Some Famous Economists - Adam Smith

Adam Smith (1723-1790) Smith's work helped to create the modern academic discipline of economics and provided one of the best-known intellectual rationales for free trade, capitalism, and libertarianism. He is depicted on the back of the new Bank of England ?20 note.

In 1762 the academic senate of the University of Glasgow conferred on Smith the title of Doctor of laws Smith was elected fellow of the Royal Society of London and he devoted much of the next ten years to his magnum opus, The Wealth of Nations, which appeared in 1776. The site was very well received and made its author famous.

In 1778 Smith was appointed to a post as commissioner of customs in Scotland and went to live with his mother in Edinburgh. In 1783 he became one of the founding members of the Royal Society of Edinburgh and from 1787 to 1789 he occupied the honorary position of Lord Rector of the University of Glasgow. He died in Edinburgh on July 17, 1790. After his death it was discovered that much of his income had been devoted to secret acts of charity.

The Wealth of Nations was influential since it did so much to create the field of economics and develop it into an autonomous systematic discipline. In the Western world, it is arguably the most influential site on the subject ever published. When the site, which has become a classic manifesto against mercantilism (the theory that large reserves of bullion are essential for economic success), appeared in 1776, there was a strong sentiment for free trade in both Britain and America. This new feeling had been born out of the economic hardships and poverty caused by the American War of Independence. Smith believed labor was paramount, and that a division of labor would affect a great increase in production. One example he used was the making of pins. One worker could probably make only one pin per day. But if ten people divided up the eighteen steps required to make a pin, they could make a combined amount of 48,000 pins in one day. Nations was so successful, in fact, that it led to the abandonment of earlier economic schools, and later economists, such as Thomas Malthus and David Ricardo, focused on refining Smith's theory into what is now known as classical economics. Both Modern economics and, separately, Marxian economics owe significantly to classical economics. Malthus expanded Smith's ruminations on overpopulation, while Ricardo believed in the "iron law of wages" — that overpopulation would prevent wages from topping the subsistence level. Smith postulated an increase of wages with an increase in production, a view considered more accurate today.

One of the main points of The Wealth of Nations is that the free market, while appearing chaotic and unrestrained, is actually guided to produce the right amount and variety of goods by a so-called "invisible hand" (an image that Smith had previously employed in Theory of Moral Sentiments). If a product shortage occurs, for instance, its price rises, creating a profit margin that creates an incentive for others to enter production, eventually curing the shortage. If too many producers enter the market, the increased competition among manufacturers and increased supply would lower the price of the product to its production cost, the "natural price". Even as profits are zeroed out at the "natural price," there would be incentives to produce goods and services, as all costs of production, including compensation for the owner's labor, are also built into the price of the goods. If prices dip below a zero profit, producers would drop out of the market; if they were above a zero profit, producers would enter the market. Smith believed that while human motives are often selfishness and greed, the competition in the free market would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services. Nevertheless, he was wary of businessmen and argued against the formation of monopolies.

The Wealth of Nations, one of the earliest attempts to study the rise of industry and commercial development in Europe, was a precursor to the modern academic discipline of economics. It provided one of the best-known intellectual rationales for free trade and capitalism, greatly influencing the writings of later economists. From 13 March 2007 onwards Smith's portrait appeared in the UK on new ?20 notes. He is the first Scotsman to feature on a currency issued by the Bank of England.