"The Wealth of Nations"

Adam Smith and the Science of Economics

Everybody has heard of Adam Smith’s Wealth of Nations, and quite a few of those who have heard about it have read it, or bits of it. By common consent, it is one of the really great books of the world, one of the books that have changed men’s minds. That is what it has been doing since it was first published, getting on for two centuries ago, and that is what it is still doing now.

Wherever men and women are studying what is now called Economics, but what in Adam Smith’s day and for long afterwards was known as Political Economy, the Man and his Book are sure to be mentioned, sooner or later, and sooner than later. Very likely he will be referred to as the Founder of Political Economy, and no one has a better claim to the title, even though there were plenty of writers on the subject before he put pen to paper. His book was the first really comprehensive study of the subject, and although a good many of its conclusions have become out-moded, it remains one of the classics of a subject which has become increasingly important as the years and generations have passed.

Probably only a Scotsman could have written it. Adam Smith was a Scot of Scots. He had the peculiar Scottish quality of canniness; he was shrewd and clever and knowing, he was for ever asking questions and he was never satisfied until he had got the answer. Little things interested him as well as big. He had an ear and an eye for out-of-the-way facts, and he stored them all up in his formidable memory, where they lay in wait until he was ready to bring them out and use them. He was clear-headed, and he generally expressed himself clearly. If there are sections and chapters in his book that are hard to understand, and there are quite a number of such, it is not because he did not know how to express himself properly but because the things he is writing about are far from easy to describe and explain.

About the man himself there is not very much to record. He was a simple man on the whole, and there was little or no exciting incident in his life. He was born in 1723, in Kirkcaldy, a small town in Fifeshire, on the east coast of Scotland, where his father had a legal practice and held some minor posts under Government. He died before his son was born, and Adam Smith was brought up by his mother, who, it may be remarked, seems to have been the only woman he ever really loved.

As a small boy he was sent to the burgh school in Kirkcaldy, where he sat on the same bench with the laird’s son and the sons of the local fishermen and colliers as was the good old-fashioned Scottish way. The education, compared with that of a present-day council school, was dull and meagre, and the boys had no exercise-books but had slates instead, which they wiped clean with their sleeves. But Adam Smith was not ungrateful; on the contrary, he insisted that the education given in such a place was far better than that which English children received at that time.

When he was fourteen he went as a student to the College or University of Glasgow, where most of the lessons were given in Latin, and the curriculum was composed of a mere handful of subjects. But already in those days Glasgow had a high reputation for scholarship, and some of the professors were first rate. The one who influenced Adam Smith most was Francis Hutcheson, who taught Moral Philosophy, which covered Ethics or the theory of right and wrong, and fifty years later he publicly referred to him as “the never-to-be-forgotten Hutcheson”. From him he learnt to lake an optimistic view of the world and of human nature. Pleasure is good, so Hutcheson maintained, provided it is taken in moderation; wealth is good, because it enables you to enjoy the good things of life; and liberty is good, too, liberty to think freely, liberty to speak out what you believe to be true, liberty to act in the way that you believe to be right.

Hutcheson insisted that man is born naturally good, or at least with the seeds of goodness within him, and therefore a really wise and enlightened government will leave the individual free to develop his own abilities and interests and inclinations in his own way, with as little outside interference as is compatible with the grant of a similar liberty to others. In his heart and mind Adam Smith accepted (hat with the most cordial assent, and it became a keynote of his own teaching later on.

After Glasgow, he had three years as an Exhibitioner at Balliol College, Oxford, where he learnt practically nothing from the dons, whose laziness and inefficiency he ascribed to the fact that they received their fees whether they taught or not, and were not dependent, as the Scottish professors were, on what was paid them by their students, but taught himself a very great deal from the excellent college library.

Then he returned home to his mother in Kirkcaldy, and for a year or two was uncertain what to do next. He was twenty-five and had still not made a start on a career, when he was asked to give a course of lectures in Edinburgh on English literature. Such lectures were a novelty; they “caught on”, and Smith was a hundred pounds to the good at the end of the course. In the next two winters he delivered further courses, and one at least included a survey of Political Economy, his first venture into the field of study that he was to make peculiarly his own. So successful were they that he cannot have been much surprised when he received an offer of the Chair of Logic at Glasgow, which was soon exchanged for that of Moral Philosophy, which suited him better.

Now he was in his element, and for the next thirteen years he was a Glasgow professor. Unfortunately his lectures have not been preserved, but we know that he discoursed on Natural Theology, on Ethics, and, more important, on Justice, which included a discussion of “those things which are calculated to increase the riches, the power, and the prosperity of a State”. But all the time he was learning himself, and in places very different from the college classrooms. Glasgow was still quite a small place, with a population of perhaps thirty thousand or so, but it was busy and bustling, what with the prospering trade in tobacco and sugar with the West Indies and the colonies in America. Soon after his arrival there, Adam Smith joined a club of local businessmen that met in one of the city inns for a good dinner and discussion afterwards, and from his fellow-members he soon acquired a mass of practical information on trade and industry that served him in excellent stead when he came to write his book.

He also developed into a first-rate man of business himself, notwithstanding his occasional fits of absentmindedness, such as the one that landed him one day in a tan-pit because he was so absorbed, in showing a friend round that he failed to see where he was going, and was often employed on matters of college business. He had also the acumen to befriend the young James Watt, who was given a workshop on the college premises to do his experiments when the guild, authorities in the town refused to recognize his qualifications.

Perhaps he would have remained a professor to the end of his days if he had not come to the notice of the guardian of the young Duke of Buccleuch, who was looking for a completely reliable person to accompany his ward on the “Grand Tour” of the Continent. The choice fell on Adam Smith, and an excellent one it Coved, both for him and for his young charge. For some two years they were in France together, most of the time in Paris, where Smith seized the opportunity of meeting the French philosophes, who were then producing the most advanced ideas on not only politics but economics. Of these the man who interested him most was Quesnay, who was generally recognized as the chief of that group of thinkers who called themselves economistes, although they came to be better known under the name of Physiocrats.

This word comes from the Greek words for “nature” and “rule”, and it was given to them because they believed that there is in society a natural order, something that belongs to the essential nature of things, and that this natural order should be left full play in human affairs. They were strongly opposed to Government Intervention in industry and commerce, as being “unnatural”, Leave men alone to do their jobs as they think best, they urged; and one of their number coined a phrase which became their watchword and passed into common use: Laisser faire, laisser passer, or more shortly, laissez faire, which may be rendered freely as “Let things alone, don’t meddle”.

This principle was directly opposed to the generally accepted Ideas in economics and politics. The rulers of the France of the ancien regime (and, it should be said, of Britain and most of the other European countries) were guided by quite contrary ideas. The accepted ideology was what is known as Mercantilism, or the Mercantile System, of which the distinguishing feature was a profound belief in the virtues of State control of all economic processes and the protection of chosen industries by government action. Quesnay and his associates took the opposite view, but in their thinking was mixed a good deal of highly doubtful speculation. On the whole, Adam Smith sided with them, but only with considerable reservations. But the experience was invaluable to him, the daring Ideas, the good talk, the chance of meeting the great ones of the World, the clash of nimble minds and exotic characters.

Already his book was taking shape in his mind, and after his return to Kirkcaldy in 1767 he devoted himself to writing and revising it. At length it was published in 1776, under the title, An Inquiry into the Nature and Causes of the Wealth of Nations. Although it sold only reasonably well to begin with, it soon “caught on”, and was highly praised by all the leaders of opinion.

Four editions appeared in Smith’s lifetime, and innumerable editions and translations have appeared since. Few books, indeed, have been so praised by successive generations of readers, and one historian of the last century, H. T. Buckle, went so far as to assert that it was “probably the most important book that has ever been written”, and that “this solitary Scotchman has, by the publication of one single work, contributed more towards the happiness of man, than has been effected by the united abilities of all the statesmen and legislators of whom history has preserved an authentic account”.

Praise indeed, and yet not so extravagant as might appear. While as a book it leaves a good deal to be desired, it is untidy and disorderly and full of digressions (which are yet very interesting), it is grand in its conception and profoundly convincing in its argument. To summarize it in a few words is impossible, but at least we may give some indication of its drift.

To begin with, there is Smith’s conception of wealth. Most of his contemporaries, if asked what the wealth of the country consists of, would have come up with something about money in the bank or investments or landed property, but Smith insisted that the real wealth of a country is what its workers produce in the course of a year. As he saw it, a wealthy country is one in which there is sufficient of the “necessaries and conveniences of life” to go round; and he went on to urge that: “No society can surely be flourishing and happy of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged.”

Wealth, then, consists of goods, and goods of whatever kind are the product of human labour and ingenuity and skill. Together they constitute a “fund”, and clearly the bigger the fund in proportion to the number who are to share in it, the better it will be for all concerned. The size of the fund depends mainly on the “skill, dexterity, and judgment” with which the labour of the nation is applied, and here we come to those most interesting chapters in which Adam Smith explains the principle of Division of Labour and, from such homely illustrations as the craft of the pin-maker, shows how it works. That there are disadvantages in what we should call specialization he was quite willing to admit, but he was firmly convinced that without division of labour, modern society could not continue to exist for long, but there would be a reversion to barbarism.

Yes, it is a wonderful thing indeed, this division of labour, but don’t let us fall into the error of thinking that it is the result of human wisdom.. In fact, it is owing to something that is born in us: “It is the necessary consequence of a certain propensity in human nature, the propensity to truck, barter, and exchange one thing for another.” This assertion is a reflection of Adam Smith’s conviction, that there is a “natural order” or arrangement of things that has been ordained by God from the beginning, and that man’s duty, and chance of happiness, depend on his ascertaining what this natural order is, and then co-operating with it to the full.

This brings us to another of his fundamental axioms, which likewise has a theological complexion. Every individual, he asserts, is constantly engaged in trying to better himself, to improve his station in life; but while “it is his own advantage, and not that of society, which he has in view”, matters are so arranged that “the study of his own advantage naturally, or rather, necessarily, leads him to prefer that employment which is most advantageous to society”. Or, to quote another passage, by directing his industry “in such a manner as its produce may be of the greatest value, he intends only his own gain”, but “in this, as in many other cases, he is led by an invisible hand to promote an end which was no part of his intention”.

Some of his critics have complained that this is to take a very low view of human nature, but Adam Smith did not see it in this light. The “invisible hand” was his synonym for God, and he firmly believed that to act in this way was to serve the pre-ordained purpose. We should accept this selfishness, therefore, this pursuit of self-interest, as being an essential part of the natural order, or, if you like, the Divine plan; we should avoid meddling with it, or thwarting it, and let it work its way. Leave men free to seek what they believe to be for their own good, act in the way they deem to be best, and we may be sure that the “invisible hand” will guide them to do what is best for one and all.

Moved by this guiding principle, Adam Smith urged that the apprenticeship laws should be abolished, and likewise those that hindered a worker from moving to where he might find a better job. He advocated the abolition of restrictions on trade, national and international, and he looked forward to the time when all the countries of the world would constitute one great market, united by the ties of peaceful commerce. If his economic philosophy may be summed up in the briefest fashion, it is comprised by the two terms, Competition, and Free Trade.

This was his gospel, and before long it was accepted as the policy of the country, with the most strikingly successful results. More recently it has been abrogated, as other countries have tried to secure a state of national self-sufficiency. But there is still force in his arguments, and in the European Common Market and other similar projects he would have seen a fulfilment of his hopes.

It is getting on for two hundred years now since he died, at Edinburgh in 1790, but the most important part of him is still alive , his ideas of economic freedom and peaceful progress, his insistence on a fair deal for the workers, and, not least, his persuasion that the study of Economics is an essential part of modern life, if we are to benefit to the full from the technical improvements that have transformed, and are still transforming, this busy, stimulating, challenging and intensely interesting world of today.