Adam Smith

‘THE FATHER OF MODERN ECONOMICS’

Contents•His Life

•Economic History

•Economic Chronology

•Subject Areas

•Political Economy

•Laissez Faire

•Invisible Hand

•Spontaneous Order

•Division of Labour

•Conclusion

The Life of Adam Smith

EARLY LIFEJune 5, 1723 baptised in Kirkcaldy, Fife, Scotland. However, his actual birth date is not recorded

1729 to 1737 Burgh School of Kirkcaldy, Studied Mathematics, Latin, History and Writing

1737 At 14 studied moral philosophy under Francis Hutcheson at University of Glasgow. Developed his belief in free speech, liberty and reason

1740 Studied for 6 years at Balliol College, Oxford but dropped out due to a nervous illness

Education and Career1748 Smith began delivering public lectures in the University of Edinburgh under the patronage of Lord Kames

1750 Meets and completes works on history, politics, religion and economics with philosopher David Hume. Becomes a part of the Scottish Enlightenment

1751 Receives professorship at University of Edinburgh and teaches Logic and later on Moral Philosophy

1752 Head of Moral Philosophy and studied as an academic in the University of Edinburgh

1759 ‘The Theory of Moral Sentiments’ published. Becomes very popular, students from around the world enrol just to be taught by him. Lectured on basis of national wealth

1763 Resigns as professor to tutor Henry Scott the Duke of Buccleuch

LATER YEARS1764 Tutoring Henry Scott also meant touring parts of Europe. In France he met philosopher Voltaire. Travelled to Geneva and met Benjamin Franklin, Physiocrats and notably François Quesnay

1766 Tutoring tour ended and began writing The Wealth of Nations

1776 Published The Wealth Of Nations which became a massive hit

1787 to 1789 Lord Rector of the University of Glasgow

17 July 1790 Died

2007 BoE puts Adam Smith on the £20 note

Economic History

What is happening in the Economy influences the theories that are developed in that day

Smith lived between 1723-1790 and hence the end of his life was at a similar time to the start of the Industrial Revolution

Economic Chronology

Smith belonged to the School known as ‘Classical Economics’ and ‘The Wealth of Nations’ is widely believed to mark the beginning of Classical Economics

Subject Areas

In Economics

• Markets: • Founder of Free Market Economics – ‘Laissez Faire’

• Trade:• Moving away from belief in Mercantilism and towards the

‘Free Trade’ Model

• Output:• Introduction of Division of Labour improves Productive

Efficiency

• Wealth:• Measurement of Wealth as Production and Commerce (Gross

National Product - GNP) not gold and silver, etc.

Outside Economics

• Philosophy:• Moral thinking

• Sociology:• Davis and Moore

• Look at principles of Society that need to be in place for Division of Labour to successfully occur

‘The Wealth of Nations’ is described to be a work of political economy and argues for a system of ‘natural liberty’

• a market that governs itself• free from state intervention

THE POLITICAL ECONOMY

The Government

Protection from outside threats

Implement Justice

The maintaining of public works and institutions

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.”

The natural course that he refers to only needs a very small government to ensure that the above actually occurs

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Theories

Laissez faire

Preferred that the government played no part in business matters

• E.g. minimum wages, trade restrictions, product regulation

Markets are unregulated

Businesses can do as they see fit

Invisible handPushes society towards prosperity

Self regulating of the marketplace

Concept first found in ‘The Theory of Moral Sentiments’

By following self interests the society will benefit

Will lead to proper pricing of goods

“he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which has no part of his intention”

Competition was a key part of Smith’s self regulating economy

Spontaneous Order

Otherwise known as self organisation

By following self interests a more efficient market is created than could have possibly been made by a central authority

A price will give information, and people will make decisions based on that price and the market adjusts on the needs of people

Illustrated in the invisible hand theory

The Division of Labour

‘The Wealth of Nations’ explains the optimum organisation of a pin factory

Arises not out of government intervention but occurs naturally due to ‘natural forces’

This includes the specialisation of the work force

• breaking down of tasks• in order to be performed efficiently

Assembly line technology meant that each worker specialised on a stage of production

He suggests that there are three causes of increase in the

quantity of work:

• Increase in dexterity in every particular workman 

• Saving the time which is commonly lost in passing from one

species of work to another

• Invention of a great number of machines which facilitate and

abridge labour, and enable one man to do the work of many

Forcing a workforce to repeatedly do mundane and monotonous tasks would lead to

• a dissatisfied workforce • poor work ethic

He therefore felt that the government had a task of ensuring that workers were provided with education

The fifth volume of ‘The Wealth of Nations’ is key in portraying his views on social unity and universal education

Thank you for your kind attention!