Adam Smith Essay, Research Paper
In eighteenth century England, one would know of a man by
the name of Adam Smith and be marveled by his theories and
philosophies. Early on in Smith s life he was noted for being an
intelligent child which lead him to go to Oxford at the age of
seventeen on a scholarship. Here the foundation of his future
began, the teachers at Oxford were reluctant and thus Smith found
himself reading whatever he chose including a questionable work
of David Hume, A Treatise of Human Nature, which ends up being an
influence on him. He remained at Oxford for six years,
graduated, and then moved on to the University of Glasgow, where
although many of his actions were often disapproved of, he was
still admired among his students.
Already known for his scholarly achievements, well educated
although a self-taught graduate of Oxford, and his absentminded
persona, his first book The Theory of Moral Sentiments greatly
increased his notoriety. The theory that he introduced about
human self-interest and moral judgment attracted much interest
and debate. He proposed that humans being selfish creatures are
capable of moral judgment only due to their ability of placing
themselves in the objective view of the third-person. The
theories he spoke of in this book may be what spawned the ideas
for his second book, The Wealth of Nations, the work he is better
known for to this date.
As a tutor to the son of Townshend, they went to France
together and spent just over a year in Toulouse in absolute
boredom. They then moved to the south of France and met Voltaire
whom Smith worshipped, then to Geneva, and to Paris. This is
when Smith began work on a treatise of political economy, this
was the official beginning of a book later to be known as The
Wealth of Nations, but it would be 12 years before its
completion. In Paris, Smith, after learning a limited but decent
amount of French, was able to talk to one of the greater French
economic thinkers, a doctor by the name of Francois Quesnay, the
creator of the economic school Physiocracy. Part of this
Physiocracy was a chart called a tableau economique that insisted
that wealth sprang from production and that it flowed through the
nation, from hand to hand, replenishing the body social like the
circulation of blood. The main problem with Physiocracy was it
insisting only the agricultural classes produced true wealth and
that manufacturing and commercial classes only affected it in a
sterile way. Even though it introduced a laissez-faire view of
the economy which was not common in their time, it still failed
to recognize the importance of labor everywhere and not just on
the land. Smith perceived that labor was the source of value.
After some unfortunate incidents involving who he was
tutoring, Smith moved back to England where his book started to
form. This was when Smith met Benjamin Franklin, who then gave
him information about the new American Colonies and made him gain
a certain appreciation for them and the significance they may
later have. His book was finally published in 1776. Although it
wasn t necessarily an original book, it s ideas weren t all new,
but in this work Smith was able to combine all of the great ideas
and theories of those before him as he also mentioned over a
hundred authors. Smith was extensive with his credits as he was
with the entire book. He touches on an incredible amount of
subject and continues on side details for pages giving it a
general unorganized layout. It was never meant to be a textbook,
but it still didn t fall short of being a revolutionary
masterpiece. He doesn t focus on any one class or side, but
instead explains the role and importance of each. His concern
was the condition and wealth of the entire nation, all of
society. Being in a modern world, where the consumption of goods
and services is what drives the economic life.
One of Smith s main purpose was to lay out a basic mechanism
by which society keeps together. He managed to put basic
principles behind the busy industrial world that keeps it working
without any central planning or any set tradition. This is
Smith s concept of the invisible hand where the private
interests and the passions of men are naturally directed towards
which is most agreeable to the interest of the whole society.
Here he brings up this concept of the market mechanism, where the
individual is kept in line with everyone else and will only
change if all changes over the years, but will still remain
within this mechanism. These simple laws tell us that given to
certain circumstances, evaluating them will bring about
foreseeable results. They show us how the drive of the
individual self-interest does not ruin the economy by resulting
in competition. Then this competition leads to giving the goods
that society wants in the amount they want in order to sell their
product, therefore any individual cannot raise the prices above a
competitor. Smith was able to recognize self-interest of the
producers and consumers as a driving power to guide men to
whatever work society is willing to pay for. Still, this isn t
the entire package, because a community activated only by
self-interest would be a community of ruthless producers
interested only in their profit. Competition is what keeps this
balance level and the selfish motives of men are to yield the
most unexpected of results of balance. One s self-interest will
cause them to raise their prices above their competitor but then
they lose their business to the cheaper competitor. Also a
producer should not expect to produce more than the quantity
demanded and expect to sell out of their good no matter what good
it may be because it will only result in surplus and a loss of
money.
This idea that Smith introduced is one of an economy that
yields to the wants and demands of society. Also, workers
fluctuate along with the market. When the demand for a product
is high, the wages will be higher in that field because there is
more money being made. Once the employment is filled and the
demand for the product goes down, the wages will become low in
that trade causing workers to move onto another field. With
these simple explainations he has clarified many aspects of the
economy, including how prices are kept from drastically changing,
how society can make the producers provide them with their wants,
why high prices occur and how they are brought back to balance,
and he has accounted for a basic similarity of incomes and prices
and each level of a trade, this all resulting in a
self-regulating system. With this system, one may do whatever
one pleases with the market but if it doesn t abide by the wants
of society, there is sure to be economic ruination.
Another point of Smith s was the concept of specialized
labor. He was able to recognize that this does greatly increase
productivity but he also didn t strictly believe in this division
of labor. Smith, being quite the humanist, believed that this
would cause a man to be dull and uneducated and although
increasing production this was something to be careful of. The
world that Adam Smith referred to was one where there was no
agent powerful enough to interfere with or to resist the
pressures of competition. Although this world may have been very
different from ours but these laws are the basis for much of the
economic theory of today.
The law that drives society to grow to this wonderful
multiplication of wealth and riches is known as the Law of
Accumulation. Following the same basic structure as Smith s
other laws, this one pertains to that a capitalist should always
accumulate their savings. Not so as to just accumulate to become
wealthy, but instead the accumulation of capital is a vast
benefit to society by improving the welfare of the community. He
believed in accumulating so that the world may benefit, but there
is also a point where further accumulation would be impossible
and cause all the savings to be eaten away. This is what
prevents the self-interest of man to get in the way of the
market. After a certain amount of accumulation, there is only so
much the producer can do with their money that further expansion
would only prove in bankruptcy (ex: Planet Hollywood).
This law also deals with second great law of the system, the
Law of Population. In this, laborers could be produced according
to the demand. Where wages were high, there would be an increase
in workers, and when wages fell, these workers would decrease,
also influencing the production of men. Smith believed that
higher wages do affect birth rate slightly, but that these
children will just be more children that are part of the working
age.
Provided that the market mechanism is not tampered with,
Smith has found a new way to look at it all in a cyclic pattern
of cause and effect. Everything is determined by the preceding
link and the only outside affectors are public tastes, which
guide the producers, and the physical resources of the nation.
This cycle is what brings everything back toward a subsistence
level and takes care of the needs of society if it was left
alone. The interference of government was undesired because
Smith considered governments spendthrift, irresponsible, and
unproductive. But, these classical views did not expect the
Industrial Revolution. Smith believed in a static community that
grows but never matures. Although modern economist may point out
defects in Smith s market, none could improve on the richness and
life that Smith contained in this world. No one may ever
encompass his age again as did Adam Smith.