Adam Smith was an 18th century Scottish moral philosopher and economist known as the father of modern economics. He published two influential works, The Theory of Moral Sentiments, which examined human psychology and ethics, and An Inquiry into the Nature and Causes of the Wealth of Nations, which introduced concepts like the invisible hand of the market and the benefits of free market competition and division of labor. Smith argued that when individuals pursue their own self-interest in a free market system, it leads to an optimal outcome for society as a whole through mechanisms like supply and demand aligning individual and social interests.
2. 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'
3. 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
4. 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’
5. 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
6. 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
7. 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
8. 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
9. 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.
