Dam Smith and the People He Influenced, Term Paper Example

This paper takes a critical look at the works of the economist Adam Smith and the people that he influenced.  The paper is split into four distinct parts: (i) Background and Introduction  (ii) The works of Adam Smith  (iii)  The people Adam Smith influenced  (iv) Summary – the value of Smith today in modern economics.  It addresses  the question of  – the relevance of Adam Smith’s works in modern day economics?

Introduction and Background

Adam Smith was born in 1723 and is arguably one of the worlds most famous  economists.  He has often been described as the father of modern economic theory.  Smith was a graduate of Glasgow University, but he also attended Oxford University; having found a contempt for English teaching,  he returned to his native Scotland were eventually he assumed the chair of moral philosophy at Glasgow University.  In 1736 Smith produced one of his most famous publications entitled ‘ An inquiry into the nature and causes of the wealth of Nations’.  The book puts forward the premise or theory ” that nations attain wealth and function best when individuals are completely free to use their own skills and capital [money, land etc.] in their own self interests and that their own discretion” (heartoscotland.com).

Adam Smith was an advocate of democracy with the belief that self interest was practiced by all types of people and this worked  favourably to the benefit of society as a whole.  Smith felt that governments have a moral  responsibility to protect the interests of the people and provide public works like roads, that  would be of benefit to society as a whole.  Most of the ideas we hold true today in modern economics at the origins or moves firmly established  in Smith’s wealth of Nations.

It was Smith who established the foundation in order to explain the conditions of the free market. Smith was most recognised for his term of the ‘invisible hand’, an illustration “that he used in order to demonstrate how self-interest guides the most efficient uses of resources in a nations economy, with public welfare coming as a by-product” (Chew)

The works of Adam Smith

In 1759 Smith developed the theory of moral sentiments.  This provided the philosophical view of a foundation for a general system of morals.  It is significant in the fact that it provided the ethical, philosophical and political viewpoints that underpinned much of his later works.  With this theory, Smith stated, ” Man as a self interested and self- commanded being rooted in self-reliance,  with the ability of an individual commander,  based upon the principles of natural law”  (Rasmussen).

It was in 1776 that Smith produces fine series based upon an inquiry into the nature and causes of the wealth of Nations.  One of the first works to explore in depth.  The nature and causes of the nation’s prosperity.  It was essentially an early critique of the economic system.  Although many of his doctrines, all in wide use today, he also had his critics.  Many source less theories based upon ruthless individualism.  ” The main cause of prosperity, argued Smith, was increasing division of labour. Smith gave the famous example of pins. He asserted that ten workers could produce 48,000 pins per day if each of eighteen specialized tasks was assigned to particular workers. Average productivity: 4,800 pins per worker per day. But absent the division of labour, a worker would be lucky to produce even one pin per day.”  (ReadPrint).

The two major works of Adam Smith, baby described as contradictory, be it human nature.  The things being non co-operative self-interest, and that of other regarding sympathy.  Although not mutually exclusive.  It is possible to distinguish between impersonal market exchange and personal exchange.  The concept of cooperative behaviour being one based upon reciprocity i.e. trading gifts were exchanging favours.  (Smith).

The above extract from Adam’s Wealth of Nations is an illustration of the excellent and descriptive use of language in 1776.  He clearly defines the importance associated with the division of labour and how these collective parts when brought together have true meaning.

Although Smith only produced two major works in his lifetime.  [The theory of modern sentiments  in 1759 and the wealth of Nations in 1776].  They have left a profound mark on what has been known as the foundation of classic economics.  Although much of Smith’s doctrine’s are in practice and use today he was not without his critics.  In Germany in the late 19th century.  This surface, what has become known as Adam Smith problem.  Two German economists questioned the outlook of Smith’s views of these two books.  They dislike the Manchester ‘ Laissez Faire’ style, stating  that both books have contradictory views on the nature of man.  There existed the question of ” how to reconcile these two incompatible principles”  (Nieli).

Those who Adam Smith Influenced

Adam Smith was cited as influencing post 1783 US land law reform.  It was after the American Revolution in 1775 that the colonies of Georgia, New York, Pennsylvania and Maryland were owned by families under the protection of the British crown.  Most of these families were personal friends of the British King; the very thing which Adam Smith found abhorrent.   The rebalancing technique over the 1780s and 1790s saw the new states passing primogeniture  laws  abolishing the automatic inheritance of real property and titles by the oldest son; it  was the end of the cronyism so admired by the British aristocracy.

The wealth of Nations influenced many other economists, researchers and authors.  Alexander Hamilton, used the book as his inspiration to write a report on manufacturers.  Oddly enough to use the influence against many of Smith’s doctrines.  Authors that were said to have been highly influenced by Adam Smith included that of Jean Baptiste say, David Ricardo, Thomas Malthus, Karl Marx, Ludwig von Mises and the Russian poet Alexander Pushkin.  Despite the influences to others,  The wealth of Nations was a monumental leap forward in the field of classic economics.

In the time before Adam Smith.  There was a widely held belief that the concept of poverty was important.  It made the working-class people become more motivated towards their jobs in factories and mills.  The right-wing conservatives blended  this with religion, saying that the poor are meant to be poor because God wants it that  way.  The protestant ethic held the view that God looked favourably upon wealth and successful business.  Adam Smith, went to the heart of the matter, stating that more wealth to the, people would benefit the nation’s economy and society as a whole.  In many regards he reached the ordinary people and championed the small business concept.  The market was self regulated because people consumed what they wanted and could afford.  Smith believed in the concept of competition in the marketplace and saw this as being more useful than the poverty concept.  In many regards held true socialist views.

Smith widely influenced and collaborated with fellow Scot David Hume.  Hume was a philosopher, and both were concerned with Scottish Enlightenment.  Hume introduced Smith to Mr Charles Townshend  who  offered Smith the opportunity to tutor  his stepson,  Henry Scott, the young Duke of a Buccleuch.  Smith traveled widely across Europe where he had significant influence over a range of important European academics.

Joseph Schumpter, another noted economist, had dismissed the contributions of Smith. He stated that if he had been more brilliant he would not have been taken so seriously. For example, if Smith had delved more deeply into the ‘truths’ behind his research, by means of more complex and ingenious methods, then he would not have been so readily understood. Smith concentrated on making his readers feel comfortable with his work by passive acceptance. Classical economists of more stature presented more complex theories, like that of Karl Marx and his Labour Theory of Value. Although it was widely recognized that Marx was influenced by the readings and works of Smith. ” Alan Greenspan[1] argues that, while Smith did not coin the term laissez-faire, “it was left to Adam Smith to identify the more-general set of principles that brought conceptual clarity to the seeming chaos of market transactions”. Greenspan continues that The Wealth of Nations was “one of the great achievements in human intellectual history”.  (Greenspan).  ” Similarly, Vivienne Brown stated in The Economic Journal that in the 20th century United States, Reaganomics supporters, The Wall Street Journal, and other similar sources have spread among the general public a partial and misleading vision of Smith, portraying him as an “extreme dogmatic defender of laissez-faire capitalism and supply-side economics”.  (Brown, Pack and Werhane).  Despite the fame of Adam Smith and the acknowledgement of his contributions to economics, nevertheless he was a controversial character amongst his peers.

Not all of his fellow economists were enthusiasts of his views put forward ” Noam Chomsky has argued that several aspects of Smith’s thought have been misrepresented and falsified by contemporary ideology, including Smith’s reasons for supporting markets and Smith’s views on corporations. Chomsky argues that Smith supported markets in the belief that they would lead to equality, and that Smith opposed wage labour and corporations”  (Kelam).    George Stigler[2] described the theories put forward by Adam Smith, in the Wealth of Nations, as the central proposition of economic theory and that originality of ideas in economics virtually never gets the true acclaim that they deserve. In this regard he stated that Smith’s ideas were not an original concept and that the French economist ‘Turgot’ had made the same points in 1766.

Many of Smith’s theories are widely used  today, however ” One definite difference between Smith and most modern believers in free markets is that Smith favoured retaliatory tariffs. Retaliation to bring down high tariff rates in other countries, he thought, would work. “The recovery of a great foreign market,” he wrote “will generally more than compensate the transitory inconvenience of paying dearer during a short time for some sorts of goods.” (The Concise Encyclopedia of Economics).

Works published in the twentieth century by the likes of John Maynard Keynes and Milton Friedman were highly influenced by Adam Smith’s  ‘ The Wealth of Nations’. He continues to be regarded as a classical economist and makes important impressions on economists today.

The Value of Adam Smith in Modern Society

A number of Adam Smith’s earlier views have been misrepresented in modern society.  This is easy to understand as the shape of society changes over the passage of time and as such it is easy to distort views or see them in a different perspective.  Perhaps the most damning of these comments is that of Smith’s views as human beings being hedonistic and that such greed and   selfishness is in actual fact, a public virtue.  It is the concept that has been attributed towards modern consumerism, and particularly the baby boomers of the 50s who see consumption in the modern society as a route to individual happiness.  Empirical evidence suggests that this might not be the case as most consumer goods are aimed at the satisfaction of a base physical demand.  And when these have been satisfied, more psychological designs take over [Galbraith 1984

One of the basic problems with consumerism is that it can make the pursuit of happiness so much more difficult.  You’re open to the concept of seduction, and as such new demands can always be satisfied by more exciting products.  The philosophical concept of being born with nothing and dying with nothing.  Should your voyage in between  be one of the pursuit of self gratification and capitalism or one of the pursuit of knowledge and spiritual enlightenment.  It is perhaps here, where Smith’s philosophical views and his economic views suffer from lack of true perspective.  In Smith’s work of moral sentiments he discusses how a person should lead a moral and virtuous life. Smith dismissed most of his theological beliefs when he left Oxford University and returned to Glasgow University.  Nevertheless, his work with David Hume very much reflected upon philosophical beliefs.  Adam Smith was described as a radical liberal friend of David Hume. His work on the theory of moral sentiment was not well received at the time as it was viewed as his personal moral outrage of the Industrial policies of European Governments. He was seen to be contrasting the more acceptable bartering and trading arrangements of his homeland Scotland with the commercial practices in England and Europe.

One lasting legacy was perhaps Smith’s four canons of taxation:

• The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
• The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person.
• Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.
• Every tax ought to be contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. (Ian T.G. Lambert).

The four maxims have been summarized in modern terms as : Equity, Certainty, Convenience and Efficiency.  Close measurement of our taxation canons today suggests how far short we have become in living up to the ideals put forward by Adam Smith.

Works Cited

Brown, Vivienne, Spencer J. Pack and Patricia H. Werhane. “Untitled review of ‘Capitalism as a Moral System: Adam Smith’s Critique of the Free Market Economy’ .” The Economic Journal (1993): 210-232.

Chew, Robin. Adam Smith. 18 4 2010. 21 4 2010 <http://www.lucidcafe.com/library/96jun/smith.html>.

Greenspan, Alan. “Remarks by Chairman Alan Greenspan.” Adam Smith Memorial Lecture, Kirkcaldy, Scotland. Edinburgh: Federal Reserve Board, 2005.

heartoscotland.com. Adam Smith – Economist. 2010. 22 4 2010 <http://www.heartoscotland.com/Categories/adam-smith.htm>.

Ian T.G. Lambert, M.A. Some Modern Principles of Taxation — Adam Smith Revisited. 1 1992. 23 4 2010 <http://www.cooperativeindividualism.org/lambert-ian_on-adam-smith.html>.

Kelam, Warna. Adam Smith. 29 11 2009. 22 4 2010 <http://petualanganonta.wordpress.com/2009/11/29/adam-smith/>.

Nieli, Russel. “Spheres of Intimacy and Adam Smith problem.” Journal of the History of Ideas (1986): 611-624 .

Rasmussen, Hannah. The Life and Works of Adam Smith – A Biography of Adam Smith. 2010. 21 4 2010 <http://economics.about.com/od/famouseconomists/a/adamsmith.htm>.

ReadPrint. Adam Smith. 2010. 21 4 2010 <http://www.readprint.com/author-74/Adam-Smith-books>.

Smith, Vernon L. “The two faces of Adam Smith.” Southern Economical Journal (1998): 1-19.

The Concise Encyclopedia of Economics. Adam Smith. 23 4 2010. 23 4 2010 <http://www.econlib.org/library/Enc/bios/Smith.html>.

[1] An American Economist and Chairman of the Federal Reserve.

[2] An empirical economist in Microeconomics – The Theory of Price