1 Pages

Adam Smith

WithJoyce Appleby, Elizabeth Covington, David Hoyt, Michael Latham, Allison Sneider

A professor of moral philosophy at the University of Glasgow, Adam Smith (1723-1790) wrote the first comprehensive account of the operation of the new market economy. His work displayed a system of thought that formulated general principles and identified a means to predict and understand collective human behavior. Smith’s interpretation identifies the functioning of a constant, universal human nature operating at the level of the individual and links it to a larger aggregate effect. Human beings inherently disposed to trade and barter sought their self-interest in market bargains. Their profit-maximizing efforts were regulated not by well-crafted laws or the wisdom of magistrates, but rather through the competition of other profit-maximizing market participants. As Smith commented, it was not through the benevolence of the butcher and the baker that we got our good, cheap meat and bread, but rather through their own self-interested drive to secure as much trade for themselves as possible. In an equally indirect manner, Smith saw that it was the accumulation of savings that enabled ambitious manufacturers to reap the advantages of the division of labor. Though not restricted to mere profit motives and avarice, the general drive for self-improvement leads individuals to invest in ways that promote the highest, most efficient use of resources and the optimal functioning of the economy as a whole. Building on the example of the division of labor in a pin factory, and tying the significance of this division to the widening of the market and the cost advantages produced by competition, The Wealth of Nations (1776) applied reason and natural process in ways that made sense to the new, entrepreneurial classes in the industrializing Britain of Smith’s time.