Next to Hume, Adam Smith was the greatest figure in the Scottish Enlightenment. His father, controller of the customs at Kirkaldy, died some months before Adam’s birth (1723). Almost the only adventure the economist had in his life came when, a child of three years, he was kidnapped by gypsies, who, being pursued, abandoned him beside the road. After some schooling at Kirkaldy, and attending the courses of Hutcheson at Glasgow, Adam went down to Oxford (1740), where he found the teachers as lazy and worthless as Gibbon would describe them in 1752. Smith educated himself by reading, but the college authorities confiscated his copy of Hume’s Treatise of Human Nature as quite unfit for a Christian youth. One year with the dons was enough; loving his mother better, he returned to Kirkaldy, and continued to absorb books. In 1748 he moved to Edinburgh, where he lectured independently on literature and rhetoric. His discourses impressed influential persons; he was appointed to the chair of logic in the University of Glasgow (1751), and a year later became professor of moral philosophy—which included ethics, jurisprudence, and political economy. In 1759 he published his ethical conclusions in Theory of Moral Sentiments, which Buckle, ignoring Aristotle and Spinoza, pronounced “the most important work that has ever been written on this interesting subject.”40
Smith derived our ethical judgments from our spontaneous disposition to imagine ourselves in the position of others; thereby we echo their emotions, and by this sympathy, or fellow feeling, we are moved to approve or condemn.41 The moral sense is rooted in our social instincts, or in the mental habits developed by us as members of a group; but it is not inconsistent with self-love. The summit of a man’s moral development comes when a man learns to judge himself as he judges others, “to command himself according to the objective principles of equity, natural law, prudence, and justice.”42 Religion is not the source nor the mainstay of our moral sentiments, but these are strongly influenced by belief in the derivation of the moral code from a rewarding and punishing God.43
In 1764 Smith, now forty-one, was engaged as tutor and guide to accompany the eighteen-year-old Duke of Buccleuch on a tour of Europe. The fee, £ 300 a year for life, gave Smith the security and leisure for his masterpiece, which he began to write during an eighteen-month stay in Toulouse. He visited Voltaire at Ferney, and in Paris he met Helvétius and d’Alembert, Quesnay and Turgot. Returning to Scotland in 1766, he lived for the next ten years contentedly with his mother in Kirkaldy, working on his book. TheInquiry into the Nature and Causes of the Wealth of Nations appeared in 1776, and was greeted with a letter of praise from Hume, who died shortly thereafter.
Hume himself, in his essays, had helped to form the economic as well as the ethical views of Adam Smith. He had ridiculed the “mercantile system,” which favored protective tariffs, trade monopolies, and other governmental measures to ensure an excess of exports over imports, and the accumulation of precious metals as a nation’s basic wealth. This policy, said Hume, was like toiling to keep water from seeking its natural level; and he called for liberation of the economy from the “numberless bars … and imposts which all nations of Europe, and none more than England, have put upon trade.”44 Of course Smith was acquainted with the campaign of Quesnay and other French physiocrats against the obstructive regulations of industry and trade by guilds and governments, and their demand for a laissez-faire policy that would let nature take its course, and all prices and wages find their level in free competition. The revolt then rising in America against British restrictions on colonial trade was part of the background of Smith’s thought. If the freedom of trade which he proposed had guided the British government, the year of his book might not have seen the Declaration of Independence.
Smith had some ideas about the strife between Britain and America. He considered the English monopoly of colonial trade to be one of the “mean and malignant expedients of the mercantile system.”45 He proposed that if the colonists refused to be taxed to support the expenses of the British Empire, America should be given its independence without further quarrel. “By thus parting good friends, the natural affection of the colonists to the mother country … would quickly revivé. It might dispose them … to favor us in war as well as in trade, and, instead of turbulent and factious subjects, to become our most faithful … and generous allies.”46 And he added: “Such has hitherto been the rapid progress of that country in wealth, population, and improvement, that in the course of little more than a century, perhaps, the produce of America might exceed that of British taxation. The seat of empire would then naturally remove itself to that part of the empire which contributed most to the general defense and support of the whole.”47
Smith defined the wealth of a nation not as the amount of gold or silver it possessed, but as the land with its improvements and products, and the people with their labor, services, skills, and goods. His thesis was that, with some exceptions, the greatest physical wealth results from the greatest economic liberty. Self-interest is universal, but if we let this powerful motive operate with the greatest economic freedom it will stimulate such industry, enterprise, and competition as will generate more riches than any other system known to history. (This was Mandeville’s Fable of the Bees48 worked out in detail.) Smith believed that the laws of the market—especially the law of supply and demand—would harmonize the liberty of the producer with the welfare of the consumer; for if a producer made excessive profits, others would enter the same field, and the mutual competition would keep prices and profits within fair limits. Moreover, the consumer would enjoy a kind of economic democracy: by buying or refusing to buy he would in great measure determine what articles would be produced, what services would be offered, in what quantity and at what price, instead of having all these matters dictated by a government.
Following the physiocrats (but judging the products of labor and the services of trade to be wealth as real as the produce of the land), Smith called for an end to feudal tolls, guild restrictions, governmental economic regulations, and industrial or commercial monopolies, as all limiting that freedom which—by allowing the individual to work, spend, save, buy, and sell at his pleasure—keeps the wheels of production and distribution in motion. The government must laisser faire, must let nature—the natural propensities of men—operate freely; it must allow the individual to shift for himself, to find by trial and error the work that he can do, the place that he can fill, in the economic life; it must let him sink or swim.
According to this system of natural liberty, the sovereign [or the state] has only three duties to attend to: … first, the duty of protecting the society from the violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppressions of every other member of it, or the duty of establishing an exact administration of justice; and thirdly, the duty of maintaining certain public works and public institutions which it can never be for the interest of any individual, or small number of individuals, to erect or maintain.49
Here was the formula of Jeffersonian government, and the outline of a state that would enable the new capitalism to grow and flourish exceedingly.
There was a loophole in the formula: what if the duty of preventing injustice should imply the obligation to prevent the inhumane usage of the simple or the weak by the clever or the strong? Smith answered: such injustice can come only through monopolies in restraint of competition or trade, and his principles called for the suppression of monopolies. We must rely upon the competition of employers for workers, and of these for jobs, to regulate wages; all attempts of governments to regulate them are sooner or later frustrated by the laws of the market. Though labor (and not land, as the physiocrats held) is the sole source of wealth,50 it is a commodity, just like capital, and is subject to the laws of supply and demand. “Whenever the law has attempted to regulate the wages of workers, it has always been rather to lower them than to raise them”;51 for “whenever the legislature attempts to regulate the differences between masters and their workmen, its counselors are always the masters.”52 This was written at a time when English law allowed employers, but forbade employees, to organize themselves to protect their economic interests. Smith denounced this partiality of the law, and foresaw that better wages would be obtained not through governmental regulation but by the organization of labor.53
The supposed herald of capitalism almost always took the side of the workers against the employers. He warned against letting merchants and manufacturers determine the policy of the government.
The interest of the dealers, … in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. … The proposal of any new law, or regulation of commerce, which comes from this order ought always to be listened to with great precaution.... It comes from an order of men … who have generally an interest to deceive, and even to oppress, the public and who … have, upon many occasions, both deceived and oppressed it.54
Is this Adam Smith or Karl Marx? But Smith defended private property as an indispensable stimulus to enterprise, and he held that the number of available jobs, and the wages paid, will depend above all upon the accumulation and application of capital.55Nevertheless, he advocated high wages as profitable to employer and employee alike,56 and urged the abolition of slavery on the ground that “the work done by free men comes cheaper in the end than that performed by slaves.”57
When we consider Smith himself, in his appearance, habits, and character, we wonder that a man so removed from the processes of agriculture, industry, and trade should have written about these esoteric complexities with such realism, insight, and audacity. He was as absent-minded as Newton, and cared little for convention. Usually mannerly and mild, he was capable of meeting Samuel Johnson’s rudeness with a four-word retort that questioned the Great Cham’s-legitimacy. After publishing The Wealth of Nations he spent two years in London, where he enjoyed the acquaintance of Gibbon, Reynolds, and Burke. In 1778 he—apostle of free trade—was appointed commissioner of customs from Scotland. Thereafter he lived in Edinburgh with his mother, remaining a bachelor to the end. She died in 1784; he followed her in 1790, aged sixty-seven.
His achievement lay not so much in the originality of his thought as in the mastery and co-ordination of data, the wealth of illustrative material, the illuminating application of theory to current conditions, a simple, clear, and persuasive style, and a broad viewpoint that raised economics from a “dismal science” to the level of philosophy. His book was epochal because it summarized and explained—of course it did not produce—the facts and forces that were changing feudalism and mercantilism into capitalism and free enterprise. When Pitt II reduced the duty on tea from 119 to twelve and a half per cent, and tried in general to bring about freer trade, he acknowledged his indebtedness to The Wealth of Nations. Lord Rosebery tells how, at a dinner attended by Pitt, the whole company rose when Smith entered, and Pitt said, “We will stand till you are seated, for we are all your scholars.”58 Sir James Murray-Pulteney predicted that Smith’s work “would persuade the present generation and govern the next.”59