In this paper, consider the question of how Smith and the three Declarations and their authors differ or are similar. Which best describes the world as you know it? Why?
Reflect on what Smith had to say as described in The Worldly Philosophers. Consider the question of what Smith was proposing. Does Smith’s view contradict or confirm what the thinkers we examined have to say about the rights of man/woman?
In order to consider the questions posed above, you need to review the three declarations (Declaration of Independence, Declaration of the Rights of Man and Declaration of the Rights of Woman).
Adam Smith (1723-90), a quiet, nervous, scholarly Scottish bachelor, taught first at Oxford University and then at the University of Glasgow. He gained fame as a moral philosopher, and during his lifetime, his book The Theory of Moral Sentiments earned the critics’ appraisal as his best work. Consequently, he was already well known before publishing his enduring masterpiece, An Inquiry into the Nature and Causes of the Wealth of Nations.
During a three-year tour of Europe as traveling tutor of the stepson of Charles Townshend, Smith met the leading thinkers of the Age of Enlightenment, including Benjamin Franklin and Dr. Samuel Johnson. He was particularly impressed with Francois Quesnay, principal spokesman for the French physiocrats, who believed that wealth arises from production. While traveling, Smith worked on his Wealth of Nations and completed the book in 1776, ten years after his return to Scotland.
The Wealth of Nations, which resembles an encyclopedia, is far more than a mere textbook on economics. One critic calls it “a history and criticism of all European civilization.” Among a host of topics, it discusses the origin and use of money, apprenticeship, statistics, waste, the military, foreign trade, landlords, the clergy, royalty, farming, and “the late disturbances in the American colonies.”
The book’s 900 pages are demanding reading, for Smith often belabors a point without drawing a conclusion. It is not actually original in the sense that its basic ideas are unique to Smith. The author refers to more than 100 authors in developing his arguments, including Locke and Hume. He borrows heavily from the physiocrats, particularly Quesnay, from whom he takes the doctrine of laissez faire, or “leave it alone.” However, the book is a masterpiece because it presents a comprehensive picture of economics — a revolutionary doctrine which views the economy as though it were a living organism.
Briefly, these are Adam Smith’s economic laws:
According to Smith, under the market system each worker freely chooses a trade. Through such a multitude of choices, society reaps the benefit of having all its necessary tasks filled. The individual, motivated by self-interest, selects a particular task. Competition for these tasks prevents the individual from over-charging society. Thus, the two laws of the market — self-interest and competition — react upon each other and form a balance, guaranteeing the survival of society.
In addition, the laws of the market not only insure that prices are competitive, but they also determine the quantities of goods produced. As Smith explains, when the public demands more gloves than shoes, there will be a brisk business in gloves, but little demand for shoes. Consequently, the price of gloves will rise as demand exceeds supply and pushes prices up. The price of shoes will go down because the supply exceeds the demand.
At this point, self-interest becomes a factor. Since there are higher profits in the glove business and a greater need for gloves, new producers begin manufacturing gloves. Workers move from shoe factories to glove factories. The result is that glove production rises and shoe production falls. Before long, the market achieves a balance. As the supply of gloves grows to meet demand, glove prices decrease. As the supply of shoes falls below demand, shoe prices rise. This price increase stimulates shoe production. Therefore, the opposing forces of self-interest and competition balance the market.
Finally, the laws of the market also regulate incomes of producers. When profits in one type of business become unusually large, new producers are attracted to the business — until competition reduces the surplus of profit. In the same way, labor’s wages are regulated — workers are attracted to higher paying industry until the labor supply lowers the pay scale to that of comparable jobs. By the same token, the reverse is true — when profits or wages are too low, producers or workers will leave that field for more lucrative areas.
But the key to the operation of the laws of the market is that the market is “its own guardian.” It is self-regulating if left alone (laissez faire) so that competition can operate freely without government control and without monopolies.
Does capitalism, or the market system, actually operate in this way? It did during Smith’s time, for the business world was a world of atomistic, or elemental, competition. Yet, there was evidence that a large number of people did not profit from the system. Still, even though more than an eighth of England’s population in 1720 was poor, Smith insisted that society could not flourish if “the greater part of the numbers are poor and miserable.” In his radical view, society was definitely improving. By comparison, the capitalistic world of today differs greatly with its giant corporations and massive labor unions. However, the twin laws of self-interest and competition still form the basis of the market system.
Adam Smith was optimistic in his vision of the future. To him, the society of the market system was dynamic and progressive. During his lifetime, division and specialization of labor greatly increased productivity. He expressed enthusiasm after his visit to a pin factory which employed only ten people.
Each worker specialized in a single operation; the total daily output was over 48,000 pins. If each worker were to handle all steps involved in the manufacture of pins, the total output per worker would fall to twenty pins per day for a total production of 200 pins. According to Smith, a simple factory worker, in comparison with an African king, lives a more luxurious life as a result of the work of specialized labor.
In his vision of society’s economic progress, Smith saw two additional fundamental laws which propelled the market system in an ascending spiral of productivity and away from the “avarice of private greed.” These laws he called the law of accumulation and the law of population.
Thus, these two evolutionary laws form an endless chain for society through which progress is inevitable. Even though the Law of Population depresses wages toward a subsistence level, it never arrives there. Conditions steadily improve, resulting in further accumulation for further investment. What is the end result? Not a utopia, but the economy, if left alone, will ultimately reach its “promised reward” — a world where poverty and wealth balance each other.
Analysis
To comprehend fully why Smith’s Wealth of Nations was a revolutionary book, one must know something of the economy and living conditions in England in 1776. The nation was entering the second of three stages of capitalism.
Wealth of Nations appeared in England just as the Industrial Revolution was beginning, a fact unknown to Adam Smith and the capitalistic class of his day. In England, the government controlled practically every sector of the economy, including prices, wages, hours of work, production, and foreign trade. The House of Lords represented the noble families, or landed aristocracy, which controlled the vote as well as public office. Only 3 percent of the population affected the election of members to the less static House of Commons.
For the poor, conditions were abominable. Men, women, and children, stripped to the waist and stooped over in semi-darkness, worked in dank mineshafts. The masses struggled brutally for a meager existence. When wool became a profitable commodity, land owners enclosed new pastures to raise sheep. The process of enclosure, which began in the sixteenth century, reached its height in the nineteenth century, with thousands of tenant farmers thrown off the land in order to make room for the more profitable sheep. Over 1.5 million of England’s twelve to thirteen million population suffered poverty. Yet the grasping aristocracy, who considered the poor a necessary segment of a stable society, opposed any suggestion of a more equitable distribution of wealth.
Mercantilism, the dominant economic concept of the day, upheld the view of government and business that real wealth consisted of gold and silver. Since the reign of Henry VIII, mercantilists sought a strong, self-sufficient economy, protected by a strong central government. Their program called for the following:
Adam Smith’s Wealth of Nations launched a specific attack on the doctrine of mercantilism. In his celebrated Book IV, he called for free trade and the abolition of economic restraints and monopolies. Forget “balance of trade,” he argued. “Wealth does not consist in money, or in gold and silver, but in what money purchases, and is valuable only for purchasing.” As opposed to the emphasis on agriculture by the physiocrats, Smith emphasized manufacture. For Smith, the real wealth of nations consists of the goods which they can produce and trade. This condition can be accomplished only by allowing production and commerce to develop freely, without controls.
The replacement of mercantilism with the doctrine of laissez faire did not come immediately with the publication of Smith’s views. It was not until the nineteenth century that the Wealth of Nations made its full impact. Then Great Britain discarded mercantilism completely to become the world’s wealthiest nation. Unfortunately, the rising industrial capitalists managed to disregard certain stinging accusations in Smith’s philosophy, such as “People of the same trade seldom meet together but the conversation ends in a conspiracy against the public, or in some diversion to raise prices . . .”
Adam Smith, in fact, was neither pro-capital nor pro-labor. At the University of Glasgow, he was influenced by the concept of “the greatest happiness of the greatest number.” Consequently, he avoided taking sides with any class, concerning himself with the promotion of wealth for all of England’s classes.
A principle which his contemporary capitalists chose to ignore was Smith’s concept of labor value. His observation that labor is the only real standard of value has been contradicted by most economists, but widely adopted by socialist writers. Some ninety years later, Karl Marx seized and expanded upon this idea, building it into his exaggerated theory of “surplus value.”
What British capitalists stressed was Smith’s gospel of laissez faire. Ignoring the philosopher’s warnings about the dangers of monopoly, they justified resistance to government attempts at social legislation. During this era, child labor was common in poorly ventilated and unsanitary factories; manufacturers shackled children to machines. To quell child labor laws, factory owners quoted Wealth of Nations in defense of deregulation.
Accordingly, Adam Smith’s proposals for protective measures for workers, farmers, consumers, and society as a whole; the abolition of slavery; and the control of monopolies were ignored. Capitalists championed the Wealth of Nations as a vindication of corrupt business practices. In this way, Adam Smith, the soft-spoken scholar, became the patron saint of free enterprise in the capitalistic world. In later times, Adam Smith, by thoroughly describing and explaining the market system, became the father of modern economics.
He founded the school of Classical Economists, whose chief spokesmen were David Ricardo and Thomas Malthus.
In our second module we encounter the first great social scientist. Adam Smith began his career as a moral philosopher, an educator whose ideas, while obviously important, were not so different from those of others writing at the same time. Like so many academics, he was shy and even somewhat reclusive. But in 1776, he published his study of political economy and the ways he described the world around him shattered older assumptions and sought to redefine the role of government, the state, capital accumulation and the social order. In other words, his Wealth of Nations was as revolutionary a document as were the writings we encountered in our first chapter.
Indeed, Smith’s ideas may have been even more revolutionary. Unlike Jefferson and the other political philosophers—perhaps we can call them political scientists—we looked at in the last unit; Smith was calling for a complete remaking of the social order, the creation of a new permanent underclass and the initiation of greed as the sole determinant of a man’s actions. Stop for a moment and think about the radical departure that was. Smith was born into a century that still believed in the will of God as the single most important factor in determining the affairs of the individual in society. He was raised a Calvinist in Scotland and was a believer in the rules of predestination, the idea that God had determined a man’s place in the world and the afterlife, and an individual had no way to change that fate. He left the world having posited that there was an invisible hand—a natural force similar in its imperative nature to Newton’s laws of physics—and not an activist God that determined the shape of society and the nature of the political, social, and economic world.
His “economic laws” that he said determined the nature of society are still motivating thinkers and politicians as they debate the role of government and the possibility that change can improve the lot of the common man. Heralded in by Christopher Columbus’ great voyages and the enormous flow of gold and silver that followed them, new money, new trade routes and new ideas about freedom all lead, by the 17th century, to a world where Europe and particularly England and France, were at the center of the world stage for the first time. The new ideas lead to a new sense that Europe and Europeans were entitled to rule the world. But before they got to do that, they would need to confront the issues of freedom and servitude and the rise of capitalism. To better explain their world, these new European nabobs would need new ways to express themselves, a new language found in new disciplines, the social sciences.
Chapter 3, The Worldly Philosophers.