accompanied by institutions suited
to its needs. For example, in the age of the huntsman, “there is scar any
established magistrate or any regular administration of justice. “ With the advent of flocks there emerges a
more complex form of social organization, comprising not only “formidable”
armies but the central institution of private property with its indispensable buttress of law and order as
well. It is the very essence of Smith’s
thought that he recognized this institution, whose social usefulness he never
doubted, as an instrument for the protection of privilege, rather than one to
be justified in terms of natural law: “Civil government,” he wrote, “so far as
it is instituted for the security of property, is in reality instituted for the
defence of the rich against the poor, or of those who have some property
against those who have none at all.” Finally, Smith describes the evolution
through feudalism into a stage of society requiring new institutions such as market-determined rather than
guild-determined wages and free rather than government-constrained enterprise.
This later became known as laissez-faire capitalism; Smith called it the system
of perfect liberty.
There
is an obvious resemblance between this succession of changes in the material
basis of production, each bringing its requisite alterations in the
superstructure of laws and civil institutions, and the Marxian conception of
history. Though the resemblance is indeed remarkable, there is also a crucial difference:
in the Marxian scheme the engine of evolution is ultimately the struggle
between contending classes, whereas in Smith’s philosophical history the primal
moving agency is “human nature “driven by the desire for self-betterment and
guided (or misguided) by the faculties of reason.
Society
and “the invisible hand”
The
theory of historical evolution, although it is perhaps the binding conception
of The Wealth of Nations, is subordinated within the work itself to a detailed
description of how the “invisible hand” actually operates within the
commercial, or final, stage of society. This becomes the focus of Books I and
II. In which Smith undertakes to elucidate two questions. The first is how a
system of perfect liberty, operating under the drives and constraints of human
nature and intelligently designed institutions , will give rise to an orderly
society. The question, which had already been considerably elucidated by
earlier writers, required both an explanation of the underlying orderliness in
the pricing of individual commodities and an explanation of the “laws” that
regulated the division of the entire “wealth” of the nation (which Smith saw as
its annual production of goods and services) among the three great claimant
classes - labourers, landlords, and manufacturers.
This
orderliness, as would be expected, was produced by the interaction of the two
aspects of human nature, its response to its passions and its susceptibility to
reason and sympathy. But whereas The Theory of Moral Sentiments had relied mainly on the presence of the
“inner man” to provide the necessary restraints to private action, in The
Wealth of Nations one finds an institutional mechanism that acts to reconcile
the disruptive possibilities inherent in a blind obedience to the passions
alone. This protective mechanism is competition, an arrangement by which the
passionate desire for bettering one’s condition - a “desire that comes with
United States from the womb, and never leaves United States until we go into
the grave “ - is turned into a socially beneficial agency by pitting one
person’s drive for self-betterment against another’s.
It
is in the unintended outcome of this competitive struggle for self-betterment
that the invisible hand regulating the economy shows itself, for Smith explains
how mutual vying forces the prices of
commodities down to their natural levels, which correspond to their costs of
production. Moreover, by inducing labour and capital to move from less to more
profitable occupations or areas, the competitive mechanism constantly restores
prices to these “natural” levels despite short-run aberrations. Finally, by
explaining that wages and rents and profits (the constituent parts of the costs
of production) are themselves subject to this natural prices but also revealed
an underlying orderliness in the distribution of income itself among workers,
whose recompense was their wages; landlords, whose income was their rents; and
manufacturers, whose reward was their profit.
Economic
growth
Smith’s
analysis of the market as a self-
correcting mechanism was impressive. But his purpose was more ambitious than to
demonstrate the self-adjusting properties of the system. Rather, it was to show
that, under the impetus of the acquisitive drive, the annual flow of national wealth
could be seen steadily to grow.
Smith’s
explanation of economic growth , although not neatly assembled in one part of
The Wealth of Nations, is quite clear. The score of it lies in his emphasis on
the division of labour (itself an outgrowth of the “natural” propensity to
trade) as the source of society’s capacity
to increase its productivity. The Wealth of Nations opens with a famous
passage describing a pin factory in which 10 persons, by specialising in various
tasks, turn out 48,000 pins a day, compared with the few, perhaps only 1 , that
each could have produced alone. But this all-important division of labour does
not take place unaided. It can occur only after the prior accumulation of
capital (or stock, as Smith calls it ), which is used to pay the additional
workers and to buy tools and machines.
The
drive for accumulation, however, brings problems. The manufacturer who
accumulates stock needs more labourers ( since labour-saving technology has no
place in Smith’s scheme), and in attempting to hire them he bids up their wages
above their “natural” price. Consequently his profits begin to fall, and the
process of accumulation is in danger of ceasing. But now there enters an
ingenious mechanism for continuing the advance. In bidding up the price of labour,
the manufacturer inadvertently sets into motion a process that increases the supply of labour, for
“the demand for men, like that for any other commodity, necessarily regulates
the production of men.” Specifically, Smith had in mind the effect of higher
wages in lessening child mortality. Under the influence of a larger labour
supply, the wage rise is moderated and profits are maintained; the new supply
of labourers offers a continuing opportunity for the manufacturer to introduce
a further division of labour and thereby add to the system’s growth.
Here
then was a “machine” for growth - a machine that operated with all the
reliability of the Newtonian system with which Smith was quite familiar. Unlike
the Newtonian system, however, Smith’s growth machine did not depend for its
operation on the laws of nature alone. Human nature drove it, and human nature
was a complex rather than a simple force. Thus, the wealth of nations
would grow only if individuals, through
their governments, did not inhibit this growth by catering to the pleas for
special privilege that would prevent the competitive system from exerting its
begin effect. Consequently, much of The Wealth of Nations, especially Book IV,
is a polemic against the restrictive measures of the “mercantile system” that
favoured monopolies at home and abroad. Smith’s system of “natural liberty”, he
is careful to point out, accords with the best interests of all but will not be
put into practice if government is entrusted to, or heeds, the “mean rapacity,
who neither are , nor ought to be, the rulers of mankind.”
The
Wealth of Nations is therefore far from the ideological tract it is often
supposed to be. Although Smith preached laissez-faire (with important
exceptions), his argument was directed as much against monopoly as government;
and although he extolled the social results of the acquisitive process, he
almost invariably treated the manners and manoeuvres of businessmen with
contempt. Nor did he see the commercial system itself as wholly admirable. He
wrote with decrement about the intellectual degradation of the worker in a
society in which the division of labour has proceeded very far; for by
comparison with the alert intelligence of the husbandman, the specialised
worker “generally becomes as stupid and ignorant as it is possible for a human
being to become”.
In
all of this, it is notable that Smith was writing in an age of preindustrial
capitalism. He seems to have had no real presentiment of the gathering
Industrial Revolution, harbingers of which were visible in the great ironworks
only a few miles from Edinburgh. He had
nothing to say about large-scale industrial enterprise, and the few remarks in
The Wealth of Nations concerning the future of joint-stock companies
(corporations) are disparaging. Finally, one should bear in mind, that, if
growth is the great theme of The Wealth of Nations, it is not unending growth.
Here and there in the treatise are glimpsed at a secularly declining rate of
profit; and Smith mentions as well the prospects that when the system
eventually accumulates its “full complement of riches” - all the pin factories,
so to speak, whose output could be
absorbed - economic decline would begin, ending in an impoverished
stagnation.
The
Wealth of Nations was received with admiration by Smith’s wide circle of
friends and admires, although it was by no means an immediate popular success. The work finished, Smith went into
semiretirement. The year following its publication he was appointed commissioner
both of customs and of salt duties for
Scotland, posts that brought him £600 a year. He thereupon informed his
former charge that he no longer required his pension, to which Buccleuch replied that his sense of
honour would never allow him to stop paying it. Smith was therefore quite well
off in the final years of his life, which were spent mainly in Edinburgh with
occasional trips to London or Glasgow (which appointed him a rector of the
university). The years passed quietly, with several revisions of both major
books but with no further publications. On July 17, 1790, at the age of 67,
full of honours and recognition, Smith died; he was buried in the churchyard at
Canongate with a simple monument stating that Adam Smith, author of The Wealth
of Nations, was buried there.
Beyond
the few facts of his life, which can be embroidered only in detail,
exasperatingly little is known about the man. Smith never married, and almost
nothing is known of his personal side. Moreover, it was the custom of his time
to destroy rather than to preserve the private files if illustrious men, with
the unhappy result that much of Smith’s unfinished work, as well as his
personal papers, was destroyed (some as late as 1942). Only one portrait of
Smith survives, a profile medallion by Tassie; it gives a glimpse of the older
man with his somewhat heavy-lidded eyes, aquiline nose, and a hint of
protrusive lower lip. “I am a beau in nothing but my books, ”Smith once told a
friend to whom he was showing his library of some 3,000 volumes.
From
various accounts, he was also a man of many peculiarities, which included a
stumbling manner of speech ( until he had warmed to his subject), a gait
described as “vermicular”/ and above all an extraordinary and even comic
absence of mind. On the other hand, contemporaries wrote of a smile of
“inexpressive benignity,” and of his political tact and dispatch in managing
the sometimes acerbic business of the Glasgow faculty.
Certainly
he enjoyed a high measure of contemporary fame; even in his early days at
Glasgow his reputation attracted students from nations as distant as Russia,
and his later years were crowned not only with expression of admiration from
many European thinkers but by a growing recognition among British governing
circles that his work provided a rationale of inestimable importance for
practical economic policy.
Over
the years, Smith’s lustre as a social philosopher has escaped much of the
weathering that has affected the reputations of other first-rate political
economists. Although he was writing for his generation, the breadth of his
knowledge/ the cutting edge of his generalization, the boldness of his vision,
have never ceased to attract the admiration of all social scientists, and in
particular economists. Couched in the spacious, cadenced prose of his period,
rich in imagery and crowded with life, The Wealth of Nations projects a
sanguine but never sentimental image of society. Never so finely analytic as David Ricardo nor so stern and profound
as Karl Marx, Smith is the very epitome of the Enlightenment: hopeful but
realistic, speculative but practical, always respectful of the classical past
but ultimately dedicated to the great discovery of his age - progress.
BIBLIOGRAPHY
John
Rae. “Life of Adam Smith” 1985
William
Scott. “Adam Smith as Student and Professor” 1987