Adam Smith – the very name stirs emotions as vehement as they are varied. For many he is the patron saint of free enterprise, the prophet of capitalism who got the state off people's backs and helped Britain become a prosperous country. For many others he is an evil genius, the protector of privilege whose theories gave rise to all the excesses of the Industrial Revolution
Most people have never read a word he wrote. Few could fill a postcard with his ideas. So it might be helpful for friend and foe alike to take a fresh look at the man and his ideas.
Adam Smith was born in 1723 in Kirkaldy in Fife. Although he suffered from ill-health he was a bright scholar. At 14 he went to Glasgow University, already a centre of the Enlightment, a movement among European intellectuals, which aimed to explain the mysteries of God, man and nature by reason and scientific method.
At the age of 27, Smith became Professor of Logic and two years later of Moral Philosophy at Glasgow. His lectures became famous. During this time he came to know Glasgow merchants and their trade. He also befriended a young technician at the University, James Watt, who was developing his rotary steam engine.
After bringing European fame to the university, Smith resigned in order to travel as tutor with the young Duke of Buccleuch. He met with Voltaire in Geneva and with the French scholars of Paris. While in France he decided to ‘write a book to pass away the time’. It was the ‘Wealth of Nations’ published in 1776. It quickly became the text-book of statesmen such as Pitt.
Little is known about Adam Smith the man. He remained a bachelor, amusingly absent-minded and modest. He allowed few portraits of himself to be painted. Before he died in 1790, he had his personal papers and unfinished works burned.
When Adam Smith was born Scotland was a poor and divided country, drained by 400 years of war against England and by sectarian strife. As a result of the Union of Parliaments of 1707, Scotland gained access to English colonies, which encouraged emigration and trade in raw cotton and tobacco, This new wealth helped to develop industry, agriculture, banking, roads and town planning. After a long intellectual winter resulted, later in the 18th century, in a golden age of academic and artistic Iife. Adam Smith was one of a great succession; Hume in philosophy, Boswell and Burns in literature, Raeburn and Ramsay in painting, Black in medicine, Hutton in geology, the Adam brothers in architecture and Watt in engineering.
In the Wealth of Nations Smith presents his theory of the evolution of history, progressing from the earliest hunting society through nomadic and feudal societies to the ‘final stage’ of commercial independence, ‘the system of natural liberty’.
He strongly attacks the obsolete restrictions of the existing 'mercantilist' system, where Governments regulate trade in the national interest, forbidding manufacture in the colonies and exercising monopolies at home and abroad. Free individuals, said Smith, should determine their own destinies. He called for a minimum of government interference in trade and for free enterprise, where the means of production are privately owned and guided by market forces – ‘laissez faire’.
Smith recognised in everyone an instinct for self-bettermen. Human nature was the driving force in the creation of wealth. He was convinced that each person, by promoting his own interests, was at the same time promoting the interests of all and that self-seeking men are often ‘led by an invisible hand, without knowing it, without intending it, to advance the interests of society.’
This doesn’t lead to chaos, he said, because in each person there is in ‘inner man’, an 'impartial spectator’, which enables a person to criticise even his own behaviour, so that he will use his reason and ‘sympathy’ and not be driven solely by his self-interested passions.
In wider society and in history he saw the same self-correcting mechanism by which one man’s desire for self-betterment is pitted against another’s in competition. This ‘invisible hand’ regulates the economy, forcing prices down to their ‘natural’ level, which corresponds to the cost of production.
The key to economic growth, according to Smith, is the division of labour where the farmer, the baker and tailor, rather than doing everything for themselves, each specialises in one function and exchanges his surplus in the market.
Although Adam Smith was a towering figure in economic history and established political economy on a scientific basis, it was people, more than impersonal economic forces, that were central to this thinking. ‘No society can surely be flourishing and happy, he said, of which the far greater part of the members are poor and miserable.’ So he encouraged people to create a better society rather than force them to fit into his dream.
Less dogmatic than many of his followers, he was ready to adapt his ideas to the conditions of the real world. For example, he urged governments to carry out functions that could not be safely left to private enterprise, to establish schools from public funds for children in need and intervene to correct abuses in the apprenticeship system. He foresaw the dire effects of growth and the division of labour if carried to excess. He was also realistic about the ethics of certain businessmen, his system would not work if government were entrusted to ‘the mean rapacity, the monopolising spirit of merchants and manufacturers, who neither are, nor aught to be, the rulers of mankind.’
It is possible that Smith’s system would work, if only everyone had the decency, intelligence humour and self-restraint, bred of generations of Christian practice, which were basic accepted values in society as he saw it. He was not to know that his friend Watt’s engine would enable men to multiply their wealth beyond their dreams. He would have been surprised by the wave of passion, which from 1789 swept aside any thought of ‘an ordered society’. He would have been sad, l believe, to see the lure of gold overwhelm his carefully worked out social checks and balances. He would have been shattered that in the name of competition, men and women would ditch their principles, break every rule in the moral code and form governments to serve their own interests.
So what happens when human appetites become too strong for the ‘inner man’ to handle, when the inner voice is shouted down and silenced, when the ‘spectator’ is no longer ‘impartial’. How do we re-tune the mechanism and restore the authority of moral values? This was the concern of men like Wesley, Wilberforce. Owen and Shaftesbury. We would hope that Smith's great ‘Director of Nature’ has a big table where they are all working it out together.
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