ADAM SMITHFather of economics

LIFE

Moral Philosopher

Professor at Oxford University and University of Glasgow

Published ‘The Theory Of Moral Sentiments’ and then ‘An Inquiry into the Nature and Causes of the Wealth of Nations'

THE MARKET

Society can depend on unregulated capitalist markets rather than tradition or authoritarianism

Self interest (guided by profit) motivates people to perform tasks required by society (what people are willing to pay for)

Competition regulates greed i.e. over chargers lose to those that charge cheaper, even for wages

Thus pursuit of self interest leads to communal prosperity

Depends on freedom to pursue self interest and compete

THE INVISIBLE HAND

Supply and demand always uses prices and profits to signal to producers that society required. Thus producers, in search of profits, produce what society requires - in the correct quantity and at a competitive price.

Too little of a good produced for society - high demand for low supply leads to high profit from high prices so attracts more effort into production and vice versa until at ‘equilibrium’

GROWTH

Division of labour (splitting up a task) allows workers to specialize in niches (leading to productivity, innovation etc.)

Growth comes from the above

Wealth = freedom + trade + division of labour

Freedom - pursuit of self interest

Trade - allows competition and global cooperation for division of labour; against mercantilism

MARKET IS PROSPERITY

Market will work for societal good if left alone (‘laissez faire’ from French Physiocrats)

Guided by laws of ‘invisible hand’ rather than iron fist

Capitalism today is unlike his ideal model - with less competition from monopolies, large unions etc.

Less freedom and trade leads to less prosperity

MORE LAWS OF PROGRESS

Law of accumulation - profits will be spent for expansion until higher demands for wages makes profit margins thin and disappear

Law of population - labour is subject to demand; as wages rise, more people will enter the workforce (e.g. through birth rates) and vice versa

Increased population increases worker supply so lower wages and higher profit - laws counter balance for harmony

Thus, progress inevitable and society will reach its reward

LEGACY

Formalized economic thinking - presented both sides whilst giving evaluative factors, then argued for his opinion on the best means for prosperity

Optimism in dynamic progression of society

Long discussions and digressions on prominent economic themes of his day

TOP QUOTES

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. To feel much for others (is) human nature.

All money is a matter of belief.

On the road from the City of Skepticism, I had to pass through the Valley of Ambiguity.