Mr. Smith, a frequent contributor to The Freeman, lives in Santa Maria, California.
Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring both his industry and capital into competition with those of’ any other man, or order of men.
—Adam Smith, The Wealth of Nations
Adam Smith was a product of the 18th century. For those wanting hard facts, he was born in Kirkcaldy, Scotland, in 1723 and died in 1790. He lived during the Hanover regime, and was a contemporary of George Washington and Frederick the Great. During his lifetime he saw the beginning of the great age of railroading, the Industrial Revolution, and the emerging power of the New World on the other side of the Atlantic.
Although Adam Smith is remembered primarily as an economist, it is misleading to picture him as a man with a cold eye turned solely toward profit-and-loss statements. He was actually an interesting and rather engaging fellow. Perhaps the model for the quintessential absent-minded professor, he was well-known in Glasgow and enjoyed a reputation as one of the city’s leading characters, muttering to himself as he meandered through the streets in his knee breeches and tricorneted hat, invariably forgetting his next appointment.
An incontestably brilliant man, Oxford-educated, he taught moral philosophy at the University of Glasgow and could list among his circle of friends and admirers such luminaries as David Hume, Benjamin Franklin, Edmund Burke, and William Pitt. His solid background in philosophical morality is one of the more interesting facets of Smith’s nature because his pioneering work in economics had a firm base in the uncompromised righteousness of a thoroughly decent human being.
Smith’s interest in economics was influenced by Francois Quesnay, a French medical doctor who was to gain a reputation as an economist. Until Quesnay, economics had been primarily a gold-and-silver science where wealth was measured in hard currency and the richest nation was the one whose king had the most precious metal in his vault. Quesnay recognized the dynamic concept of circulating wealth, money that passed from hand to hand and made an impact with each transaction. He measured the wealth of a society by the flow of its currency rather than the weight of a pile of gold lying in a box. He and Smith saw economics as a process. They parted company, however, with Quesnay’s insistence that all wealth sprang from a nation’s agriculture. Smith had seen too much industry in Scotland to discount manufacturing as a vital element in the creation of wealth.
Adam Smith is often considered the father of capitalism, although he never used nor probably even heard the word. He was essentially an observer and, unlike Marx and Engels, had no interest in using economics to engender some manner of social utopia. His world was one of natural laws, forces that were undeniable and would always prevail. His interest was in understanding these laws and thus understanding the world in which he lived. In that the laws were natural, they could not be created at a conference table.
To Adam Smith, the laws of the marketplace were the laws of an organized society. A product was created and sold only through self-interest, which Smith saw as not only morally right but essential to the economic process. As he said, “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.”
He explained that self-interest guided the producer in creating a product that the consumer needed and wanted and at a price he could afford. The great regulator was competition. Should self-interest turn to greed and the price of the product be raised, then a competitor would offer the same product at a lower price and sell it to the consumer. Thus man did not have to be essentially righteous. The marketplace dictated ethical behavior.
The Importance of the Consumer
Of the two elements, producer and consumer, Smith saw the consumer as the more important. The consumer presented the need and controlled the price by deciding how much he was willing to spend. The producer merely reacted to this need, and if he didn’t, a competitor would step in and fill the void, again motivated by self-interest.
His great message was that goodness and humanity are inherent in the system itself. The laws of the marketplace could and would provide for mankind, and thus benevolence sprang from self-interest. His argument for the abolition of slavery, for example, was that the practice was in opposition to the laws of the marketplace—it wasn’t an economically sound practice. It was a simple case of good triumphing over evil because the system demanded it. He believed that all social reform would evolve in the same way. Government wasn’t up to the task because government represented artificially induced forces.
To Adam Smith there was an inherent morality in sound, unfettered economics, which could be realized only with private control of industry and agriculture. That which interfered with the natural flow of the process was evil. He would have disapproved as much of unscrupulous dealings on the Right as he would have shuddered at the thought of the New Deal, Fair Deal, and Great Society. All of them, in Smith’s mind, would represent obstructions to something that had to flow freely in order to work. He encouraged the accumulation of wealth, but it had to be obtained by running with the flow and not by trickery or chicanery. Government, of course, was the great evil, and this is where free men had to be on the alert. Let us remember that Smith was essentially a moralist, and his entire economic philosophy was based upon a system of spreading the wealth, but by natural laws and not by government interference. His message, repeated often, was to keep all unnecessary fingers out of the pie and let the marketplace look after the welfare of the people.
Smith’s lesson can well be applied to today’s social problems because the laws of the marketplace are still there to help if we will just let them do what they do best. The best thing we can do for the unemployed is to let the economy create jobs for them. Handouts are not the answer to anything. The market economy is also the answer to poverty, hunger, homelessness, and the despair of a hopeless life.
Adam Smith made sense in the 18th century, and he makes sense today. He was a most sensible man, and it is unfortunate that he isn’t more widely read than he is. It was Smith who presented economics as a unique discipline and who first saw the producer and the consumer as vital elements in the economy of a nation.
Adam Smith left a legacy to the world that compares favorably with that of any other person in history. He was not only a brilliant individual but a kind and likeable man as well. To those of us who believe in free markets, property rights, and individual enterprise, it is good to know that more than two centuries ago a very wise man was saying the same thing. It is our responsibility to go on saying it.