Adam Smith (1723-1790) was a Scottish moral philosopher and economist known for his significant contributions to the field of economics and his influential work, "The Wealth of Nations" (1776). Born in Kirkcaldy, Scotland, in 1723, Smith's intellectual journey was shaped by the philosophical ideas of his time.
During his early years, Smith wrote an essay emphasizing the importance of philosophy and science in explaining unexpected phenomena in society. He drew inspiration from his friendship with David Hume, a renowned philosopher and scientist. This early work laid the foundation for his later economic theories.
Smith lived during a period when the prevailing economic theory was mercantilism, which advocated for countries to export more than they import to accumulate wealth. However, these protectionist policies led to economic stagnation.
In the 18th century, a group of French thinkers, led by François Quesnay, challenged these policies. Quesnay, considered the spiritual father of laissez-faire economics, promoted the idea of minimal government interference in trade and economic affairs.
Adam Smith's work countered mercantilism by asserting that the economy could self-regulate through the forces of supply and demand. He argued that the division of labor was a driving force behind economic growth and innovation.
Smith's views on wages emphasized negotiations between employers and employees, with wages determined by the balance of supply and demand in the labor market. He believed in a natural rate of wages that allowed workers to support themselves and their families.
Profits, in Smith's view, compensated entrepreneurs for their effort and risk-taking and were also influenced by market dynamics. Rent from land, he argued, was linked to the productivity of the land.
Contrary to misconceptions, Smith's work did not advocate for morally unprincipled economic practices. He believed in the state's role in protecting citizens from injustice and oppression, establishing a functioning justice system, and maintaining public institutions and infrastructure that couldn't be financed privately.
Smith also valued education but believed that the quality of education was better ensured in private schools.
His famous concept of the "invisible hand" suggested that individuals, while pursuing their own interests, unintentionally contribute to the greater good of society. This idea underscores his belief that government intervention should be minimal.
In conclusion, Adam Smith's contributions to economics and philosophy have had a profound and lasting impact on the development of modern economic thought. His ideas continue to shape discussions on free markets, government intervention, and the role of individuals in promoting societal well-being.
Smith's original text about the invisible hand:
"As in so many things, here he is led by an invisible hand to further an end which he had in no way intended. By pursuing his own interests he often advances the interests of the country more effectively than if he directly trying to promote”.
Smith, A. (2019 ), The Wealth of Nations, Dutch translation with an introduction by J. Veenbaas, Amsterdam: Boom.