Smith, Adam (1723–1790)

The Scotch economist and philosopher Adam Smith, who formed the basic principles of capitalism, is considered the father of modern economic theory. In The Wealth of Nations, Smith argued that in a laissez-faire economy, if each person were to pursue his or her own interest, the general welfare of all would be promoted.

Adam Smith was born in Kirkcaldy, Scotland, in 1723. His father, who was a customs official, passed away at an early age; however, Smith remained very close to his mother. Although Smith never married, he had many friends; among them were the philosopher David Hume and the historian Edward Gibbon. After spending most of his childhood at home, Smith enrolled at Glasgow College in 1737 at the age of 14. After 3 years at Glasgow College he went on to Oxford University where he received the Bachelor of Arts degree in 1744. Over the years his studies covered a variety of topics; however, he most enjoyed mathematics and moral philosophy.

In 1748 Smith became a lecturer at Edinburgh University and in 1751 he obtained the Chair of Moral Philosophy, a position he held for nearly 12 years. During his time at Edinburgh University, Smith wrote his first significant treatise, the Theory of Moral Sentiments, published in 1759. The theory was based primarily on his university lectures and focused on morals for the common man. In 1764, Smith gave up his position at Edinburgh University to become a tutor to the Young Duke of Buccleuch while he spent 2 years touring Europe. During this time he met and conversed with such famous French philosophers as Jean-Jacques Rousseau and Voltaire.

His most famous work, An Inquiry Into the Nature and Causes of the Wealth of Nations, was a fundamental departure from the long-standing traditions of absolutism and transcendentalism and their view of individuals as inherently sinful and in constant need [Page 1293]of strong secular and religious authority. Smith believed that the consumption of goods and services was the ultimate aim of economic life. Smith's primary interest was in constructing the laws of the marketplace, discovering what he called the “invisible hand,” where private interests are led in the direction that benefits society. According to Smith, the drive of individual self-interest results in competition. If left alone, competition among producers will result in the supply of goods that society wants, in the amount society desires, at the price society is willing to pay.

Since Smith developed his economic theory in the 18th century, the marketplace has changed considerably. Smith believed that any type of trade restrictions would create unwanted problems and effectively eliminate the “invisible hand.” Smith viewed government intervention as harmful to a free market economy; however he did not anticipate large industrial monopolies that dominated entire areas of the economy, artificially controlled prices, and reduced wages. Although Adam Smith died in 1790, his economic theories have had a lasting impact.