Adam Smith is one of the most revered economists that influenced the development of modern economic thought. Adam Smith is famous for coining the term “the invisible hand of the market” which is the perfect metaphor for market movements driven by supply and demand. However what makes Adam Smith’s thinking unique is how it ties is yet contradicts the teachings of great thinkers ahead of him such Aristotle and Saint Thomas Aquinas on their ideas of wealth accumulation and self-motivation. He also thought similarly but contrasted with his contemporaries such as Bernard Mandeville.
Adam Smith was a Scottish political economist, born in June 5, 1723. He is one of the most renowned political economist, lecturer and essayist. Adam Smith is known for his contributions to the field of politics, economy and moral philosophy, having written two of the most revered books during the 18th century, the seminal book An Inquiry into the Cause of the Wealth of Nations first published in 1776 and The Theory of Moral Sentiments published earlier in 1759 . Adam Smith’s writings could not have come in a better time. Anderson reports that the 18th century is known as the Enlightenment period, that being an era when the French and the Americans revolted against the prevalent economic and social standards. In Europe, the political and economic climate was such that the masses were dreaming of better conditions and philosophy and science were gaining back prominence. The whole 18th century was marked with revolutions and calls to freedom from oppression and counter-revolutions embraced by monarch across Europe. In synopsis, the reforms that the revolutions seek were introduced but were sustained with very little success. What did prove successful in the 1770s, the time Adam Smith was at his peak was a different kind of revolution, the industrial revolution. The 1770s, Great Britain became one of the world’s most powerful countries but the production of the improved steam engine in Great Britain changed the global economic and social environment. The events leading to the industrial revolution provided the perfect backdrop for Adam Smiths’ writings. In 1959 he published the Theory of Moral Sentiments wherein he stressed the importance of the concept of “sympathy” in making moral decisions. The concept of the “impartial spectator” or that of a moral compass within every person was introduced in this writing, with the description that that “impartial spectator” guided an individual in differentiating what is right from wrong. Unfortunately, the Theory of Moral Sentiments did not establish how the moral compass could be cultivated and generalized what is “right” and “wrong” as what the author believed them to be so. In 1776, Adam Smith published his most famous work, An Inquiry in to the Cause of the Wealth of Nations. This publication provided critical commentary on the economic systems that were dominant in the 18th century, which is mercantilism. The publication Wealth of Nations still contained Smith’s personal moral compass of right and wrong, calling out the dangers of mercantilism as it benefit the rich while making the impoverished suffer. In Adam Smith’s mind, this would change if true free trade happened, with the removal of the barriers that hinder free trade. To this day, the concept of a utopic state of free trade drives economies to develop partnerships with other national economies to create free-trade agreements that endeavour to develop and experience the benefits as Adam Smith postulated.
Essentially, The Wealth of Nations was a new way of looking at economics, starting with an approach that is against the existing mercantile system of Smith’s time. In Adam Smith’s mind, a new economic system is viable even if it is based in social dynamics and human nature. His work is separated in different books. In the first and second book, he described what division of labor is and how this practice will be critical for maintaining innovation and efficiency. In the third book, Adam Smith recognized the social evolution happening in Great Britain and in the fourth book he criticizes the prevalent mercantile system saying that wealth is not based on metals (which was the most valuable commodity then) but that a country’s wealth is based on the goods and services that that country can create. He then goes on into describing what we now call “Gross Domestic Product” and an explanation that this Gross Domestic Product can be increased if the country’s capacity to produce is increased as well, evidently by increasing its ability to trade. Adam Smith further postulated that a metaphoric “invisible hand” is responsible for the trade movements in the economic markets. The term “invisible hand” was used only thrice in Adam Smith’s writings but it is the most iconic metaphor used to describe the free market economy and is based on Richard Cantillon’s economic thoughts as well. The idea of an “invisible” hand, which was introduced as a concept in 1759’s The Theory of Moral Sentiments meant that the source of the market’s movement is not identified. Competition between those that are selling and those that are buying and the motive for generating profit is the general force or hand that moves the market. Buyers and sellers compete and agree on price and costs and the Darwinian theme of the strongest being able to survive, holds. For reference, Adam Smith writes about competition at the seventh chapter of book one of The Wealth of Nations. Adam Smith also postulated the concept of “laisses-faire” an economic policy that describes a free market that directs its actions towards the fulfilment of its own desired ends. The idea of this economic policy is the basis of neo-classical economics .
Throughout history, there have been a lot of contributors to what we know as present-day economic thought. The great Greek philosopher Aristotle is also one of the many men who have contributed to the development of economic theory. Aristotle believed that things were not due only the “wickedness of human nature”. Aristotle describes the market movements as the “art of acquisition” of wealth because in his time, Aristotle observed the obsession of wealth accumulation of men which was categorically an honourable task then. However, trade on the retail end is believed to be “dishonourable” by Aristotle .
According to Diedre McCloskey, Adam Smith is similar to Thomas Aquinas in that Adam Smith is an ethicist. This, according to McCloskey, is based on the fact that Adam Smith promoted five virtues that are similar to the virtues that Thomas Aquinas promoted in his writings. Of course, Thomas Aquinas is a scholar of the Christian Church and therefore included the virtues of faith and hope in his writings. Thus the primary difference between the economic thought promoted by Adam Smith and that that of Thomas Aquinas was the fact that Aquinas, in the Summa Theologica, said that “faith is the first of all the virtues” and added that other virtues precede faith accidentally. Thomas Aquinas also talked about a “just price” as a virtue which the scholar believed was the basis for having an orderly society. The idea of a “just price” is similar to what we currently recognize as an equilibrium price. According to Thomas Aquinas, buyers and sellers must not deviate from this “just price” for their personal gains. He said that “Divine Law” would deal with those that trade unfairly .
Adam Smith believed that sympathy towards society and self-interest are two related concepts. For example, if a student helps his teacher pick up pieces of paper, he is doing right under our vague yet present moral compass. But what if the student is not doing it for the right reasons, what if he is doing it for his own (selfish) reason such as preservation of a public image or the avoidance of punishment. So what motivates modern man to act in accordance with what is “morally right?” Modern man acts this way because he in fact “cares about something” whether that be the other person, himself, or some other object of reverence (Miller, 2012). Secondly, man is interested in those that he sympathizes with. Think for example of a fireman running into a huge fire to save someone he does not even know. This act is an act of sympathy and self-interest, sympathy towards an unknown person and self-interest because of his obligations to do “his job”. This could also be said to a person who pays taxes which in turn is used to fund schools or hospitals. This act is of self-interest and sympathy as well, and is far from being altruistic. While sympathy is a powerful motivator it is ineffective without self-interest, the two coexist hand in hand in today’s society and in every man. This explains man’s multiple motivations that are so common today. Men are by nature benevolent and self-interested. Men are most sympathetic to those he care about and those within certain proximity from him such as family, friends, communities and associations. This circular relationship works well in today’s society. Multiple motivations cause undue stress, additional costs, much needed fulfilment and self-satisfaction, multiple motivations may be too much of a good thing .
In this regard we can see how Adam Smith’s philosophical position on wealth creation differs from that of Aristotles and of Aquinas. Aristotle believed in wealth creation to serve personal (i.e. family) requirements while Aquinas believed that wealth creation must be “just” and “virtuous”. Adam Smith believed that self-interest and common good are intertwined thus marrying the two concepts and providing a rationale that veered from the virtues of “honor” or “faith”.
Another noted philosopher who influenced Adam Smith is Bernard Mandeville was a Dutch economist who is famous for writing the “The Fable of the Bees”. This piece talked about wealth distribution, education and poverty and also talked about the division of labor, which Adam Smith expounded in his own writings. In addition, both Mandeville and Adam Smith believed that the individual’s personal motivations benefit the public in general. While Adam Smith believed that the personal motivations of each individual is virtuous by nature, Mandeville believed it is not virtuous and therefore might lead to a disadvantage to the public which necessitates that public officials maintain the righteousness of personal motivations of individuals . However Mandeville adds that even the most sinister of all actions would lead to some economic gain. For example, a libertine would employ people (tailors, servants, cooks) who will generate income and will help run the economy. Thus, the actions of a person benefit the society whether or not these actions were conducted out of goodwill or greed . In conclusion, both Adam Smith and Bernard Mandeville believed that actions of individuals do the society good. In Adam Smith’s writings, the intentions of those actions are void of any rightness whereas in Mandeville, he recognizes that those motivations may be purely self-centred and targeting for gaining only for oneself. However, both admit that these actions turn the wheels of the economy thereby providing the force behind the market’s invisible hand.
Adam Smith’s significance goes beyond the differences or similarities of his writings with our recognized thought leaders. Adam Smith is one of the pillars of modern economics and his writings on trade, libertarianism and capitalism are the best known if not the most accepted in the world. Adam Smith championed free trade, just competition and government intervention of the markets. He knew that laws and regulations are needed to ensure that markets are kept free and competitive. These are more important that how different or similar his writings are to Aristotle, Aquinas or Mandeville, as explained above.
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