Adam Smith

Adam Smith

1723 to 1790

Adam Smith was a Scottish political philosopher and economist, considered one of the forefathers of classical economics and a pioneer of the study of political economy. Smith graduated from Balliol College at Oxford, and later served as the chair of moral philosophy at the University of Glasgow. He departed from his academic position after 12 years to tutor the Duke of Bucchleuch in Switzerland. His two major works, An Inquiry into the Nature and Causes of the Wealth of Nations, and The Theory of Moral Sentiments, were composed after he left the service of the Duke on a lifetime pension.

The former work, considered his magnum opus, is often referred to by its abridged title The Wealth of Nations. It was first published in 1776, the same year as the American Declaration of Independence, and is considered a foundational text in modern economic theory. It is noted for its influence on the American founding fathers James Madison, Alexander Hamilton, and Thomas Jefferson, and upon the economic theories of Karl Marx, John Maynard Keynes, and Milton Friedman.

The latter work expressed Smith’s deep interest in moral philosophy, and expanded upon the philosophical, juridical and ethical framework of his earlier work. While known primarily as an economist today, Smith’s work and interests lay primarily in the fields of theology, jurisprudence, and moral philosophy.

Biography

Before Adam Smith, most people seemed to believe government was necessary to make an economy work. In Britain and Europe, governments promoted economic self-sufficiency as a bulwark of national security. They subsidized “strategic” industries like mining and silk‑making. Governments helped protect apothecaries, bricklayers, woodmongers, playing card makers and myriad other workers against what they considered unfair competition. Governments protected overseas trading companies. Governments restricted imports in the name of accumulating gold hoards, thought to be a secret of wealth and power. Life without considerable government intervention was unthinkable.

Adam Smith defied all this with The Wealth of Nations, a clarion call for economic liberty. Although many specifics weren’t original with Smith, he created a bold vision which inspired people everywhere. He showed that the way to achieve peace and prosperity is to set individuals free. He attacked one type of government intervention after another. He recommended liberating Britain’s American colonies. He denounced slavery. Smith had an enormous impact on ideas, where change begins.

Smith was an unlikely revolutionary. He came across as a serious, absent-minded, thoroughly likeable man. He was a dedicated scholar, forming a personal library of some 3,000 volumes. He was often so preoccupied with ideas that he forgot what he was doing. Once, reportedly, he was giving a tour of a Glasgow tannery, and he absent-mindedly fell right into the tannery pit, from which his friends extricated him. He seemed to make friends wherever people enjoyed playing cards or talking about such things as current affairs, history, literature, philosophy or government policy. Voltaire, the famed French defender of religious toleration, wrote admiringly about Smith: “We have nothing to compare with him, and I am embarrassed for my dear compatriots.”  Madame Riccoboni, a French novelist, gushed: “Scold me, beat me, kill me, but I like Mr. Smith, I like him greatly. I wish that the devil would carry off all of our own men of letters, all of our philosophers, and bring Mr. Smith to me. Superior men seek him out.”

What did Smith look like?  He never sat for a portrait, but James Tassie did a medallion in 1787, when Smith was 64 and ill. Such medallions were typically modelled from wax, so this one is presumed to be accurate. As Royal Economic Society cataloguer James Bonar described it: “The head, which appears turned in pure profile to the right of the spectator, shows a particularly full forehead, a full nose, slightly aquiline in its curve; a long thin upper lip and a lower lip that protrudes a little; and a firm, well-shaped chin and jaw. The eyebrow is strongly curved, the upper eyelid heavy and drooping, the eyeball particularly prominent; and beneath the lower eyelid the skin is loose and wrinkled. A wig is worn, tied behind in a bag with ribbons, showing small curls in front, and two large curls at the side which cover and conceal the ear.”  Smith admitted to a friend: “I am a beau in nothing but my books.”

Writing was always tough for Smith. The bookish bachelor wrote with a “schoolboy hand,” forming big, round letters which were laboriously connected. Composition was just as tough. Smith wrestled with a few big ideas for decades and agonized over how to express himself. The Wealth of Nations was at least 27 years in the making.

Biographer Ian Simpson Ross noted “his harsh voice with an almost stammering impediment , and a conversational style that amounted to lecturing. His friends understood this, and made allowances for his disposition…What shines through all accounts of his character and characteristics, particularly as they were displayed in his relationships with young people, was his essential kindness.”

It isn’t known exactly when Adam Smith was born, but he was baptized June 5, 1723, in Kirkaldy, a small fishing village on Scotland’s east coast. While his house is no longer there, some of the garden survives — it goes down to the sea.

Smith’s father, a customs official also named Adam, died several months before he was born. The youngster was raised by his mother Margaret Douglas, daughter of a landowner. The only thing we know about his childhood was that at age four he was briefly abducted by a band of gypsies. “He would have made, I fear, a poor gypsy,” wrote biographer John Rae.

Smith entered Glasgow University at 14, the customary age for enrollment. The town of 25,000 prospered largely as an entrepot for American tobacco, and this commerce stimulated intellectual life — the Scottish Enlightenment was in full flower. Glasgow University was famed for its teaching, in part, because professors were compensated directly by student fees. They had an incentive to perform well. Smith studied with moral philosopher Francis Hutcheson, a forceful character who broke with tradition and delivered his lectures in English instead of Latin. Hutcheson expressed a passion for reason, liberty and free speech, inspiring Smith. It seems to have been Hutcheson who brought his bright student to the attention of controversial rationalist philosopher David Hume; Smith and Hume were to become best friends.

To be sure, Smith was his own man, disagreeing with Hutcheson on some key issues. Hutcheson, for example, believed that self-love was a bad thing and that only well-intended actions were virtuous. As Smith wrote later: “The habits of economy, industry, discretion, attention and application of thought, are generally supposed to be cultivated from self-interested motives, and at the same time are apprehended to be very praise-worthy qualities which deserve the esteem and approbation of every body.”

How did Smith discover the wondrous effects of self-interest?  Well, he was a remarkably perceptive person who spent years in a thriving commercial center, so he must have learned much from his own observations. Smith scholar Edwin Canaan thought that the Dutch doctor Bernard Mandeville must have influenced Smith’s thinking, too, with his provocative satire The Fable of the Bees: or Private Vices, Public Benefits (expanded edition, 1729). In it, Mandeville scandalized high‑minded folks by suggesting that self‑interest is good, because it leads people to serve each other and help society prosper.

Smith wanted to teach at a Scottish university, and the traditional method of seeking a professorship was to show what one could do ‑- deliver some public lectures. If university officials were impressed and needed to fill an opening, he might be appointed. Accordingly, in 1748, in Edinburgh, Smith began delivering lectures about ethics, economics and defense policy. He was to spend the rest of his life expanding this material into books.

As early as 1749 — before major works of the French laissez faire economists were published — Smith had concluded that the way to promote prosperity is for governments to leave people alone. Dugald Stewart, a student of his, reported that in a lecture that year, Smith declared: “Little else is required to carry a state to the highest degree of affluence 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. All governments which thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a particular point…are obliged to be oppressive and tyrannical.”

Smith’s lectures were well received, and by 1751, he was teaching logic at Glasgow University. A year later, he was asked to teach moral philosophy there. Five times a week at 7:30 in the morning, he delivered an hour-long lecture. Three days a week at 11:00, he taught private classes. He seemed to have won the respect of students and faculty alike, because in 1758 he was named dean.  Recalled one of his students, James Boswell, later a famous literary biographer: “Mr. Smith’s sentiments are striking, profound and beautiful. He has nothing of that stiffness and pedantry which is too often found in professors.”

Evenings, Smith played whist and chatted with some of Scotland’s brightest minds. These included David Hume, steam engine inventor James Watt and chemist Joseph Black. Smith participated in a discussion club which, started in the 1740s by banker Andrew Cochrane, met weekly to talk about economic and political issues. Smith didn’t have much luck with ladies, however; he proposed marriage two or three times but was rejected.

Meanwhile, Smith spent four years transforming lecture material into his first book, The Theory of Moral Sentiments. It was about motivations other than self-interest which influenced human behavior. Published in London, 1759, it made him a literary celebrity. He dined with all kinds of interesting people like Benjamin Franklin.

In The Theory of Moral Sentiments, Smith announced his next project: “I shall in another discourse endeavor to give an account of the general principles of law and government, and of the different revolutions they have undergone in the different ages and periods of society, not only in what concerns justice, but in what concerns policy revenue and arms, and whatever else is the object of law.”  That project, of course, was The Wealth of Nations.

Hume sent a copy of The Theory of Moral Sentiments to the English statesman Charles Townshend. As colonial minister, he was to earn notoriety for depriving the American colonies of cherished prerogatives and unintentionally provoking the revolutionary movement. Townshend wanted someone distinguished to tutor his stepson, Henry Scott, the Duke of Buccleugh. Townshend agreed to pay Smith L300 a year plus expenses — about three times more than Smith got from the University of Glasgow — for giving the Duke a Grand Tour of Europe. Moreover, Smith got a L300 annual pension for life. Smith might never have worked in business, but he knew how to cut a good deal!  Smith met the Duke in London, January 1764, and from there travelled to Toulouse, a resort town popular among the English. In Toulouse, Smith acquired another young charge, the Duke’s younger brother Hew Campbell Scott.

Although Smith’s tutoring deal might seem to have interrupted his studies, it offered him two unexpected opportunities. First, for anyone interested in liberty, France was an ideal destination at that time. Smith saw first-hand how the French were struggling with a much more costly, interventionist government than he had experienced. Smith visited with leading intellectual rebels. Smith visited Geneva and met Voltaire who reportedly declared: “This Smith is an excellent man!”  In Paris, Smith visited Francois Quesnay, founder of the Physiocratic school of laissez faire economics. Smith got to know Jacques Turgot who put laissez faire principles into action. Smith declared that the French laissez faire philosophy, “with all its imperfections, is perhaps the nearest approximation to the truth that has yet been published upon the subject of political economy, and is, upon that account, well worth the consideration of every man who wishes to examine with attention the principles of that very important science.” 

Equally important, Smith became bored and restless in Toulouse. He resolved to pursue the project he had described five years earlier in The Theory of Moral Sentiments. On July 5, 1764, he wrote Hume: “I have begun to write a book in order to pass away the time.”  Thus began his initial draft of The Wealth of Nations.

Smith’s European stay ended abruptly after Hew Scott was murdered in Paris, October 1766. Smith and the Duke returned to London, and Smith turned to revising The Theory of Moral Sentiments. Then he made his way back to Kirkaldy where, living with his mother, he worked on The Wealth of Nations. “My business here is Study,” he wrote. “My Amusements are long, solitary walks by the Sea side…I feel myself, however, extremely happy, comfortable and contented. I never was, perhaps, more so in all my life.”

By 1770, Smith plunged into laborious revisions. During 1773, he added important material on rent, wages and the American colonies. In April that year, he moved to London so he could see more research materials. He pored through documents at the British Museum. He worked on revisions at the British Coffee‑House, Cockspur Street, where many Scottish artists and intellectuals gathered. He belonged to a weekly dining club at the coffee house, joining portrait painter Joshua Reynolds and architect Robert Adam, among others. Apparently, Smith gave copies of each new chapter to friends who discussed and criticized it. Smith’s friend Adam Ferguson, in the fourth edition of his History of Civil Society, alerted readers to what was coming: “The public will probably soon be furnished (by Mr. Smith, author of The Theory of Moral Sentiments) with a theory of national economy equal to what has ever appeared on any subject of science whatever.”

Finally, on March 9, 1776, The Wealth of Nations was published by the firm Strahan and Cadell. It was two quarto (9 by 12 inch) volumes, over 1,000 pages. Smith was 53.

Biographer Ross reported that “publication…was timed to seize Parliament’s attention, and influence members to support a peaceful resolution of the [American] conflict. America offered a major point of application for free-market theory, and if Smith could win supporters, there was some hope of ending the cycle of violence induced by efforts to preserve the old colonial system involving economic restraints and prohibitions.”

Smith’s painstaking revisions paid off, because the book reads as if he were speaking to you across a table, explaining simply what makes an economy tick. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner,” he wrote, “but from their regard to their own interest. We address ourselves, not to their humanity but to their self‑love, and never talk to them of our own necessities but of their advantages.”

Again and again, Smith presented a stalwart defense of private individuals against rapacious politicians. For example: “It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense, either by sumptuary laws, or by prohibiting the importation of foreign luxuries. They are themselves, always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will.”

The Wealth of Nations conveyed a keen appreciation for the way a free society works best. Smith’s most famous lines: “[a typical investor] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, 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 was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affect to trade for the public good.”

The first reactions came from his friends who had seen the book evolve. For example, David Hume, April 1, 1776 — “I am much pleas’d with your Performance.”  Historian Edward Gibbon wrote Adam Ferguson: “What an excellent work is that with which our common friend Mr. Adam Smith has enriched the public!  An extensive science in a single book, and the most profound ideas expressed in the most perspicuous language.”  Thomas Jefferson was enthusiastic, saying that on the subject of money and commerce, ” Smith’s Wealth of Nations is the best book to be read…”

The first printing sold out in six months and made Smith a sensation. A German edition appeared in 1776, a Danish edition in 1779, an Italian edition in 1780 and a French edition in 1781. The Spanish Inquisition suppressed the book for what officials considered “the lowness of its style and the looseness of its morals.”

Smith had no sooner finished the book than he began revising it. New English editions appeared in 1778, 1784, 1786 and 1789. Smith had time for little else. With a mischievous flash of humor, referring to his well-known absent-mindedness, he told his London publisher in 1780: “I had almost forgot that I was the author of the inquiry concerning the Wealth of Nations.”

The Duke of Buccleuch was thrilled with Smith’s success and pulled strings to get his former tutor appointed Commissioner of Customs, a lucrative though not very demanding position (L600 a year) which Smith accepted. Some reward for a free trader! Smith gathered material and made notes for a history of philosophy and a history of law and government. But he proceeded slowly, as he had with his other projects, and this work was doomed by his failing health.

Smith died quietly at his Kirkaldy home on July 17, 1790. He was buried in the Cannongate cemetery. As he had asked, his executors Joseph Black and James Hutton burned almost all his papers, frustrating generations of biographers.

His work lived on, and he became a guiding light whose love of liberty helped make the 19th century the most peaceful period in modern history. Now some two hundred years after Smith’s death, economists have identified technical errors in his work, yet his reputation towers over seductive challengers like Karl Marx and John Maynard Keynes. Nobel Laureate George Stigler dubbed Smith “the patron saint of free enterprise.”  H.L. Mencken declared: “There is no more engrossing book in the English language than Adam Smith’s ‘The Wealth of Nations.’”  He’s a major presence as liberty is being reborn at the dawn of the 21st century.

Essay from 1756

Labor and Commerce

 

In this selection from The Wealth of Nations, Adam Smith argues that “the real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.”

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or in other words, by the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for…

Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life. But after the division of labour has once thoroughly taken place, it is but a very small part of these with which a man’s own labour can supply him. The far greater part of them he must derive from the labour of other people, and he must be rich or poor according to the quantity of that labour which he can command, or which he can afford to purchase. The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.

The real price of every thing, what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself.

People of the same trade seldom meet together, even for merriment and diversion, but the conservation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But tough the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.

Essay from 1759

The Man of System

 

Adam Smith’s The Theory of Moral Sentiments included this short passage on two distinct ways of seeing the world: the natural and harmonious view of spontaneous order and the “man of the system,” who sees society as something he can manipulate and mold “ease as the hand arranges the different pieces upon a chess-board.”

The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

The selection above is an excerpt from Part Six of Adam Smith’s “Theory of Moral Sentiments,” a section entitled “Of the Character of Virtue.” Smith’s “Theory of Moral Sentiments” provides the underpinnings of the arguments discussed in his later works, including “The Wealth of Nations.”

Essay from 1759

Justice and Beneficence

 

In The Theory of Moral Sentiments, Smith’s first book, he explored human motivation and morality—with conclusions that contradict the common but unfair characterization of him as a cold-hearted economist. In this excerpt, Smith explains why benevolence is desirable but justice is essential not just to to civil society but also to how we measure our behavior in the eyes of others.

It is thus that man, who can subsist only in society, was fitted by nature to that situation for which he was made. All the members of human society stand in need of each others assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded from love, from gratitude, from friendship, and esteem, the society flourishes and is happy. All the different members of it are bound together by the agreeable bands of love and affection, and are, as it were, drawn to one common centre of mutual good offices.

But though the necessary assistance should not be afforded from such generous and disinterested motives, though among the different members of the society there should be no mutual love and affection, the society, though less happy and agreeable, will not necessarily be dissolved. Society may subsist among different men, as among different merchants, from a sense of its utility, without any mutual love or affection; and though no man in it should owe any obligation, or be bound in gratitude to any other, it may still be upheld by a mercenary exchange of good offices according to an agreed valuation.

Society, however, cannot subsist among those who are at all times ready to hurt and injure one another. The moment that injury begins, the moment that mutual resentment and animosity take place, all the bands of it are broke asunder, and the different members of which it consisted are, as it were, dissipated and scattered abroad by the violence and opposition of their discordant affections. If there is any society among robbers and murderers, they must at least, according to the trite observation, abstain from robbing and murdering one another. Beneficence, therefore, is less essential to the existence of society than justice. Society may subsist, though not in the most comfortable state, without beneficence; hut the prevalence of injustice must utterly destroy it.

Though Nature, therefore, exhorts mankind to acts of beneficence, by the pleasing consciousness of deserved reward, she has not thought it necessary to guard and enforce the practice of it by the terrors of merited punishment in case it should be neglected. It is the ornament which embellishes, not the foundation which supports the building, and which it was, therefore, sufficient to recommend, but by no means necessary to impose. Justice, on the contrary, is the main pillar that upholds the whole edifice… .The principle by which we naturally either approve or disapprove of our own conduct, seems to be altogether the same with that by which we exercise the like judgments concerning the conduct of other people. We either approve or disapprove of the conduct of another man according as we feel that, when we bring his case home to ourselves, we either can or cannot entirely sympathize with the sentiments and motives which directed it. And, in the same manner, we either approve or disapprove of our own conduct, according as we feel that, when we place ourselves in the situation of another man, and view it, as it were, with his eyes and from his station, we either can or cannot entirely enter into and sympathize with the sentiments and motives which influenced it. We can never survey our own sentiments and motives, we can never form any judgment concerning them; unless we remove ourselves, as it were, from our own natural station, and endeavour to view them as at a certain distance from us. But we can do this in no other way than by endeavouring to view them with the eyes of other people, or as other people are likely to view them. Whatever judgment we can form concerning them, accordingly, must always bear some secret reference, either to what are, or to what, upon a certain condition, would be, or to what, we imagine, ought to be the judgment of others. We endeavour to examine our own conduct as we imagine any other fair and impartial spectator would examine it. If, upon placing ourselves in his situation, we thoroughly enter into all the passions and motives which influenced it, we approve of it, by sympathy with the approbation of this supposed equitable judge. If otherwise, we enter into his disapprobation, and condemn it.

Were it possible that a human creature could grow up to manhood in some solitary place, without any communication with his own species, he could no more think of his own character, of the propriety or demerit of his own sentiments and conduct, of the beauty or deformity of his own mind, than of the beauty or deformity of his own face. All these are objects which he cannot easily see, which naturally he does not look at, and with regard to which he is provided with no mirror which can present them to his view. Bring him into society, and he is immediately provided with the mirror which he wanted before. It is placed in the countenance and behaviour of those he lives with, which always mark when they enter into, and when they disapprove of his sentiments; and it is here that he first views the propriety and impropriety of his own passions, the beauty and deformity of his own mind… .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. The first is the spectator, whose sentiments with regard to my own conduct I endeavour to enter into, by placing myself in his situation, and by considering how it would appear to me, when seen from that particular point of view. The second is the agent, the person whom I properly call myself, and of whose conduct, under the character of a spectator, I was endeavouring to form some opinion. The first is the judge; the second the person judged of. But that the judge should, in every respect, be the same with the person judged of, is as impossible, as that the cause should, in every respect, be the same with the effect.

To be amiable and to be meritorious; that is, to deserve love and to deserve reward, are the great characters of virtue; and to be odious and punishable, of vice. But all these characters have an immediate reference to the sentiments of others. Virtue is not said to be amiable, or to be meritorious, because it is the object of its own love, or of its own gratitude; but because it excites those sentiments in other men. The consciousness that it is the object of such favourable regards, is the source of that inward tranquillity and self-satisfaction with which it is naturally attended, as the suspicion of the contrary gives occasion to the torments of vice. What so great happiness as to be beloved, and to know that we deserve to be beloved? What so great misery as to be hated, and to know that we deserve to be hated? …

Our sensibility to the feelings of others, so far from being inconsistent with the manhood of self-command, is the very principle upon which that manhood is founded. The very same principle or instinct which, in the misfortune of our neighbour, prompts us to compassionate his sorrow; in our own misfortune, prompts us to restrain the abject and miserable lamentations of our own sorrow. The same principle or instinct which, in his prosperity and success, prompts us to congratulate his joy; in our own prosperity and success, prompts us to restrain the levity and intemperance of our own joy. In both cases, the propriety of our own sentiments and feelings seems to be exactly in proportion to the vivacity and force with which we enter into and conceive his sentiments and feelings.

The man of the most perfect virtue, the man whom we naturally love and revere the most, is he who joins, to the most perfect command of his own original and selfish feelings, the most exquisite sensibility both to the original and sympathetic feelings of others. The man who, to all the soft, the amiable, and the gentle virtues, joins all the great, the awful, and the respectable, must surely be the natural and proper object of our highest love and admiration.

The person best fitted by nature for acquiring the former of those two sets of virtues, is likewise best fitted for acquiring the latter. The man who feels the most for the joys and sorrows of others, is best fitted for acquiring the most complete control of his own joys and sorrows. The man of the most exquisite humanity, is naturally the most capable of acquiring the highest degree of self-command.

Essay from 1776

The Division of Labor

 

In this selection from the opening pages of An Inquiry into the Nature and Causes of the Wealth of Nations, Smith explores the significance of the division of labor using his famous example of the pin factory where specialization lets the employees radically increase their production.

The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity, and judgment with which it is anywhere directed, or applied, seem to have been the effects of the division of labour.

The effects of the division of labour, in the general business of society, will be more easily understood by considering in what manner it operates in some particular manufactures. It is commonly supposed to be carried furthest in some very trifling ones; not perhaps that it really is carried further in them than in others of more importance: but in those trifling manufactures which are destined to supply the small wants of but a small number of people, the whole number of workmen must necessarily be small; and those employed in every different branch of the work can often be collected into the same workhouse, and placed at once under the view of the spectator. In those great manufactures, on the contrary, which are destined to supply the great wants of the great body of the people, every different branch of the work employs so great a number of workmen that it is impossible to collect them all into the same workhouse. We can seldom see more, at one time, than those employed in one single branch. Though in such manufactures, therefore, the work may really be divided into a much greater number of parts than in those of a more trifling nature, the division is not near so obvious, and has accordingly been much less observed.

To take an example, therefore, from a very trifling manufacture; but one in which the division of labour has been very often taken notice of, the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving, the head; to make the head requires two or three distinct operations; to put it on is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.

This great increase of the quantity of work which, in consequence of the division of labour, the same number of people are capable of performing, is owing to three different circumstances; first, to the increase of dexterity in every particular workman; secondly, to the saving of the time which is commonly lost in passing from one species of work to another; and lastly, to the invention of a great number of machines which facilitate and abridge labour, and enable one man to do the work of many.

First, the improvement of the dexterity of the workman necessarily increases the quantity of the work he can perform; and the division of labour, by reducing every man’s business to some one simple operation, and by making this operation the sole employment of his life, necessarily increased very much dexterity of the workman. A common smith, who, though accustomed to handle the hammer, has never been used to make nails, if upon some particular occasion he is obliged to attempt it, will scarce, I am assured, be able to make above two or three hundred nails in a day, and those too very bad ones. A smith who has been accustomed to make nails, but whose sole or principal business has not been that of a nailer, can seldom with his utmost diligence make more than eight hundred or a thousand nails in a day. I have seen several boys under twenty years of age who had never exercised any other trade but that of making nails, and who, when they exerted themselves, could make, each of them, upwards of two thousand three hundred nails in a day. The making of a nail, however, is by no means one of the simplest operations. The same person blows the bellows, stirs or mends the fire as there is occasion, heats the iron, and forges every part of the nail: in forging the head too he is obliged to change his tools. The different operations into which the making of a pin, or of a metal button, is subdivided, are all of them much more simple, and the dexterity of the person, of whose life it has been the sole business to perform them, is usually much greater. The rapidity with which some of the operations of those manufacturers are performed, exceeds what the human hand could, by those who had never seen them, be supposed capable of acquiring.

Secondly, the advantage which is gained by saving the time commonly lost in passing from one sort of work to another is much greater than we should at first view be apt to imagine it. It is impossible to pass very quickly from one kind of work to another that is carried on in a different place and with quite different tools. A country weaver, who cultivates a small farm, must lose a good deal of time in passing from his loom to the field, and from the field to his loom. When the two trades can be carried on in the same workhouse, the loss of time is no doubt much less. It is even in this case, however, very considerable. A man commonly saunters a little in turning his hand from one sort of employment to another. When he first begins the new work he is seldom very keen and hearty; his mind, as they say, does not go to it, and for some time he rather trifles than applies to good purpose. The habit of sauntering and of indolent careless application, which is naturally, or rather necessarily acquired by every country workman who is obliged to change his work and his tools every half hour, and to apply his hand in twenty different ways almost every day of his life, renders him almost always slothful and lazy, and incapable of any vigorous application even on the most pressing occasions. Independent, therefore, of his deficiency in point of dexterity, this cause alone must always reduce considerably the quantity of work which he is capable of performing.

Thirdly, and lastly, everybody must be sensible how much labour is facilitated and abridged by the application of proper machinery. It is unnecessary to give any example. I shall only observe, therefore, that the invention of all those machines by which labour is so much facilitated and abridged seems to have been originally owing to the division of labour. Men are much more likely to discover easier and readier methods of attaining any object when the whole attention of their minds is directed towards that single object than when it is dissipated among a great variety of things. But in consequence of the division of labour, the whole of every man’s attention comes naturally to be directed towards some one very simple object. It is naturally to be expected, therefore, that some one or other of those who are employed in each particular branch of labour should soon find out easier and readier methods of performing their own particular work, wherever the nature of it admits of such improvement. A great part of the machines made use of in those manufactures in which labour is most subdivided, were originally the inventions of common workmen, who, being each of them employed in some very simple operation, naturally turned their thoughts towards finding out easier and readier methods of performing it. Whoever has been much accustomed to visit such manufactures must frequently have been shown very pretty machines, which were the inventions of such workmen in order to facilitate and quicken their particular part of the work. 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. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve which opened this communication to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his playfellows. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who wanted to save his own labour.

All the improvements in machinery, however, have by no means been the inventions of those who had occasion to use the machines. Many improvements have been made by the ingenuity of the makers of the machines, when to make them became the business of a peculiar trade; and some by that of those who are called philosophers or men of speculation, whose trade it is not to do anything, but to observe everything; and who, upon that account, are often capable of combining together the powers of the most distant and dissimilar objects. In the progress of society, philosophy or speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens. Like every other employment too, it is subdivided into a great number of different branches, each of which affords occupation to a peculiar tribe or class of philosophers; and this subdivision of employment in philosophy, as well as in every other business, improves dexterity, and saves time. Each individual becomes more expert in his own peculiar branch, more work is done upon the whole, and the quantity of science is considerably increased by it.

It is the great multiplication of the productions of all the different arts, in consequence of the division of labour, which occasions, in a well-governed society, that universal opulence which extends itself to the lowest ranks of the people. Every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation, he is enabled to exchange a great quantity of his own goods for a great quantity, or, what comes to the same thing, for the price of a great quantity of theirs. He supplies them abundantly with what they have occasion for, and they accommodate him as amply with what he has occasion for, and a general plenty diffuses itself through all the different ranks of the society.

(Excerpted from An Inquiry into the Nature and Causes of the Wealth of Nations)

Essay from 1776

Free Trade

 
 

Every individual who employs his capital in the support of domestic industry, necessarily endeavours so to direct that industry, that its produce may be of the greatest possible value.

The produce of industry is what it adds to the subject or materials upon which it is employed. In proportion as the value of this produce is great or small, so will likewise be the profits of the employer. But it is only for the sake of profit that any man employs a capital in the support of industry; and he will always, therefore, endeavour to employ it in the support of that industry of which the produce is likely to be of the greatest value, or to exchange for the greatest quantity either of money or of other goods.

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, 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 was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

What is the species of domestic industry which his capital can employ, and of which produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman, who should attempt to direct private people in what manner they ought to employ their capitals, would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it….

The interest of a nation in its commercial relations to foreign nations is, like that of a merchant with regard to the different people with whom he deals, to buy as cheap and to sell as dear as possible. But it will be most likely to buy cheap, when by the most perfect freedom of trade it encourages all nations to bring to it the goods which it has occasion to purchase; and, for the same reason, it will be most likely to sell dear, when its markets are thus filled with the greatest number of buyers.

In the foregoing Part of this Chapter I have endeavoured to show, even upon the principles of the commercial system, how unnecessary it is to lay extraordinary restraints upon the importation of goods from those countries with which the balance of trade is supposed to be disadvantageous.

Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses, and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade which is forced by means of bounties and monopolies, may be, and commonly is disadvantageous to the country in whose favour it is meant to be established, as I shall endeavour to show hereafter. But that trade which, without force or constraint, is naturally and regularly carried on between any two places, is always advantageous, though not always equally so, to both ….

By such maxims as these, however, nations have been taught that their interest consisted in beggaring all their neighbours. Each nation has been made to look with an invidious eye upon the prosperity of all the nations with which it trades, and to consider their gain as its own loss. Commerce, which ought naturally to be, among nations, as among individuals, a bond of union and friendship, has become the most fertile source of discord and animosity. The capricious ambition of kings and ministers has not, during the present and the preceding century, been more fatal to the repose of Europe, than the impertinent jealousy of merchants and manufacturers. The violence and injustice of the rulers of mankind is an ancient evil, for which, I am afraid, the nature of human affairs can scarce admit of a remedy. But the mean rapacity, the monopolizing spirit of merchants and manufacturers, who neither are, nor ought to be, the rulers of mankind, though it cannot perhaps be corrected, may very easily be prevented from disturbing the tranquility of any body but themselves.

That it was the spirit of monopoly which originally both invented and propagated this doctrine, cannot be doubted; and they who first taught it were by no means such fools as they who believed it. In every country it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest, that it seems ridiculous to take any pains to prove it; nor could it ever have been called in question, had not the interested sophistry of merchants and manufacturers confounded the common sense of mankind. Their interest is, in this respect, directly opposite to that of the great body of the people.

The wealth of a neighbouring nation, however, though dangerous in war and politics, is certainly advantageous in trade. In a state of hostility it may enable our enemies to maintain fleets and armies superior to our own; but in a state of peace and commerce it must likewise enable them to exchange with us to a greater value, and to afford a better market, either for the immediate produce of our own industry, or for whatever is purchased with that produce. As a rich man is likely to be a better customer to the industrious people in his neighbourhood, than a poor, so is likewise a rich nation.

Excerpted from The Wealth of Nations

Source: www.libertarianism.org

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The great virtue of a free market system is that it does not care what color people are; it does not care what their religion is; it only cares whether they can produce something you want to buy. It is the most effective system we have discovered to enable people who hate one another to deal with one another and help one another.

Milton Friedman

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