Adam Smith /на англ./

Adam Smith /на англ./

RUSSIAN ECONOMIC ACADEMY NAMED AFTER

G V PLEKHANOV

INTERNATIONAL BUSINESS STUDIES

ADAM SMITH

Student: Anton Skobelev

Group: 855

Moscow 1997

After
two centuries, Adam Smith remains a towering figure in the history of economic
thought. Known primarily for a single work, An Inquiry into the nature an
causes of the Wealth of Nations
(1776), the first comprehensive system of
political economy, Smith is more properly regarded as a social philosopher
whose economic writings constitute only the capstone to an overarching view of
political and social evolution. If his masterwork is viewed in relation to his
earlier lectures on moral philosophy and government, as well as to allusions in
The Theory of Moral Sentiments (1759) to a work he hoped to write on
“the general principles of law and government, and of the different revolutions
they have undergone in the different ages and periods of society”, then The
Wealth of Nations
may be seen not merely as a treatise on economics but as
a partial exposition of a much larger scheme of historical evolution.

Early Life

Unfortunately,
much is known about Smith’s thought than about his life. Though the exact date
of his birth is unknown, he was baptised on June 5, 1723, in Kikcaldy, a small
(population 1,500) but thriving fishing village near Edinburgh, the son by
second marriage of Adam Smith, comptroller of customs at Kikcaldy, and Margaret
Douglas, daughter of a substantial landowner. Of Smith’s childhood nothing is
known other than that he received his elementary schooling in Kirkcaldy and
that at the age of four years he was said to have been carried off by gypsies.
Pursuits was mounted, and young Adam was abandoned by his captors. “He would
have made, I fear, a poor gypsy”, commented his principal biographer.

At
the age of 14, in 1737, Smith entered the university of Glasgow, already
remarkable as a centre of what was to become known as the Scottish
Enlightenment. There, he was deeply influenced by Francis Hutcheson, a famous
professor of moral philosophy from whose economic and philosophical views he
was later to diverge but whose magnetic character seems to have been a main
shaping force in Smith’s development. Graduating in 1740, Smith won a
scholarship (the Snell Exhibition) and travelled on horseback to Oxford, where
he stayed at Balliol College. Compared to the stimulating atmosphere of
Glasgow, Oxford was an educational desert. His years there were spent largely
in self-education, from which Smith obtained a firm grasp of both classical and
contemporary philosophy.

Returning
to his home after an absence of six years, Smith cast about for suitable
employment. The connections of his mother’s family, together with the support
of the jurist and philosopher Lord Henry Kames, resulted in an opportunity to
give a series of public lectures in Edinburgh — a form of education then much
in vogue in the prevailing spirit of “ improvement”.

The
lectures, which ranged over a wide variety of subjects from rhetoric history
and economics, made a deep impression on some of Smith’s notable
contemporaries. They also had a marked influence on Smith’s own career, for in
1751, at the age of 27, he was appointed professor of logic at Glasgow, from
which post he transferred in 1752 to the more remunerative professorship of
moral philosophy, a subject that embraced the related fields of natural
theology, ethics, jurisprudence, and political economy.

Glasgow

Smith
then entered upon a period of extraordinary creativity, combined with a social
and intellectual life that he afterward described as “ by far the happiest, and
most honourable period of my life”. During the week he lectured daily from 7:30
to 8:30 am and again thrice weekly from 11 am to noon, to classes of up to 90
students, aged 14 and 16. (Although his lectures were presented in English,
following the precedent of Hutcheson, rather than in Latin, the level of
sophistication for so young an audience today strikes one as extraordinarily
demanding.) Afternoons were occupied with university affairs in which Smith
played an active role, being elected dean of faculty in 1758; his evenings were
spent in the stimulating company of Glasgow society.

Among
his circle of acquaintances were not only remembers of the aristocracy, many
connected with the government, but also a range of intellectual and scientific
figures that included Joseph Black, a pioneer in the field of chemistry, James
Watt, later of steam-engine fame, Robert Foulis, a distinguished printer and
publisher and subsequent founder of the first British Academy of Design, and
not least, the philosopher David Hume, a lifelong friend whom Smith had met in
Edinburgh. Smith was also introduced during these years to the company of the
great merchants who were carrying on the colonial trade that had opened to Scotland
following its union with England in 1707. One of them, Andrew Cochrane, had
been a provost of Glasgow and had founded the famous Political Economy Club.
From Cochrane and his fellow merchants Smith undoubtedly acquired the detailed
information concerning trade and business that was to give such a sense of the
real world to The Wealth of Nations.

The Theory of Moral Sentiments

In
1759 Smith Published his first work, The Theory of Moral Sentiments.
Didactic, exhortative, and analytic by turns, The Theory lays the
psychological foundation on which The Wealth of Nations was later to be
built. In it Smith described the principles of “human nature “, which, together
with Hume and the other leading philosophers of his time, he took as a
universal and unchanging datum from which social institutions, as well as
social behaviour, could be deduced.

One
question in particular interested Smith in The Theory of Moral Sentiments.
This was a problem that had attracted Smith’s teacher Hutcheson and a number of
Scottish philosophers before him. The question was the source of the ability to
form moral judgements, including judgements on one’s own behaviour, in the face
of the seemingly overriding passions for self-preservation and self-interest.
Smith’s answer, at considerable length, is the presence within each of us of an
“inner man” who plays the role of the “impartial spectator”, approving or
condemning our own and others’ actions with a voice impossible to disregard.
(The theory may sound less naive if the question is reformulated to ask how
instinctual drives are socialized through the superego.)

The
thesis of the impartial spectator, however, conceals a more important aspect of
the book. Smith saw humans as created by their ability to reason and — no less
important — by their capacity for sympathy. This duality serves both to pit
individuals against one another and to provide them with the rational and moral
faculties to create institutions by which  the internecine struggle can be 
mitigated and even  turned to the common good. He wrote in his Moral
Sentiments
the famous observation that he was to repeat later in The
Wealth of Nations
: that self-seeking men are often “led by an invisible
hand… without knowing it , without intending it, to advance the interest of
the society.”

It
should be noted that scholars have long debated whether Moral Sentiments
complemented or was in conflict with The Wealth of Nations, which
followed it. At one level there is a seeming clash between the theme of social
morality contained in the first  and largely amoral explanation of the manner
in which individuals are socialized to become the market-oriented and
class-bound actors that set the economic system into motion.

Travels on the Continent

The
Theory quickly brought Smith wide esteem and in particular attracted the
attention of Charles Townshend, himself something of an amateur economist, a
considerable wit, and somewhat less of a statesman, whose fate it was to be the
chancellor of the exchequer responsible for the measures of taxation that
ultimately provoked the American Revolution. Townshend had recently married and
was searching for a tutor for his stepson and ward, the young Duke of
Buccleuch. Influenced by the strong recommendations of Hume and his own
admiration for The Theory of Moral Sentiments, he Approached Smith to
take the Charge.

The
terms of employment were lucrative (an annual salary of £300 plus
travelling expenses and a pension of £300 a year after), considerably
more than Smith had earned as a professor. Accordingly, Smith resigned his
Glasgow post in 1763 and set off for France the next year as the tutor of the
young duke. They stayed mainly in Toulouse, where Smith began working on a book
(eventually to be The Wealth of Nations) as an antidote to the
excruciating boredom of the provinces. After 18 months of ennui he was rewarded
with a two-month sojourn in Geneva, where he met Voltaire, for whom he had the
profoundest respect, thence to Paris where Hume, then secretary to the British
embassy, introduced Smith to the great literary salons of the French
Enlightenment. There he met a group of social reformers and theorists headed by
Francois Quesnay, who are known in history as the physiocrats. There is some
controversy as to the precise degree of influence the physiocrats exerted on
Smith, but it is known that he thought sufficiently well of Quesnay to have
considered dedicating The Wealth of Nations to him, had not the French
economist died before publication.

The Wealth of Nations

 

Despite
its renown as the first great work in political economy. The Wealth of
Nations
is in fact a continuation of the philosophical theme begun in The
Theory of Moral Sentiments
. The ultimate problem to which Smith addresses
himself is how the inner struggle between the passions and the “impartial
spectator’ — explicated in Moral Sentiments in terms of the single
individual — works its effects in the larger arena of history itself, both in
the long-run evolution of society and in terms of the immediate characteristics
of the stage of history typical of Smith’s own day.

The
answer to this problem enters in Book 5, in which Smith outlines he four main
stages of organization through which society is impelled, unless blocked by
deficiencies of resources, wars, or bad policies of government: the original
“rude’ state of hunters, a second stage of nomadic agriculture, a third stage
of feudal or manorial “farming”, and a fourth and final stage of commercial
interdependence.

It
should be noted that each of these stages is accompanied by institutions suited
to its needs. For example, in the age of the huntsman, “there is scar any
established magistrate or any regular administration of justice. “  With the
advent of flocks there emerges a more complex form of social organization,
comprising not only “formidable” armies but the central institution of private
property with its  indispensable buttress of law and order as well. It is  the
very essence of Smith’s thought that he recognized this institution, whose
social usefulness he never doubted, as an instrument for the protection of
privilege, rather than one to be justified in terms of natural law: “Civil
government,” he wrote, “so far as it is instituted for the security of
property, is in reality instituted for the defence of the rich against the
poor, or of those who have some property against those who have none at all.”
Finally, Smith describes the evolution through feudalism into a stage of
society requiring new institutions such as  market-determined rather than
guild-determined wages and free rather than government-constrained enterprise.
This later became known as laissez-faire capitalism; Smith called it the system
of perfect liberty.

There
is an obvious resemblance between this succession of changes in the material
basis of production, each bringing its requisite alterations in the
superstructure of laws and civil institutions, and the Marxian conception of
history. Though the resemblance is indeed remarkable, there is also a crucial
difference: in the Marxian scheme the engine of evolution is ultimately the
struggle between contending classes, whereas in Smith’s philosophical history
the primal moving agency is “human nature “driven by the desire for
self-betterment and guided (or misguided) by the faculties of reason.

Society and “the invisible hand”

The
theory of historical evolution, although it is perhaps the binding conception
of The Wealth of Nations, is subordinated within the work itself to a
detailed description of how the “invisible hand” actually operates within the
commercial, or final, stage of society. This becomes the focus of Books I and
II. In which Smith undertakes to elucidate two questions. The first is how a
system of perfect liberty, operating under the drives and constraints of human
nature and intelligently designed institutions , will give rise to an orderly
society. The question, which had already been considerably elucidated by
earlier writers, required both an explanation of the underlying orderliness in
the pricing of individual commodities and an explanation of the “laws” that
regulated the division of the entire “wealth” of the nation (which Smith saw as
its annual production of goods and services) among the three great claimant
classes — labourers, landlords, and manufacturers.

This
orderliness, as would be expected, was produced by the interaction of the two
aspects of human nature, its response to its passions and its susceptibility to
reason and sympathy. But whereas The Theory of Moral Sentiments  had
relied mainly on the presence of the “inner man” to provide the necessary
restraints to private action, in The Wealth of Nations one finds an
institutional mechanism that acts to reconcile the disruptive possibilities
inherent in a blind obedience to the passions alone. This protective mechanism
is competition, an arrangement by which the passionate desire for bettering
one’s condition — a “desire that comes with United States from the womb, and
never leaves United States until we go into the grave “ — is turned into a
socially beneficial agency by pitting one person’s drive for self-betterment
against another’s.

It
is in the unintended outcome of this competitive struggle for self-betterment
that the invisible hand regulating the economy shows itself, for Smith explains
how  mutual vying forces the prices of commodities down to their natural
levels, which correspond to their costs of production. Moreover, by inducing
labour and capital to move from less to more profitable occupations or areas,
the competitive mechanism constantly restores prices to these “natural” levels
despite short-run aberrations. Finally, by explaining that wages and rents and
profits (the constituent parts of the costs of production) are themselves
subject to this natural prices but also revealed an underlying orderliness in
the distribution of income itself among workers, whose recompense was their
wages; landlords, whose income was their rents; and manufacturers, whose reward
was their profit.

Economic growth

Smith’s
analysis  of the market as a self- correcting mechanism was impressive. But his
purpose was more ambitious than to demonstrate the self-adjusting properties of
the system. Rather, it was to show that, under the impetus of the acquisitive
drive, the annual flow of national wealth could be seen steadily to grow.

Smith’s
explanation of economic growth , although not neatly assembled in one part of The
Wealth of Nations
, is quite clear. The score of it lies in his emphasis on
the division of labour (itself an outgrowth of the “natural” propensity to
trade) as the source of society’s capacity  to increase its productivity. The
Wealth of Nations
opens with a famous passage describing a pin factory in
which 10 persons, by specialising in various tasks, turn out 48,000 pins a day,
compared with the few, perhaps only 1 , that each could have produced alone.
But this all-important division of labour does not take place unaided. It can
occur only after the prior accumulation of capital (or stock, as Smith calls it
), which is used to pay the additional workers and to buy tools and machines.

The
drive for accumulation, however, brings problems. The manufacturer who
accumulates stock needs more labourers ( since labour-saving technology has no
place in Smith’s scheme), and in attempting to hire them he bids up their wages
above their “natural” price. Consequently his profits begin to fall, and the
process of accumulation is in danger of ceasing. But now there enters an
ingenious mechanism for continuing the advance. In bidding up the price of
labour, the manufacturer inadvertently sets into motion a process  that
increases the supply of labour, for “the demand for men, like that for any
other commodity, necessarily regulates the production of men.” Specifically,
Smith had in mind the effect of higher wages in lessening child mortality.
Under the influence of a larger labour supply, the wage rise is moderated and
profits are maintained; the new supply of labourers offers a continuing
opportunity for the manufacturer to introduce a further division of labour and
thereby add to the system’s growth.

Here
then was a “machine” for growth — a machine that operated with all the
reliability of the Newtonian system with which Smith was quite familiar. Unlike
the Newtonian system, however, Smith’s growth machine did not depend for its
operation on the laws of nature alone. Human nature drove it, and human nature
was a complex rather than a simple force. Thus, the wealth of nations would 
grow only if individuals, through their governments, did not inhibit this
growth by catering to the pleas for special privilege that would prevent the
competitive system from exerting its begin effect. Consequently, much of The
Wealth of Nations,
especially Book IV, is a polemic against the restrictive
measures of the “mercantile system” that favoured monopolies at home and
abroad. Smith’s system of “natural liberty”, he is careful to point out,
accords with the best interests of all but will not be put into practice if
government is entrusted to, or heeds, the “mean rapacity, who neither are , nor
ought to be, the rulers of mankind.”

The Wealth of Nations is therefore far from the ideological tract it is often
supposed to be. Although Smith preached laissez-faire (with important
exceptions), his argument was directed as much against monopoly as government;
and although he extolled the social results of the acquisitive process, he
almost invariably treated the manners and manoeuvres of businessmen with
contempt. Nor did he see the commercial system itself as wholly admirable. He
wrote with decrement about the intellectual degradation of the worker in a
society in which the division of labour has proceeded very far; for by
comparison with the alert intelligence of the husbandman, the specialised
worker “generally becomes as stupid and ignorant as it is possible for a human
being to become”.

In
all of this, it is notable that Smith was writing in an age of preindustrial
capitalism. He seems to have had no real presentiment of the gathering
Industrial Revolution, harbingers of which were visible in the great ironworks
only a few miles from  Edinburgh. He had nothing to say about large-scale
industrial enterprise, and the few remarks in The Wealth of Nations
concerning the future of joint-stock companies (corporations) are disparaging.
Finally, one should bear in mind, that, if growth is the great theme of The
Wealth of Nations
, it is not unending growth. Here and there in the
treatise are glimpsed at a secularly declining rate of profit; and Smith
mentions as well the prospects that when the system eventually accumulates its
“full complement of riches” — all the pin factories, so to speak, whose output
could be  absorbed — economic decline would begin, ending in an impoverished
stagnation.

The Wealth of Nations was received with admiration by Smith’s wide circle of
friends and admires, although it was by no means an  immediate popular success.
The work finished, Smith went into semiretirement. The year following its
publication he was appointed commissioner both of customs and  of salt duties
for Scotland, posts that brought him £600 a year. He thereupon informed
his former charge  that he no longer  required his pension, to  which Buccleuch
replied that his sense of honour would never allow him to stop paying it. Smith
was therefore quite well off in the final years of his life, which were spent
mainly in Edinburgh with occasional trips to London or Glasgow (which appointed
him a rector of the university). The years passed quietly, with several
revisions of both major books but with no further publications. On July 17,
1790, at the age of 67, full of honours and recognition, Smith died; he was
buried in the churchyard at Canongate with a simple monument stating that Adam
Smith, author of The Wealth of Nations, was buried there.

Beyond
the few facts of his life, which can be embroidered only in detail,
exasperatingly little is known about the man. Smith never married, and almost
nothing is known of his personal side. Moreover, it was the custom of his time
to destroy rather than to preserve the private files if illustrious men, with
the unhappy result that much of Smith’s unfinished work, as well as his
personal papers, was destroyed (some as late as 1942). Only one portrait of
Smith survives, a profile medallion by Tassie; it gives a glimpse of the older
man with his somewhat heavy-lidded eyes, aquiline nose, and a hint of
protrusive lower lip. “I am a beau in nothing but my books, ”Smith once told a
friend to whom he was showing his library of some  3,000  volumes.

From
various accounts, he was also a man of many peculiarities, which included a
stumbling manner of speech ( until he had warmed to his subject), a gait
described as “vermicular”/ and above all an extraordinary and even comic
absence of mind. On the other hand, contemporaries wrote of a smile of
“inexpressive benignity,” and of his political tact and dispatch in managing
the sometimes acerbic business of the Glasgow faculty.

Certainly
he enjoyed a high measure of contemporary fame; even in his early days at
Glasgow his reputation attracted students from nations as distant as Russia,
and his later years were crowned not only with expression of admiration from
many European thinkers but by a growing recognition among British governing
circles that his work provided a rationale of inestimable importance for
practical economic policy.

Over
the years, Smith’s lustre as a social philosopher has escaped much of the
weathering that has affected the reputations of other first-rate political
economists. Although he was writing for his generation, the breadth of his
knowledge/ the cutting edge of his generalization, the boldness of his vision,
have never ceased to attract the admiration of all social scientists, and in
particular economists. Couched in the spacious, cadenced prose of his period,
rich in imagery and crowded with life, The Wealth of Nations projects a
sanguine but never sentimental image of society. Never so finely analytic  as
David Ricardo nor so stern and profound as Karl Marx, Smith is the very epitome
of the Enlightenment: hopeful but realistic, speculative but practical, always
respectful of the classical past but ultimately dedicated to the great
discovery of his age — progress.

BIBLIOGRAPHY:

William
Scott. “Adam Smith as Student and Professor” 1987

Andrew
S. Skinner. “Essays on Adam Smith” 1988

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