Adam SmithCIA 4UAnalyzing Current Economic Issues

The Father of Modern Economics & Founder of Capitalism

OverviewBiographyEconomic TimesIdeas that Advanced Economic Thought

BiographyBorn: ?Exact date is unknown, but was baptized on June 5, 1723 .Place of Birth: Kirkcaldy, Fife, Scotland.

BiographyFamilyFather was the controller of the customs at KirkcaldyStrong interest in ChristianityBelonged to Church of Scotland (national church)Died 6 months previous to Adams baptismMother raised him until age of 14

*At age 4, kidnapped by Gypsies, but was rescued by uncle and returned to Mother

BiographyUniversityAge of 14, proceeded to University of GlasgowStudied Moral Philosophy concepts such as right, wrong, good, evil, and responsibility Developed strong passion for liberty, reason, and free speechInfluenced heavily by Francis Hutcheson (famous philosopher)

Biography1740 -1746Attended Balliol College, Oxford upon winning a scholarship.Gave little if any help towards his lifework

Biography1748Began delivering public lectures in EdinburghInfluenced by Henry Home (Lord Kames)

BiographyEdinburghLectures dealt primarily with rhetoric or belles-lettresliterary works, especially fiction, poetry, drama, or essays, valued for their aesthetic qualities and originality of style and tone Later took up subject of The Progress of OpulenceProgress of being wealthy, rich, or affluent

BiographyEdinburghFirst thought of the economic philosophy of the obvious and simple system of natural liberty (Main thesis of his Inquiry into the Nature and Causes of the Wealth of Nations)

Biography1750Met David Hume, who became one of his closest friendsScottish philosopher, economist, and historianOne of the Worlds most important philosophersHumean Philosophy - human knowledge comes to us through our senses

We cannot be certain a thing, such as God, a soul, or a self, exists unless we can point out the impression from which the idea of the thing is derived.

Biography1750Beginning of his role in the emergence of the Scottish Enlightenment

Scottish thinkers began questioning assumptions previously taken for granted; and with Scotland's traditional connections to France, then in the throes of the Enlightenment, the Scots began developing a uniquely practical branch of humanism to the extent that Voltaire said "We look to Scotland for all our ideas of civilisation."

Biography1750Went to England with intention of a career in Church of England (footsteps of his father)Lost his belief and returned to Scotland as a Deistreject supernatural events (prophecy, miracles) and divine revelation, along with holy books and revealed religions that assert the existence of such things. hold that correct religious beliefs must be founded on human reason and observed features of the natural world, and that these sources lead to belief in the existence of one God or supreme being.

Biography1751-1752Appointed Proffessor of Logic at the University of GlasgowTransferred to the Chair of Moral PhilosophyLectured on fields of ethics, rhetoric, jurisprudence, political economy, and police and revenue

Biography1759Published Theory of Moral Sentiments which embodied his lecturesEstablished his reputation, became Dean of the Univeristy, and became Glasgows most illustrious citizen.Work concerned with how human communication depends on sympathy between agent and spectator (individual and other members of society)His own capacity for fluent, persuasive argument (rhetoric) was evidentVery different from other thinkers of the time who stated communication was based on morals or utility

Biography1759-1763Began to give more attention to jurisprudence and economics, and less to theories of morals

BiographyEnd of 1763 - 1766 lucrative offer from Charles Townshend to tutor his stepson, the Duke of BuccleuchTraveled with pupil, mostly in France, and around EuropeCame to know intellectual leaders, and learn and respect many of their works

Biography1764Became acquainted with a new school of economic though whose leaders were known as physiocratslaws created by humans are artificial and unneccessary interfere with natural laws, ie. individuals pursuit of self-interest, which would ultimately benefit all society.Became known as Laissez-Faire leave to do, or leave things alone so that matters can work out naturally.

Biography1766-1776Returned to KirkcaldyDevoted his time to creating his two-volume, master work An Inquiry into the Nature and Causes of the Wealth of Nations (aka. The Wealth of Nations)Published his work in 1776 where it became very, well-received and popular amongst the society of the day.Recognized as the foundation of Modern Economic Theory

Biography1778His work made him famous, as it was the first to outline in detail the characteristics and benefits of a complete economic system the free-market economyAppointed to Commissioner of Customs of ScotlandLived with his mother in Edinburgh

Biography1790Died after a painful illness on July 17Buried in the Canongate Kirkyard, Royal Mile, in Edinburgh Became known after his death of his numerous acts of charityLeft behind many notes and unpublished material, but gave instructions to destroy anything that was not fit for publication.

The TimesMercantilismPrevailing economic systemState control of economic production and trade, with goal of exporting as many goods as possible for sale abroad while, at the same time, importing as few foreign goods as possible.When successful, gold flows in while very little flows out.

The TimesMercantilismGold & Silver reserves were thought to constitute the real wealth of a nation.A countrys government had to adopt a protectionist policy to safeguard its gold and silver reserves by limiting entry of foreign goods.Imposed stiff taxes/tariffs on imported goods, to make them more expensive than the goods produced in the country

The TimesMercantilismEach of the societys class felt increasingly handcuffed by government regulations and taxes.Negative effect on:Trade; andPrices

The TimesLaissez-FaireProvided a strong argument for replacing state control of economy on natural laws to regulate activityThis led to the French RevolutionThe American Revolution to the British was also a direct result of this thinking Declaration of Independence in 1776 Too much interference from government that had a long history was now being rejected.

The TimesEnclosure MovementSmiths ideas developed in response to rapid economic changes observed in BritainBroke up the large plots of land that towns had held in common since the Middle AgesRedistributed them in small plots to individualsThese individuals ran these farms for profit rather than subsistence

The TimesEnclosure MovementInventions made it possible for factory owners to increase both their scale of operations and profitsMade workers perform more specialized tasks using variety of machinesTechnological innovation created the Industrial Revolution

Ideas that Advanced Economic ThoughtSelf InterestHuman beings motivated by thisThe desire to better our condition in lifeProfit motive is thus the major stimulus for economic growth and prosperityGreater production is not because of generous producers, but desire for profit

Ideas that Advanced Economic ThoughtSelf InterestTrick is to ensure that desire for profit does not overwhelm sense of obligation to societyFree market many producers in competition, none of whom can raise their prices too highSelf-interest and competition work in unisonGovernment regulation not necessary invisible hand at work (natural control)

Ideas that Advanced Economic ThoughtOngoing Progress & ProsperityDivision of Labourspecialization of workers in a complex and mechanized production process.Law of Accumulationaccumulated profits invested in additional capital goods increase total production and efficiency as a whole.Law of Population increase in production means more workers, and must attract workers through higher wages, which leads to better living conditions, reduced mortality rates, and a natural increase in the population.