Adam smith

In 1776 a Scottish professor of philosophy published a book entitled An Inquiry into the Nature and Causes of the Wealth of Nations (known universally as The Wealth of Nations).The publishing of this book represented a watershed in the development of intellectual thought on economic issues and problems. Although many of the ideas in the book weren’t entirely new at the time, its author, Adam Smith, is generally credited with being the father of the discipline of economics.

Professor Smith taught moral philosophy at the University of Glasgow. His speciality was ‘natural theology’, which thought to understand and formulate the natural laws that governed physical and social phenomena.

At the time Smith wrote his fundamental work, the affluence of a nation was measured by many politicians in terms of the gold and silver accumulated in national treasuries. Smith pointed out that the wealth of nations was chiefly determined by people conducting their daily business rather than by the amount of gold and silver in a government treasury.

He believed that the accumulation of capital equipment, such as machines and structures used by factories, was a vital determinant of wealth because it enhanced the division of labour. The thrifty Scot argued that saving was critical as a means of providing the funds to finance the accumulation of capital. Smith’s main task in the book was to develop a framework for understanding the mechanism through which the seemingly chaotic hubbub of daily trading actually resulted in a natural order.

His background in natural theology led him to conclude that trade in unregulated markets would maximize the wealth of nations. The foundation for this belief was the notion of rational behaviour. The main and lasting contribution of Adam Smith was therefore the formulation of an economic interaction theory based on a view of humans who carefully pursue net gains.

Smith believed that rational behaviour is biologically determined and that people have an innate tendency to pursue their self-interest. Yet Smith concluded that in pursuing personal gains, individuals are impelled by the requirements of survival to act in the interests of society. In his eloquent statement of this principle of ‘enlightened self-interest’, Smith was careful to emphasise that individuals are motivated not by altruism but by need for the cooperation of others.

Smith believed that rational human beings have an inherent tendency to ‘truck and barter’, thereby seeking out means for mutually advantageous exchanges. The belief in the effectiveness of a system of unregulated markets composed of many competing sellers in maximizing well-being is another hallmark of his views. He is often credited with supporting laissez-faire, a lack of government intervention in business affairs, but he did believe governments should assure that markets remained competitive.

Smith denounced monopolies, many of which were created by governments at the time. His views on the role of government were quite complex. In general, he believed that much government intervention in markets did more harm than good. Smith can justly be credited with establishing economics as a separate social science. He firmly established the individual as the main object of study and provided the first attempt to systematically analyse how the economy functions.

XX. Search for more information about Adam Smith. Write an essay about this prominent economic thinker. Use some of the underlined words, expressions and discourse makers from the text in Exercise XIX.