This is how the system is designed to operate; history has a logic to it. According to Smith, agricultural lands supply the means of sustenance for any given society and urban populations provide the means of manufacture.
Urban areas refine and advance the means of production and return some of its produce to rural people. In each of the stages, the town and country have a different relationship with each other, but they always interact. Here, Smith is indebted to the physiocrats, French economists who believed that agricultural labor was the primary measure of national wealth. Smith accepted their notion that productive labor was a component of the wealth of nations but rejected their notion that only agricultural labor should be counted as value.
Again, there are philosophical issues here. First, is what one is to regard as labor; second is what counts towards economic value. Additionally, Smith is showing how the division of labor works on a large scale; it is not just for pin factories. Again, the butcher, brewer, and baker gain their livelihood by manufacturing the lunch of their customers. As the economic stage changes, so does the form of government. Economics and politics are intertwined, Smith observes, and a feudal system could not have a republican government as is found in commercial societies.
Two examples are his discussions of price and his paradox of value. Consumers look at prices to gauge value, but there are good and bad amounts; which is which is not always transparent. Some items are marked too expensive for their actual value and some are a bargain. In developing a system to account for this interaction, Smith offers a range of different types of prices, but the two most important are natural price—the price that covers all the necessary costs of manufacture—and the market price, what a commodity actually goes for on the market.
Whether this is a normative value, whether for Smith the natural price is better than other prices, and whether the market price of a commodity should be in alignment with the natural price, is a matter of debate. Following the question of worth, Smith poses the paradox of value. Obviously, we are tempted to argue that scarcity plays a role in the solution to this paradox; water is more valuable than diamonds to a person dying of thirst.
For Smith, however, value, here, is general utility and it seems problematic to Smith that the more useful commodity has the lower market price. Dividing the two analytically allows consumers to evaluate the goods both in terms of scarcity and in terms of usefulness. However, Smith is also searching for a normative or objective core in a fluctuating and contextual system, as with the role of impartiality in his moral system.
What Smith means by this is unclear and a matter of controversy. Labour, therefore, it appears evidently, is the only universal, as well as the only accurate measure of value, or the only standard by which we can compare the values of different commodities at all times and at all places. We cannot estimate, it is allowed, the real value of different commodities from century to century by the quantities of silver which were given for them.
We cannot estimate it from year to year by the quantities of corn. By the quantities of labour we can, with the greatest accuracy, estimate it both from century to century and from year to year. From century to century, corn is a better measure than silver, because, from century to century, equal quantities of corn will command the same quantity of labour more nearly than equal quantities of silver.
From year to year, on the contrary, silver is a better measure than corn, because equal quantities of it will more nearly command the same quantity of labour. Therefore, Smith seems to believe, the value of any object can be universally measured by the amount of labor that any person in any society might have to exert in order to acquire that object.
Ultimately, according to Smith, a properly functioning market is one in which all these conditions—price, value, progress, efficiency, specialization, and universal opulence wealth —all work together to provide economic agents with a means to exchange accurately and freely as their self-interest motivates them.
None of these conditions can be met if the government does not act appropriately, or if it oversteps its justified boundaries. The Wealth of Nations is a work of political economy. It is concerned with much more than the mechanisms of exchange. It is also concerned with the ideal form of government for commercial advancement and the pursuit of self-interest. Each of the responsibilities of the sovereign contains its own controversies.
Regarding the first, protecting society, Smith debated with others as to whether a citizen militia or a standing army was better suited for the job, rooting his discussion, as usual, in a detailed history of the military in different stages of society WN V.
Given the nature of specialization, it should not be surprising that Smith favored the army WN V. The nature of justice—the second role of the sovereign—is also complicated, and Smith never fully articulated his theory of what justice is and how it ought to be maintained, although, as we have seen, he was liberal in his assumptions of the rights of individuals against the imposition of government on matters of conscience and debate.
It is this last book—ostensibly about the expenditures of government—that shows most clearly what Smith had in mind politically; the government plays a much stronger role in society than is often asserted.
In particular, book five addresses the importance of universal education and social unity. Smith calls for religious tolerance and social regulation against extremism. For Smith, religion is an exceptionally fractious force in society because individuals tend to regard theological leaders as having more authority than political ones.
This leads to fragmentation and social discord. The government has no small interest in maintaining schools to teach basic knowledge and skills to young people. While some of the expense is born by parents, much of this is to be paid for by society as a whole WN V. The government also has a duty to educate adults, both to help counter superstition and to remedy the effects of the division of labor.
Regarding the first, an educated population is more resistant to the claims of extremist religions. Smith also advocates public scrutiny of religious assertions in an attempt to moderate their practices. Finally, Smith insists that those who govern abandon associations with religious sects so that their loyalties do not conflict. Of the great and extensive interests of his country, he is altogether incapable of judging; and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war….
His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.
Education helps individuals overcome the monotony of day to day life. It helps them be better citizens, better soldiers, and more moral people; the intellect and the imagination are essential to moral judgment.
No person can accurately sympathize if his or her mind is vacant and unskilled. We see here that Smith is concerned about the poor throughout The Wealth of Nations. We also see the connections between his moral theory and his political economy.
It is impossible to truly understand why Smith makes the political claims he does without connecting them to his moral claims, and vice versa. His call for universal wealth or opulence and his justification of limited government are themselves moral arguments as much as they are economic ones. Without seeing how each of the parts fit together, one loses the power behind his reasoning—reasoning that inspired as much change as any other work in the history of the Western tradition.
Of course, Smith has his detractors and his critics. He is making claims and building on assumptions that many challenge.
But Smith has his defenders too, and, as history bears out, Smith is still an important voice in the investigation of how society ought to be organized and what principles govern human behavior, inquiry, and morality.
Online versions of much of these can be found at The Library of Economics and Liberty. Both may deserve special attention. Jack Russell Weinstein Email: jack. Adam Smith — Adam Smith is often identified as the father of modern capitalism. Life and Influences a. Early Life and Influences Adam Smith was born in June, , in Kirkcaldy, a port town on the eastern shore of Scotland; the exact date is unknown. The Theory of Moral Sentiments a. Sympathy Hutcheson, Hume, and Smith were unified by their opposition to arguments put forth by Bernard Mandeville.
As Smith writes: When I condole with you for the loss of your only son, in order to enter into your grief I do not consider what I, a person of such a character and profession, should suffer, if I had a son, and if that son was unfortunately to die: but I consider what I should suffer if I was really you, and I not only change circumstance with you, but I change persons and characters.
We can also see why sympathy is, for Smith, not an egoistic faculty: In order to produce this concord, as nature teaches the spectators to assume the circumstances of the person principally concerned, so she teaches this last in some measure to assume those of the spectators.
The Impartial Spectator Using the imagination, individuals who wish to judge their own actions create not just analogous emotions but an entire imaginary person who acts as observer and judge: When I endeavour to examine my own conduct, when I endeavour to pass sentence upon it, and either to approve or condemn it, it is evident that, in all such cases, I divide myself, as it were, into two persons; and that I, the examiner and judge, represent a different character from that other I, the person whose conduct is examined into and judged of.
He writes: There is not a Negro from the coast of Africa who does not, in this respect, possess a degree of magnanimity which the soul of his sordid master is too often scarce capable of conceiving. Consistent with this interpretation, Smith emphasizes what he terms the general rules of morality: …they are ultimately founded upon experience of what, in particular instances, our moral faculties, our natural sense of merit and propriety, approve, or disapprove of. Virtues, Duty, and Justice Smith emphasizes a number of virtues along with duty and justice.
It should not be surprising that Smith addresses God amidst his discussion of duty: The all-wise Author of Nature has, in this manner, taught man to respect the sentiments and judgments of his brethren; to be more or less pleased when they approve of his conduct, and to be more or less hurt when they disapprove of it.
Obeying the rules of justice, therefore, result in little praise, but breaking them inspires great condemnation: There is, no doubt, a propriety in the practice of justice, and it merits, upon that account, all the approbation which is due to propriety.
He writes: The most sacred laws of justice, therefore, those whose violation seems to call loudest for vengeance and punishment, are the laws which guard the life and person of our neighbour; the next are those which guard his property and possessions; and last of all come those which guard what are called his personal rights, or what is due to him from the promises of others.
He begins the introduction by asserting: The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations. He writes: Is this improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society?
He offers the following example: In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. In an oft-cited comment, Smith observes, 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 self-interest.
He writes: Observe the accommodation of the most common artificer or day-labourer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation.
Political Economy The Wealth of Nations is a work of political economy. Macfie and D. Indianapolis: Liberty Press, First published in ; subsequent editions in significantly revised , , , , and significantly revised with entirely new section. Campbell and A. First published in ; subsequent editions in , significantly revised , , Meek and D. Lecture dates, — Wightman and J. Mossner and I. Haakonssen and A. Indianapolis,: Liberty Press, Essays on Adam Smith.
Edited by A. Skinner and Thomas Wilson. Oxford: Oxford University Press, Life of Adam Smith. The Social Theory of the Scottish Enlightenment. Edinburgh: Edinburgh University Press, Fleischacker, Samuel.
Princeton: Princeton University Press, Haakonssen, K. The Cambridge Companion to Adam Smith. Cambridge: Cambridge University Press, Muller, Jerry Z. Adam Smith in His Time and Ours. Otteson, James R.
Exeter: Imprint Academic, Weinstein, Jack Russell. So a prospering social order did not need to be controlled by kings and ministers. It would grow, organically, as a product of human nature. It would grow best in an open, competitive marketplace, with free exchange and without coercion. The Wealth Of Nations was therefore not just a study of economics but a survey of human social psychology: about life, welfare, political institutions, the law, and morality.
Once again, Smith looks to social psychology to discover the foundation of human morality. That enables them to understand how to moderate their behaviour and preserve harmony. And this is the basis of our moral ideas and moral actions. Here is his answer:. How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
In other words, human nature is complex. We are self-interested, but we also like to help others too. The Wealth Of Nations is no endorsement of economic greed, as sometimes caricatured. In , Smith published The Theory of Moral Sentiments , a book whose main contention is that human morality depends on sympathy between the individual and other members of society.
On the heels of the book, he became the tutor of the future Duke of Buccleuch — and traveled with him to France, where Smith met with other eminent thinkers of his day, such as Benjamin Franklin and French economist Turgot. Smith's other writings include Lectures on Justice, Police, Revenue, and Arms , which was first published in , and Essays on Philosophical Subjects Both works were published posthumously.
In , Smith was named rector of the University of Glasgow, and he died just three years later, at the age of We strive for accuracy and fairness. If you see something that doesn't look right, contact us! Were the students upon such charitable foundations left free to choose what college they liked best, such liberty might contribute to excite some emulation among different colleges.
A regulation , on the contrary, which prohibited even the independent members of every particular college from leaving it, and going to any other, without leave first asked and obtained of that which they meant to abandon, would tend very much to extinguish that emulation.
And because more of his ideas have lasted than those of any other economist, some regard Adam Smith as the alpha and the omega of economic science. David R. Henderson is the editor of The Concise Encyclopedia of Economics. He is also an emeritus professor of economics with the Naval Postgraduate School and a research fellow with the Hoover Institution at Stanford University.
He earned his Ph. Smith , part I, section I, chap. I, para. Smith , book I, chap. VIII, para. Adam Smith His reasoning about the excessively high cost of British imperialism is worth repeating, both to show Smith at his numerate best and to show that simple, clear economics can lead to radical conclusions: A great empire has been established for the sole purpose of raising up a nation of customers who should be obliged to buy from the shops of our different producers all the goods with which these could supply them.
He wrote: There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. But Adam Smith addressed the issue more than two hundred years ago: Were the students upon such charitable foundations left free to choose what college they liked best, such liberty might contribute to excite some emulation among different colleges.
About the Author David R. Selected Works The Theory of Moral Sentiments. Edited by D. Raphael and A. Edited by Edwin Cannan.
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