BY ANTOINE KILA
Adam Smith died 232 years ago in 1790 at the age of 68 in Scotland where he was born. Many agree to describe him as the father of modern economics and he is undoubtedly the most quoted and referenced economist. Naturally, he was often misquoted and misrepresented by admirers and critics. I have argued elsewhere (in my “Economics Trilogy”) that the three most important economists of all time are Adam Smith, Karl Marx and John Maynard Keynes.
Let’s have some fun here: who’s your favorite of the three? Yes, you can only choose one. Readers of this series are encouraged to take note and keep a chart of their favorite unforgettables, let’s see if unforgettable after unforgettable you will change your mind and reclassify your favorite unforgettables.
Today is about Adam Smith, so let’s get back to him. Adam Smith is one of those personalities about whom we know and speak little about his private life. We know a lot about his thoughts and ideas and quite a bit about the man. The grandeur of ideas and thoughts is enough to eclipse the history of man, so many can be forgiven. A closer examination of his life, however, will reveal much more about his ideas, their formation and how the thinker was shaped.
The concept of “the invisible hand” is perhaps the most popular concept that Adam Smith is known for. With the notion of the invisible hand, Adam Smith laid the foundations of the market economy and the laissez-faire economic system which advocates that between individuals, negotiations and business should be free from government interference. He explained to us that production, distribution and prices will be decided automatically, as by an invisible hand, if customers were allowed to decide freely what they want and from whom to buy and producers were allowed to decide freely what to produce and How? ‘Or’ What. This clarified that with freedom and diversity, the collective good would be served 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 earn profits at lower prices, which will ultimately benefit consumers.
It is safe to say that Adam Smith invented or at least introduced the concept of Gross Domestic Product (GDP) to the world. He showed us then that the wealth of nations should not be measured by the accumulation of balances as the leaders of the world did then under the influence of the mercantilist theory which prevailed for more than 300 years. He proved mercantilism wrong and that the wealth of nations was not in hoarding gold and silver or taxing imports and subsidizing exports, but in increasing production and encouraging trade . The wealth of a nation, he taught us, should not be measured by the total amount of gold and silver that a nation possesses, but by the total of its trade and production: the GDP.
General education is unfair to the legacy of Adam Smith in his teaching of the industrial revolution and industrialization in general because he gives all the credit to legislation and technology leaving out the thinking that has it. laid the foundations. With his ideas on labor as a factor of production in general, and the theory of the division of labor in particular, Adam Smith was the first to formulate the idea that the efficiency of production, productivity and even the prosperity will increase by forcing each worker to specialize in a small task or part of the whole production process. Before Adam Smith, thanks to the Physiocrats, labor was not considered part of the factor contributing to the production and creation of wealth. It was with Smith that we were first exposed to the idea that there is a key correlation between the amount of labor value invested in the production of goods or services and their prices. Adam Smith’s ideas about labor have been very influential in shifting the world from wealth based on the ownership and management of land to one based on production and assembly-line manufacturing.
All in all, it is easy to understand why many regard Adam Smith equally well as the economist behind theories of capitalism, wealth generation and how some authors have dared to label him an economist of rich. A closer examination of his life, his influences and his intentions, however, will lead to reducing or even dismissing such thoughts. As said, not much is said about his personal life; these little considerations might help.
Adam Smith was born in 1723 from 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 baptized on June 5, 1723. The first remarkable thing that happened to our own Adam Smith was that at the age of four he was taken away by gypsies who later abandoned him when they realized a search party was chasing them. In his “Life of Adam Smith”, John Rae, his main biographer, notes that “he would have made, I fear, a poor gypsy”.
At the age of 14 he went to the University of Glasgow to study logic, metaphysics, mathematics, physics and moral philosophy. It was 1737 and his university was already considered an important part of what would later be known as the Scottish Enlightenment Movement. The young Smith studied under some of the greatest scholars of the day and was greatly influenced and shaped especially by Francis Hutcheson, professor of moral philosophy.
His academic brilliance in Glasgow won him a scholarship to Oxford to study social philosophy, but his time there was not great for Smith. He complained that the teachers were not interested in teaching and that he did not find them inspiring. He left Oxford before the end of his term and never obtained a doctorate at Oxford. Adam Smith, however, did not let his schooling get in the way of his education. He read and learned a lot on his own and one of the influences he discovered on his own at Oxford was the social philosopher David Hume, another figure we will look at in this series. Smith was reprimanded for reading Hume.
Contrary to what many assume and imagine, Adam Smith was primarily a social philosopher and accidental economist interested in uncovering the origin and process of morality; he wanted to explore and explain what made people do what they did. He was a naturalist and an optimist who wanted to pave the way to prosperity for many. He taught us that diversity, freedom, collaboration, and market-determined merit were the path to prosperity. Adam Smith knew and explained why monopoly was bad for everyone and why privilege for the few was not good for the many and even for the long-term privileged. Smith’s findings and teachings are still valid today as we face problems of corruption, unemployment, failed governments and poverty.
Join me if you can @anthonykila to continue these conversations.
Anthony Kila is Jean Monnet Professor of Strategy and Development. He is currently center director at CIAPS; the Center for International Advanced and Professional Studies, Lagos, Nigeria. He is a regular BBC commentator and works with various organizations on international development projects across Europe, Africa and the United States. He tweets @anthonykila, and can be reached at [email protected]