Adam Smith

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.