If you’d spent more than a year studying Economics without having heard of Adam Smith, I’d be surprised. The eighteenth-century Scottish economist and Oxford academic is often referred to as the ‘father of modern economics’ – his classic work, An Inquiry into the Nature and Causes of the Wealth of Nations, being considered the first contemporary publication of economics. His theories shaping the concepts of the free market and division of labour will unlikely be of news to current readers - however, prior to The Wealth of Nations being published in 1776, pre-Adamite economics was devoid of such principles. Although Smith saw vast success in his career, his life was not, as such, in parallel with his profession.
One could entertain themselves for hours reading stories told of Adam Smith’s absent-mindedness and controversial views of ‘unfortunate women who live by prostitution … [being] the most beautiful women’ [Adam Smith (1776), …The Wealth of Nations Book I, Chapter 11]. Indeed, he is one of the most celebrated economists, and indeed never married, Smith’s private business has always been a point of conjecture (he had all of his papers demolished upon death).
It would be wrong of me to conclude that economics in its entirety was shaped by Adam Smith – there were several influential economic philosophers in the pre-Adamite era; the Renaissance and ancient civilisations alike had their input. In fact, critics of Smith are quick to point out that he was not the originator of many of the ideas he popularised in his works. It is relevant to point out that at the time of writing The Wealth of Nations, Smith was travelling Europe whilst having a tutee, the Duke of Buccleuch (stepson of Charles Townshend), under his guidance. This gave him an excuse to divert his attention to foreign intellectuals and their ways of thinking – the likes of François Quesnay, a French physiocrat who believed that the source of all wealth was in production (namely agriculture) and free trade, had a huge influence on Smith. In Adam Smith’s ambitious publication, The Wealth of Nations, he goes on to mention the benefits of this international trade – contradicting the early mercantilist views of protectionism preserving an economy’s domestic growth.
We’ve talked about Smith’s polemic against the doctrine of mercantilism, but it’s important to consider his solution to his issues with the generally dominated idea that the wealth of a nation was based on its store of gold and silver. In The Wealth of Nations (Book IV), he proposed that the real wealth of a nation consisted of the entirety of the goods and services they are able to manufacture and trade – fathering today’s notion of gross domestic product (GDP). This, once again, attacks mercantilism in conditioning theories on a red-tape-free, control-free commerce. Smith was, what we call, laissez-faire (French for “let it be”) – though he never explicitly made reference to the expression in his works; he believed in governments leaving market forces (the “invisible hand”) to allocate wealth and resources without intervention.
Now, I’m sure you’re confused as to why it has taken me so long to give mention to Smith’s most revered concept – and you’d be right to question it. The ‘invisible hand’ has been brought to life as even a religious idea, not to mention the fact that the concept has found its way into many A-Level syllabi. Did Smith intend for this simple phrase to become so influential in modern economics? Had it been cited more than once in his famous Wealth of Nations works, then this question could have been more easily answered. In exact form (with a few US to UK-English adjustments), he wrote:
[1776, Smith, Adam, chapter 2, in The Wealth of Nations vol. IV, U. of Chicago edition, page 477]
This single citation in his famous works led to the two words being picked out. Since this publication, he made two more cited references to the ‘invisible hand’ in his other celebrated works, Theory of Moral Sentiments and also in his Essays on Philosophical Subjects. Smith’s exact thoughts on this notion are not entirely clear – there have even been reports which mention Smith having unintentionally ‘pocketed’ the idea from Shakespeare’s Macbeth, which refers to a ‘bloody and invisible hand’. Whatever Smith’s intention, the phrase has now been taken to describe the market forces and price mechanism of supply and demand.
I could go on and on about the applications of Smith’s admired theory of the division of labour, all the way from its prime – with Henry Ford applying his means of bulk production to build the Model T at Highland Park – to the present; in the Finance Division I worked with not so long back. I think it’s important, however, to end with Smith’s highly libertarian philosophy – ‘that philosophy was that economic freedom and liberty provides the best of all possible worlds’ [David Smith, Free Lunch]. It’s key to note that Smith was never anti-government, he just believed in clear, minimal interference. It was known that the Thatcher government utilised Smith’s ideas to drive the UK out of the cripplingly controlled post-war period in which monopoly power became a domineering issue, with trade unions pressuring inefficiencies and restrictions.
With advocates like Maggie Thatcher carrying around his famous publications, it’s safe to resolve that Smith is one of the most honoured economists of the modern era – though maybe not having lived such an illustrious life – lecturing invisible students for hours on the street corners of Glasgow (perhaps Smith was victim of a lifelong existential crisis, who knows). From principles to prostitutes, such was the life of Adam Smith.
Written by Omkar Dixit
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. - Adam Smith
An Inquiry into the Nature and Causes of the Wealth of Nations - Adam Smith
Free Lunch - David Smith