The Wealth of Nations (Barnes & Noble Library of Essential Reading) [NOOK Book]

Introduction

Adam Smith is often seen as the first modern economist. His magnum opus, The Wealth of Nations, published in 1776, is widely credited with laying the theoretical and philosophical foundations for the modern free market system, what Smith referred to as commercial society but has since come to be known as capitalism. The work had an immediate impact on economic thinking, at first in Britain and then from there in Britain's expanding global empire, as government servants and administrators began to design economic policies, especially in the crucial area of trade in foodstuffs, in light of its arguments for the freedom of trade. Its economic influence extended to Europe as Danish, French, German, Italian, and Spanish editions soon appeared. The Wealth of Nations is far more than a work of economic theory, however. In this work Smith presents a powerful blueprint for a stable and peaceful society which rests upon a hard-headed and realistic assessment of humans and their natures.

Adam Smith lived the relatively uneventful life of a writer, university professor, and government administrator. He was born in the small Scottish town of Kircaldy in 1723. At the age of fourteen he went to Glasgow University to study moral philosophy under the eminent Francis Hutchinson. In 1740, he traveled to England to continue his education at Balliol College, Oxford, where he remained six years. Smith was made a professor of logic at Glasgow University in 1751 and shortly thereafter professor of moral philosophy. In 1759, he published his first great work, The Theory of Moral Sentiments, which established his reputation as a leading philosopher in Europe. The Wealth ofNations only burnished that reputation as it made him an eminent man of letters and led to his appointment as Commissioner of Customs in Edinburgh. Despite the great fame that Smith achieved in his lifetime, he was an intensely private person and very little is known of his personal life. As a public figure he achieved some notoriety for his fits of absentmindedness, wandering the streets of Glasgow and Edinburgh in his dressing gown or lost in thought, silently muttering to himself.

Britain in the 1700s was recovering slowly from the bloody political and religious conflicts that had racked the island in the seventeenth century. In England, religious nonconformists, Puritans, Quakers, and other assorted sects challenged the authority of the established Church of England. These religious disputes took on political dimensions as the nonconformists challenged the power of the monarchy. Scotland became embroiled in the conflict when Charles I sought to impose the Church of England upon the Scottish people. The religious wars on the British Isles had their counterparts in other parts of Europe where, since the Protestant Reformation of the early sixteenth century, doctrinal differences within Christianity had erupted periodically in sectarian violence and civil war.

By the seventeenth century, many Europeans were in despair over the death and destruction wrought by these religious wars and leading thinkers of the time searched for solutions that could restore peace and order. The English philosopher Thomas Hobbes was to propose one of the most famous of these. In his great work, Leviathan, he argued that for the sake of social peace individuals should sacrifice their political freedoms to an all-powerful sovereign who would use the political authority invested in him to maintain law and order. In the Leviathan, Hobbes also distanced himself from religious faith on the grounds that such beliefs gave rise to social disorder and violence.

For eighteenth-century thinkers, Hobbes' critique of religion for the dangerous passions it unleashed held great appeal and Adam Smith was certainly among those who were attracted to the argument. In several sections near the end of the Wealth of Nations, which are far less well known than the chapters dealing with economic issues, Smith is critical of religion for propagating irrational beliefs and fanaticism. He recommends the study of science and philosophy on the grounds that they are "the great antidote to the poison of enthusiasm and superstition." What was less congenial to eighteenth-century writers, including Smith, was Hobbes' call for an all-powerful, or absolute, state, which could disregard the rights of individuals in the name of social peace. By the eighteenth century, European political theorists and commentators were increasingly viewing the freedom of the individual as sacrosanct and in need of protection from arbitrary state power. The rejection of the Hobbesian state, however, raised a profound question. Without an absolute state, who or what would maintain the social peace?

One influential answer to this question was that social peace could be maintained by educating individuals to be benevolent and virtuous. The French philosopher Montesquieu, for instance, made a powerful plea for the cultivation of goodness in his Persian Letters, which was published in 1721. In that work, Montesquieu recounted the history of the Troglodytes, an imaginary race of humans who were racked by conflict because each individual looked "after his own interests exclusively, without considering those of others." Troglodyte society descended into a war of all against all until two wise individuals taught them that "the individual's self-interest is always to be found in the common interest. . .and that justice to others is charity for ourselves."

Montesquieu's story of the Troglodytes also reveals that by the early eighteenth century the growing commercialization of society was generating social tensions and conflicts. The expanding market economy, which was subjecting more and more things to the logic of the cash nexus, including food, land, and even the relationship between an employer and his workers, was rapidly destroying many customary relationships and traditional ways of doing things. These changes had the greatest impact on peasants and workers, whose access to land, adequate wages and even supplies of food were threatened by the operation of the burgeoning market economy. By the eighteenth century, therefore, social stability was threatened not only by religious passions but also by individual greed for economic gain, which the newly developing market system was making increasingly possible.

This was the historical context in which Adam Smith produced his great work, The Wealth of Nations. In it he argued that commercial society was not destructive, as many of his contemporaries feared, but actually constructive in that it could be the basis for a stable and peaceful social order. The virtues of a commercial society were many. For one, it avoided the problems of an overweening state. In fact, Smith argued it needed the opposite. For commercial society to function properly the state had to govern with a light hand, allowing absolute liberty to its citizens. It was also consistent with human nature, and unlike the calls for educating humans to be good, it was based on a realistic understanding that humans were self-interested, sometimes even selfish, and certainly not always benevolent. As Smith wrote in one of the most memorable passages in The Wealth of Nations, "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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." Finally, in a commercial society the well being of all could be achieved without direction from above, as was the case with Hobbes' absolute ruler, but rather arose spontaneously through the operation of the market. In Smith's vivid imagery, it was as if each individual pursuing his self-interest "was led by an invisible hand to promote an end which was no part of his intention. . . By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

The Wealth of Nations was certainly a celebration of a modern market society, but not as an end in itself. Rather it was a means by which the larger goals of individual liberty and social order could be attained. For Smith, commercial society was not the perfect system, but simply superior to the available alternatives, among them Hobbesian political absolutism and utopian fantasies of cultivating goodness. In fact, Smith, in contrast to many of his present day adherents, had a keen appreciation for the social conflicts, the inequalities, and other deleterious effects that came with a commercial society; and in this respect, Smith sharply differs from many defenders of capitalism of today.

First, Smith operated with a conception of equality that was far different from how the concept is commonly understood today. For Smith, individuals were born more or less equal in their physical and mental capacities. The differences in abilities that one encounters in society, Smith argued, were the result of specialization, which slots individuals into different occupations, in most cases for life. In other words, more or less similar individuals were transformed into very different beings by years of work at very different jobs. As Smith put it, "The difference between a philosopher and a common street porter seems to arise not so much from nature, as from habit, custom, and education." For Smith, the deformation of humans due to tedious and repetitive work was one of the most troubling features of commercial society, which is a second significant difference between him and his early twenty-first century disciples. Latter-day Smithians are rarely so attuned to the human costs of capitalism. The Wealth of Nations, however, devotes several chapters to analyzing the impact of market society on workers and proposes several measures to partly mitigate these impacts. The most important was a state-funded system of public education for all. Finally, Adam Smith was not a dogmatic opponent of all government interference in the operation of the market. In particular, he welcomed government measures that reduced economic inequality or benefited the poor. This openness to government policies to benefit the losers of capitalism is certainly not a hallmark of today's self-proclaimed Smithians.

Many eighteenth-century commentators were wary of commercial society for the greed that they feared it would unleash. The Wealth of Nations, however, voices no such concerns. This was because nearly two decades earlier, in his Theory of Moral Sentiments, Smith had already argued that self-interest would not reach destructive proportions because individuals would place restraints on themselves. According to Smith, within each of us there is an "impartial spectator" who judges our actions, a concept that foreshadows Sigmund Freud's superego. The "impartial spectator" would serve as a moral barometer and limit the exercise of self-interest to socially acceptable bounds.

Smith's arguments for the free market, stripped of his cautions and reservations, were quickly embraced. In late eighteenth-century Britain, his ideas were used to eliminate restrictions on the grain trade. Extensive regulations, what the eminent historian E. P. Thompson called the "moral economy," had been placed on the grain market so that the poor could have access to bread at reasonable prices, which was of critical importance in Europe at the time because even in average years nearly half of a working person's earnings could be spent on bread. Smith's arguments for non-interference in the market were also taken to India where they shaped the response to famines. From the late eighteenth century, British colonial authorities refused to implement relief measures, such as providing food at subsidized prices, on the grounds that they would disrupt the efficient operation of the market.

Adam Smith died on July 17, 1790, and was laid to rest with little pomp or ceremony in the cemetery of Canongate Church in Edinburgh. On his tombstone was chiseled a brief epitaph: Here are deposited the remains of Adam Smith, author of "The Theory of Moral Sentiments," and "Wealth of Nations." It is certainly for the latter work that Smith is celebrated today and his ideas continue to find ready adherents. Yet what passes for Smithianism are often simplified versions of the originals. The ambivalence about market society, the complex understanding of human motivations, and the blend of optimism and pessimism about the human condition, hallmarks of Adam Smith's thinking, are rarely encountered in the Smithians of the early twenty-first century. For these, one must return to The Wealth of Nations itself.

Prasannan Parthasarathi is Associate Professor of History at Boston College. He holds a Ph.D. in economics from Harvard University and writes frequently on Indian history and European economic and social history.