Adam Smith: father of political economy
By Aftab Ahmad Khan

Adam Smith is universally regarded as the true founder of the science of economics. His great book the ‘Wealth of Nation’s is one of the seminal works of social sciences and is a rare intellectual and literary performance. It has been a guide for successive generations of economists and the starting point of their speculation.

As Sir Alexander Gray observed, “Before Adam Smith there had been much economic discussion, with him we reach the stage discussing economics.” Smith is instructive as well as persuasive and has a passion of genuine human sympathy. While borrowing extensively from Physiocrats and from his predecessors, notably Hutcheson, Hume and Mandeville, he knew how to weld their ideas into a system without impairing his originality.

Adam Smith was born in 1723, in a small port of Kirkcaldy across the Firth of Forth from Edinburgh in Scotland. His father was a collector of customs. After the local school, Adam Smith went to the University of Glasgow and then Balliol College, Oxford. From Oxford he returned to the University of Glasgow, where he was first a professor of logic and then of moral philosophy. Here in 1759, he published, “The Theory of Moral Sentiments” a work now not much remembered.

In 1763, he resigned from the University to become tutor of the young Duke of Buccleuch and to accompany him in travels across the continent. During these travels, he met Voltaire, Quesnay and Turgot, among others. These travels it can be safely assumed imparted a cosmopolitan tone to Smith’s ideas and observations, which is vividly reflected in ‘Wealth of Nations’, whose success when it was published in 1776 was immediate and immense. In Edward Gibbon’s words it offers “the most profound ideas in the most perspicuous language.” Again, as aptly stated by Gide and Rist in their well known work ‘A History of Economic Doctrines’: “The book has literary charm, bristles with facts and pulsates with life. His facts are inter-mixed with reasoning and his illustrations with arguments.”

After the publication of ‘Wealth of Nations’ Smith was made Collector of Customs in Edinburgh, which was a sinecure. He died in Edinburgh in 1790; his house and burial place are on the Canongate there and are a place of pilgrimage for those who profess interest in political economy.

In the ‘Wealth of Nations’ Smith’s coverage of political economy is wide ranging. It extends from an exhibition of the essential relationships of an exchange economy practicing division of labour to the economic functions of the State and canons of taxation. The central focus of the book is, however, on development -- what makes wealth of nations more or less. For the first time in the history of economic thought, production per head, as distinct from aggregate production is adopted as a yardstick for measuring development. In his words: “According as this produce, or what is purchased with it, bears a greater or smaller proportion to the number of those who are to consume it, the nations will be better or worse supplied with the necessaries and conveniences for which it has occasion. And two main circumstances are said to regulate this proportion: first … the skill, dexterity and judgment with which labour is generally applied, and secondly by the proportion between the numbers of those who are employed in useful labour and that of those who are not so employed.”

Adam Smith devotes considerable attention to an examination of the causes responsible for the accumulation of capital – a topic which has great significance in the context of development of low income countries. In his view, with the exception of division of labour and invention of money, there was no phenomenon of greater importance and no more essential fount of national wealth than capital. Capital limits industry and is the true source of economic life. ‘Let capital increase and industry will expand in all directions; diminish it and a bar is set to all improvement.’

The saving for capital in not the result of any foresight on the part of society but is solely due to the simultaneous and concurrent actions of thousands of individuals. These individuals, urged by a desire to better their lot are spontaneously moved to save their earnings and to employ those savings productively. Smith makes it clear beyond doubt that every extravagant person in an enemy of society and every frugal person is a benefactor. He was fully aware of the baneful consequences of conspicuous consumption for capital accumulation.

In the ‘Wealth of Nations’ Smith applied to Economics his concept of a beneficent providence who had so arranged human affairs that individual and social objectives coincided. If men were left to themselves, he said, though seeking only their own gain, they would bring about the general benefit. In the absence of interference, Smith believed that men would produce articles for which they had the greatest need. The great bugbear of the medieval and mercantilist regulators – the supply of money – was nothing to worry about because the supply of precious metals would regulate itself better than any public authority would manage it.

In general, the individual, in directing his industry in what seemed to him the most profitable channels, having in mind only his own interest, without knowing it, indeed more effectively than he intended, served the public interest.

Government restrictions were injurious, Smith thought, doing more harm where they sought to do good.

They prevented the free flow of capital and labour from less advantageous to more advantageous employments and they forced international trade into less economic channels. The solution was to be found in economic freedom.

“Every man, so long he does not violate the laws of justice, is left perfectly free to pursue his own interest and bring both his industry and capital in competition with those of any other man or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions and for the proper performance of which no human wisdom or knowledge could be sufficient: the duty of superintending the industry of private people and of directing it towards the employment most suitable to the interest of society.”

Thus the most influential book on economics because at tract in favour of laissez - faire.

Smith, however, was not oblivious to the dangers of self-interest. He sought remedy in competition. Competition if allowed freely and judiciously provided the most effective check on selfishness and offered the best course to maximise benefit of the society and the people.

Smith allowed three main functions to the government: defence, justice and certain public works and institutions, which “it can never be for the interest of any individual or small number of individuals, though, it may frequently do much more than re-pay society.”

In stating his general principles of taxation, Smith proposed that taxes should be levied on people ‘as nearly possible, in proportion to their respective abilities,’ that is in proportion to the revenue, which they respectively enjoy under the protection of the state.’ A little later in his book, however, discussing taxes on the rent of houses, Smith appeared to favour progressive taxation. ‘A tax upon house rents, therefore, would in general fall heaviest on the rich; and in this sort of equality, there would not perhaps be anything very unreasonable… that the rich should contribute to the public expense, not only in proportion to their revenue but more than in proportion.” It is not generally known, that Adam Smith was the first economist to speak for the poor.

At more than one place in the ‘Wealth of Nations’ he demonstrates his sympathy for the worker and pleads for higher wages for the workman’: “Servants, labourers and workmen of different kinds, made up the far greater part of every great political society. But, what improves the circumstances of the greater part can never be regarded as an inconvenience for the whole. No society can surely be flourishing and happy of which the greater part of the numbers are poor and miserable. It is but equity besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour, as to be tolerably well fed, clothed and lodged.”

Adam Smith has had his critics and detractors. J.B. Say thought “Wealth of Nations” was a ‘vast chaos’. In Schumpeter’s view ‘Adam Smith’s Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776.’ These criticisms are harsh and unjustified.

In a work which is the outpouring of not only a great mind but of a whole epoch what counts is not any originality in a purist sense but the conception, scope and execution of the work, the spirit which animates it, as well as the impact it has had in history. Smith may not be in the technical sense, the founder, inventor, or discoverer of political economy. He, nevertheless, is incomparably the greatest name in this science. He looked at things comprehensively and his work provided a plan according to which all later work has proceeded. The range and power of his economic ideas remain relevant and impressive despite the lapse of more than two centuries.