Accidental economist for market economy, laissez-faire system

ADAM SMITH DIED 232 years ago in 1790 at the age of 68 in Scotland where he was born. Many agree in describing him as the father of modern economics and he is arguably the most quoted and referenced economist. Naturally he has been misquoted and misrepresented many times by both admirers and critics. I have argued elsewhere (in my “Trilogy of Economics”) that the three most important economists of all times are Adam Smith, Karl Marx and John Maynard Keynes.

Let’s have some fun here: Who is your favourite of the three? Yes, you can only choose one. Readers of this series are invited to take note and keep a table of their favourite unforgettables, let us see if unforgettable after unforgettable you will change your mind and reclassify your favourite unforgettables.

Today is about Adam Smith, so back to him. Adam Smith is one of those personalities of whom little is known and said about his private life. We know a lot about his thoughts and ideas and rather little about the man. The greatness of ideas and thoughts are enough to overshadow the story of the man, many can hence be forgiven. A closer look at his life will however reveal a lot more about his ideas, their formation and how the thinker was shaped.

The concept of “the invisible hand” is perhaps the most popular concept for which Adam Smith is known. With the notion of the invisible hand, Adam Smith laid the foundations for market economy and laissez-faire economic system that advocates that amongst individuals, negotiations and affairs should be free from government interference. He explained to us that production, distribution and prices will be automatically decided, as if by an invisible hand, if customers were allowed to freely decide what they want and who to buy from and producers allowed to freely decide what to produce and how. This clarified that, with freedom and diversity, the collective good will be taken care of if individuals were allowed to pursue their own individual interests. The producer will adopt more efficient means of production in order to gain more market share and profit at lower prices and this will ultimately benefit consumers.

It is safe to say Adam Smith invented or at least introduced the concept of Gross Domestic Product (GDP) to the world. He showed us then that wealth of nations should not be measured through accumulation of balances as the leaders of the world were doing then under the influence of the mercantilists theory that prevailed for over 300 years. He proved that mercantilism was wrong and that the wealth of nations was not by stocking gold and silver or taxing imports and subsidising exports but by boosting production and encouraging trade. The wealth of a nation, he taught us, is not to be measured by the total amount of gold and silver a nation has but by the total of its trade and production: The GDP.

General education is unfair to Adam Smith’s legacy in its teaching of the industrial revolution and industrialization in general as it ascribes all the merit to legislation and technology leaving out the thought that laid the foundations. With his ideas on labour as a factor of production in general, and the theory of division of labour in particular, Adam Smith was the first to articulate the idea that efficiency in production, productivity and indeed prosperity will increase by getting each worker to specialise in a small task or part of the whole process of production. Before Adam Smith, thanks to the physiocrats, labour was not considered as part of the contributing factor to production and wealth creation. It was with Smith that we were first exposed to the idea that there is a key correlation between the amount of labour value put into the production of goods or services and their prices. The ideas of Adam Smith on labour were very influential in the move the world has made from wealth based on land ownership and management to wealth based on production and assembly line manufacturing.

Overall, it is easy to understand why many consider Adam Smith, just as well, as the economist behind theories of capitalism, wealth generation and how some writers have dared to term him the economist of the rich. A closer look at his life, influences and intention will however lead to scaling back if not discarding such thoughts. As said, not much is discussed of his personal life; these little considerations might help.

Adam Smith was born in 1723 into the second marriage of another Adam Smith, the father, to Margaret Douglas, the mother. His date of birth does not seem certain but he was baptised June 5,1723. The first remarkable thing that happened to our own Adam Smith was that at four years old, he was taken away by gipsies who later abandoned him when they realised that a search party was after them. In his, “Life of Adam Smith”, John Rae, his principal biographer, noted that, “He would have made, I fear, a poor gipsy.”

At the age of 14 he went to the Glasgow University to study logic, metaphysics, mathematics, physics and moral philosophy. This was in 1737 and his university was already considered an important part of what will later be known as the Scottish Enlightenment Movement. The young Smith studied under some of the leading scholars of the day and he was highly influenced and shaped above all by Francis

Hutcheson, a professor of moral philosophy.

His academic brilliance at Glasgow gave him a scholarship to Oxford to study social philosophy, but his time there was not great for Smith. He complained the teachers were not interested in teaching and he did not find them inspiring. He left Oxford before the end of his tenure and was never conferred a doctorate at Oxford. Adam Smith however did not let his schooling get in the way of his education. He read and self-taught a lot and one of the influences he discovered on his own whilst at Oxford was the social philosopher David Hume, another figure we shall look at in this series. Smith was reprimanded for reading Hume.

Contrary to what many assume and imagine, Adam Smith was above all a social philosopher and an accidental economist interested in finding out the origin and process of morality; he wanted to explore and explain what led people to do what they did. He was a naturalist and an optimist that wanted to establish the path to prosperity for many. He taught us that diversity, freedom, collaboration and merit decided by the market were the way to prosperity. Adam Smith knew and articulated why monopoly was bad for all and that privilege for the few was not good for the many and even for the privileged in the long term. Smith’s discoveries and teachings are still valid today as we face issues of corruption, unemployment, failing governments and poverty.

Join me if you can @anthonykila to continue these conversations. business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com