Adam Smith Scottish Moral Philosopher & Economist(Baptized June 5, 1723 Kirkcaldy, Scotland.—died July 17, 1790, Edinburgh)

Pir Qasim Shah MS Management Science – Management Thoughts for Dr. Gohar

Overview

IntroductionEarly lifeGlasgowThe Theory of Moral SentimentsTravels on the ContinentThe Wealth of NationsSociety and the “invisible hand”Economic growth

IntroductionSocial Philosopher and Political EconomistMajor Works:

o The Theory of Moral Sentiments (1759)o An inquiry into the nature and causes of

wealth of nations (1776)Foundation Stone of Political and Social Evolution Lectures on :

Philosophy, Government, Law & Economics

Early life

Elementary Schooling in Kirkcaldy At the age of 4 he was carried off by gypsiesAt the age of 14 Entered University of GlasgowInfluenced by Francis Hutcheson (Scot-Irish philosopher and major exponent of the theory of the existence of a moral sense through which man can achieve right action)Got a Scholarship (i.e Snell Exhibition) of Oxford University

Early life

Started delivering public lectures in Edinburg after returning from OxfordSubjects: Rhetoric, History, Economics etc.Appointed as a professor of Logic at Glasgow when he was 27In 1752 he was transferred to “moral philosophy” (a combination of natural theology, ethics, jurisprudence and political economy)

Glasgow

Happiest and honorable period of Smith’s lifeLectures and University AffairsAppointed as a Dean in 1758Evenings were spent in Society of GlasgowCompany with Aristocrats, Scientists, Government Officials & other intellectuals:

Joseph Black Pioneer of ChemistryJames Watt Famous for Steam EngineRobert Foulis Publisher

The Theory of Moral Sentiments (TMC)

Didactic, Exhortative, Analytic in Nature*It lays the psychological foundations for later workDescribes the principles of “human nature”It was taken as a universal & unchanging datum from which social institutions & behavior could be deducedLong debates about the conflicts between the TMC & later works of Adam Smith

* Didactic: Intended to teach with moral instructions, Exhortative: Motivational, Analytic: Using logical reasoning

The TMC Cont…Question in TMC that attracted attention of Philosophers:

“The “source” of the “ability” to form “moral judgments”; including the judgments on one’s “own behavior”, in the face of the seemingly “overriding passions” for “self-preservation & self-interest””

The TMC Cont…Smith’s Answer: “The presence of an “Inner man” who plays the role of “impartial spectator”, “approving or condemning” “our own & others’ actions” with a voice “impossible to disregard.”

Simple definition of QuestionHow “instinctual drives” are “socialized” through the “superego”?

Better Understood by:Sigmund’s Personality Iceburg

Travels on the Continent

Started tutoring to the stepson of “Charles Townshend” (duke & role in American Revolution)Remuneration £300 p.a. + travelling expenses and £300 pensionMeeting Voltaire (Greatest of all French Writers)Started writing “Wealth of Nations”Returned to London after the death of Duke’s brother and worked in Royal Society

An Inquiry into the Nature and Causes of the Wealth of Nations.• Four Stages of Society:1. Hunters2. Nomadic

Agriculture3. Feudal Farming4. Commercial

Interdependence• Laissez-faire Capitalism

Wealth of Nations cont.…

The Philosophy of Smith in Book is: Focused on “human nature”Driven by the “desire for self-betterment”Guided by “Faculties of Reason”

Society and the “Invisible Hand”

• Arguments: • How a system of perfect liberty,

(operating under the drives and constraints of human nature) and intelligently designed institutions, will give rise to an orderly society?

• Study:• Explanation of “Laws” that “Regulated” the

“Division of Entire Wealth” and “Distribution of Goods & Services amongst, Laborers, Landlords and Manufacturers”

Invisible Hand Explanation • An “institutional mechanism” that acts to

“reconcile” the “disruptive possibilities” inherent in the blind obedience in the passion alone. (i.e. competition)

• “A desire that comes with us from the womb and never leaves us until we go into the grave”

• Unintended outcome of competitive struggle for self-betterment

• The said force pushes the prices to a so called “natural” level that correspond to the cost of production

Invisible Hand (Explanation) Capital flows from less profitable to more profitable

businesses or areas or occupations Competitive mechanism continuously forces the

prices to stay at the natural levels despite short-run aberrations

Wages, Rents and Profits (Factors of cost of Production) are also subject to the same self interest and competition

Smith provided a rationale for these natural prices and also revealed an orderliness in the distribution of income (i.e. wages for workers, rents for landlords and profits for manufacturers)

Economic Growth & Smith Division of Labor Output Efficiency Examples of a Pin Factory Accumulation of Capital/Stock for wages, costs,

machine & tools Division of Labor makes individuals stupid Division of labor, Labor Supply, Wages & Mortality

Rates are closely related Against Monopolies, Mercantilists and Accumulation

of Wealth

Excess Labour SupplyBrings down Wages to Natural Price

Fall in AccumulationConsequences of Natural Mechanism

Hiring Additional LabourRequires More Wages then their Natural Price

Accumulation of StockRequires More Labour

Human Nature & Philosophy of Smith

• Wealth of Nations would grow if individuals grow laissez-faire

• System of “Natural Liberty” not mercantilism or monopolies

• Merchants & Manufacturers are neither are; nor ought to be the rulers of mankind

• Intellectual degradation resulting in commercial division of labour

Final Years of Life• Wealth of Nations received recognition• Appointed as a commissioner of Customs

Duty for Scotland• Well off in the final years of life• Spent time in Edinburg with occasional visits

to Glasgow & London• Died at the age of 67 • Buried in church yard Cannon Gate with a

monument “Adam Smith Author of Wealth of Nations”

Thank You

Q/A Session