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SMITH, ADAM (1723–1790)

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Originally appearing in Volume V25, Page 259 of the 1911 Encyclopedia Britannica.
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SMITH, See also:ADAM (1723–1790) , See also:English economist, was the only See also:child of Adam Smith, See also:comptroller of the customs at See also:Kirkcaldy in Fifeshire, See also:Scotland, and of See also:Margaret See also:Douglas, daughter of -Mr Douglas of Strathendry, near See also:Leslie. He was See also:born at Kirkcaldy on the 5th of See also:June 1723, some months after the See also:death of his See also:father. When he was three years old he was taken on a visit to his See also:uncle at Strathendry, and when playing alone was carried off by a party of " tinkers." He was at once missed, and the vagrants pursued and overtaken in Leslie See also:wood. He received his See also:early See also:education in the school of Kirkcaldy under See also:David See also:Miller, amongst whose pupils were many who were afterwards distinguished men. Smith showed See also:great fondness for books and remarkable See also:powers of memory; and he was popular among his schoolfellows. He was sent in 1737 to the university of See also:Glasgow, where he attended the lectures of Dr See also:Hutcheson; and in 1740 he went to Balliol See also:College, See also:Oxford, as exhibitioner on See also:Snell's See also:foundation. He remained at that university for seven years. At Glasgow his favourite studies had been See also:mathematics and natural See also:philosophy; but at Oxford he appears to have devoted himself almost entirely to moral and See also:political See also:science and to See also:ancient and See also:modern See also:languages. He also laboured to improve his English See also:style by See also:translation, particularly from the See also:French. After his return to Kirkcaldy he resided there two years with his See also:mother, continuing his studies, not having yet adopted any See also:plan for his future See also:life. In 1748 he removed to See also:Edinburgh, and there, under the patronage of See also:Lord See also:Kames, gave lectures on See also:rhetoric and belles-lettres. About this See also:time began his acquaintance with David See also:Hume, which afterwards ripened into friendship.

In 1751 he was elected See also:

professor of See also:logic at Glasgow, and in 1752 was transferred to the See also:chair of moral philosophy, which had become vacant by the death of See also:Thomas See also:Craigie, the successor of Hutcheson. This position he occupied for nearly twelve years, which he See also:long afterwards declared to have been " by far the most useful, and therefore by far the happiest and most See also:honourable See also:period of his life." His course of lectures was divided into four parts—(1) natural See also:theology; (2) See also:ethics; (3) a treatment of that See also:branch of morality which relates to See also:justice, a subject which he handled historically after the manner of See also:Montesquieu; (4) - a study of those political regulations which are founded, not upon the principle of justice, but that of expediency, and which are calculated to increase the riches, the See also:power and the prosperity of a See also:state. Under this view he considered the political institutions See also:relating to See also:commerce, to finances, to ecclesiastical and military establishments. He first appeared as an author by contributing two articles to the Edinburgh See also:Review (an earlier See also:journal than the See also:present, which was commenced in 1755, but of which only two See also:numbers' were published),-one on See also:Johnson's See also:Dictionary and the other a See also:letter to the editors on-the state of literature in the different countries of See also:Europe. In 1759 appeared his Theory of Moral Sentiments, embodying the second portion of his university course, to which was added in the 2nd edition an appendix with the See also:title, " Considerations concerning the first Formation of Languages." After the publication of this See also:work his ethical doctrines occupied less space in his lectures, and a larger development was given to the subjects of See also:jurisprudence and political See also:economy. See also:Stewart gives us to understand that he had, as -early as 1752, adopted the liberal views of commercial policy which he afterwards preached; and this we should have been inclined to believe independently from the fact that such views 1 These two numbers were reprinted in 1818. Smith's letter to the editors is specially interesting for its See also:account of the Encyclopedie and its See also:criticism of See also:Rousseau's pictures of See also:savage life. were propounded in that See also:year in the Political Discourses of Hume. In 1762 the senatus academicus of Glasgow conferred on him the honorary degree of See also:doctor of See also:laws. In 1763 he was invited to take See also:charge of the See also:young See also:duke of See also:Buccleuch on his travels. He accepted, and resigned his professorship. He went abroad with his See also:pupil in See also:February 1764; they remained only a few days at See also:Paris and then settled at See also:Toulouse, at that time the seat of a See also:parlement, where they spent eighteen months in the best society of the See also:place, afterwards making a tour in the See also:south of See also:France and passing two months at See also:Geneva.

Returning to Paris about See also:

Christmas of 1765, they remained there till the See also:October of the following year. Smith at this time lived in the society of See also:Quesnay, See also:Turgot, d'See also:Alembert, See also:Morellet, Helvetius, See also:Marmontel and the duke de in Rochefoucauld. His regard for the young nobleman' last named dictated the omission in the later See also:editions of his Moral Sentiments of the name of the celebrated ancestor of the duke, whom he had associated with See also:Mandeville as author of one of the " licentious systems " reviewed in the seventh See also:part of that work. Smith was much influenced by his contact with the members of the physiocratic school, especially with its See also:chief, though See also:Dupont de See also:Nemours probably goes too far in speaking of Smith and himself as having been " See also:con-disciples chez M. Quesnay." Smith afterwards described Quesnay as a See also:man " of the greatest modesty and simplicity," and declared his See also:system of political economy to be, " with all its imperfections, the nearest approximation to truth that had yet been published on the principles of that science." In October 1766 See also:tutor and pupil returned See also:home, and they ever afterwards retained strong feelings of mutual esteem. For the next ten years Smith lived with his mother at Kirkcaldy, only paying occasional visits to Edinburgh and See also:London; he was engaged in See also:close study during most of this time. He describes himself to Hume during this period as being extremely happy. He was occupied on his Inquiry into the Nature and Causes of the See also:Wealth of Nations, which there is some See also:reason for believing he had begun at Toulouse. That great work appeared in 1776.2 After its publication, and only a few months before his own death, Hume wrote to congratulate his friend—" Euge! belle! dear Mr Smith, I am much pleased with your performance, and the perusal of it has taken me from a state of great anxiety. It was a work of so much expectation, by yourself, by your See also:friends, and by the public, that I trembled for its See also:appearance, but am now much relieved. Not but that the See also:reading of it necessarily requires so much See also:attention, and the public is disposed to give so little, that I shall still doubt for some time of its being at first very popular, but it has See also:depth, and solidity, and acuteness, and is so much illustrated by curious facts that it must at last attract the public attention." Smith attended Hume during a part of his last illness, and soon after the death of the philosopher there was published, along with his autobiography a letter from Smith to W. Strahan (Smith's publisher) in which he gave an account of the closing scenes of his friend's life and expressed warm admiration for his See also:character.

This letter excited some rancour among the theologians, and Dr See also:

George See also:Horne, afterwards See also:bishop of See also:Norwich, published in 1777 A Letter to Adam Smith on the Life, Death and Philosophy of his Friend David Hume, by one of the See also:people called Christians. But Smith took no See also:notice of this effusion? He was also attacked by See also:Arch- 1 The duke undertook a translation of the Theory of Moral Sentiments, but the See also:Abbe Blavet's version appeared (1774) before his was completed and he then relinquished the See also:design. An earlier French translation had been published (1764) under the title See also:Meta physique de fame; and there is a later one—the best—by the See also:marquis de See also:Condorcet (1798, 2nd ed., 1830). 2 J. E. Thorold See also:Rogers published in the See also:Academy, 28th February 1885, a letter of Smith to See also:William Pulteney, written in 1772, from which he thought it probable that the work See also:lay " unrevised and unaltered " in the author's See also:desk for four years. A similar conclusion seems to follow from a letter of Hume in See also:Burton's Life, ii. 461. 3 A See also:story was told by See also:Sir See also:Walter See also:Scott, and is also related in the Edinburgh Review, of an " unfortunate rencontre," arising out of the publication of the same letter, between Smith and Dr Johnson, during the visit of the latter to Glasgow. The same story is given in a See also:note in See also:Wilberforce's See also:Correspondence, the See also:scene being somewhat vaguely laid in " Scotland." But it cannot be true; for Johnsonbishop W. See also:Magee (1766–1861) for the omission in subsequent editions of a passage of the Moral Sentiments which that See also:prelate had cited with high See also:commendation as among the ablest illustrations of the See also:doctrine of the See also:atonement.

Smith had omitted the See also:

paragraph in question (an omission which had escaped notice for twenty years) on the ground that it was unnecessary and misplaced; but Magee suspected him of having been influenced by deeper reasons. The greater part of the two years which followed the publication of the Wealth of Nations Smith spent in London, enjoying the society of eminent persons, amongst whom were See also:Gibbon, See also:Burke, See also:Reynolds and Topham Beauclerk. In 1778 he was appointed, through the See also:influence of the duke of Buccleuch, one of the commissioners of customs in Scotland, and in consequence of this fixed his See also:residence at Edinburgh. His mother, now in extreme old See also:age, lived with him, as did also his See also:cousin, See also:Miss Jane Douglas, who superintended his See also:household. Much of his now ample in-come is believed to have been spent in See also:secret charities, and he kept a See also:simple table at which, " without the formality of an invitation, he was always happy to receive his friends." " His See also:Sunday suppers," says M`Culloch, " were long celebrated at Edinburgh." One of his favourite places of resort in these years was a See also:club of which Dr See also:Hutton, Dr See also:Black, Dr Adam See also:Ferguson, See also:John Clerk the See also:naval tactician, See also:Robert Adam the architect, as well as Smith himself, were See also:original members, and to which Dugald Stewart, Professor See also:Playfair and other eminent men were after-wards admitted. Another source of enjoyment was his small but excellent library; it is still preserved in his See also:family' In 1787 he was elected lord See also:rector of the university of Glasgow, an See also:honour which he received with " heartfelt joy." If we can believe a note in Wilberforce's Correspondence, he visited London in the See also:spring of the same year, and was introduced by Dundas5 to See also:Pitt, Wilber-force and others. From the death of his mother in 1784, and that of Miss Douglas in 1788, his See also:health declined, and after a painful illness he died on the 17th of See also:July 1790. Before his decease Smith directed that all his See also:manuscripts except a few selected essays should be destroyed, and they were accordingly committed to the flames. Of the pieces preserved by his See also:desire the most valuable is his See also:tract on the See also:history of See also:astronomy, which he himself described as a " fragment of a great work "; it was doubtless a portion of the " connected history of the liberal sciences and elegant arts " which, we are told, he had projected in early life. Among the papers destroyed were probably, as Stewart suggests, the lectures on natural See also:religion and jurisprudence which formed part of his course at Glasgow, and also the lectures on rhetoric which he delivered at Edinburgh in 1748. To the latter See also:Hugh See also:Blair seems to refer when, in his work on Rhetoric and Belles-Lettres (1783), he acknowledges his obligations to a See also:manuscript See also:treatise on rhetoric by Smith, part of which its author had shown to him many years before, and which he hoped that Smith would give to the public. Smith had promised at the end of his Theory of Moral Sentiments a treatise on jurisprudence from the See also:historical point of view.

As a moral philosopher Smith cannot be said to have won much See also:

acceptance for his fundamental doctrine. This doctrine is that all our moral sentiments arise from sympathy, that is, from the principle of our nature " which leads us to enter into the situations of other men and to partake with them in the passions which those situations have a tendency to excite." Our See also:direct sympathy with the See also:agent in the circumstances in which he is placed gives rise, according to this view, to our notion of the propriety of his See also:action, whilst our indirect sympathy with those whom his actions have benefited or injured gives rise to our notions of merit and demerit in the agent himself. It seems justly alleged against this system by Dr Thomas See also:Brown that " the moral sentiments, the origin of which it ascribes to our secondary feelings of See also:mere sympathy, are assumed as previously existing in the original emotions with which the secondary feelings are said to be in unison." A second objection urged, perhaps with less justice, against the theory is that it fails to account for the made his tour in 1773, whilst Hume's death did not take place till 1776. Smith seems not to have met Johnson in Scotland at all. It appears, however, from See also:Boswell's Life, under date of 29th See also:April 1778, that Johnson had on one occasion quarrelled with Smith at Strahan's See also:house, apparently in London; it is clear that the " unlucky altercation " at Strahan's must have occurred in 1761 or 1763, and could have had nothing to do with the letter on Hume's death. ' See See also:Catalogue of the Library of Adam Smith, edited with notes and introduction, by See also:James See also:Bonar (1894). 5 An interesting letter of Smith to Dundas (1st See also:November 1779) on See also:free See also:trade for See also:Ireland is printed in the Eng. Hist. Review, No. 2. authoritative character which is See also:felt to be inherent in our sense of right and wrong—for what See also:Butler calls the " supremacy of See also:conscience." It is on the Wealth of Nations that Smith's fame rests. But it must at once be said that it is plainly contrary to fact to represent him, as some have done, as the creator of political economy.

The subject of social wealth had always in some degree, and increasingly in See also:

recent times, engaged the attention of philosophic minds. The study had even indisputably assumed a systematic character, and, from being an assemblage of fragmentary disquisitions on particular questions of See also:national See also:interest, had taken the See also:form, notably in Turgot's Reflexions, of an organized See also:body of doctrine. The truth is that Smith took up the science when it was already considerably advanced; and it was this very circumstance which enabled him, by the See also:production of a classical treatise, to render most of his predecessors obsolete. Even those who do not fall into the See also:error of making Smith the creator of the science, often See also:separate him too broadly from Quesnay and his followers, and represent the history of modern See also:economics as consisting of the successive rise and reign of three doctrines—the See also:mercantile, the physiocratic and the Smithian. The last two are, it is true, at variance in some even important respects. But it is evident, and Smith himself felt, that their agreements were much more fundamental than their See also:differences; and, if we regard them as historical forces, they must be considered as working towards identical ends. They both urged society towards the abolition of the previously prevailing See also:industrial policy of See also:European governments; and their arguments against that policy rested essentially on the same grounds. The history of economic See also:opinion in modern times, down to the third See also:decade of the 19th See also:century, is, in fact, strictly See also:bipartite. The first See also:stage is filled with the mercantile system, which was rather a See also:practical pclicy than a speculative doctrine, and which came into existence as the spontaneous growth of social conditions acting on minds not trained to scientific habits. The second stage is occupied with the See also:gradual rise and ultimate ascendancy of another system founded on the See also:idea of the right of the individual to an unimpeded See also:sphere for the exercise of his economic activity. With the latter, which is best designated as the " system of natural See also:liberty," we ought to See also:associate the memory of the physiocrats as well as that of Smith, without, however, maintaining their services to have been equal to his. The teaching of political ecomomy was associated in the Scottish See also:universities with that of moral philosophy.

Smith conceived the entire subject he had to treat in his public lectures as divisible into four heads, the first of which was natural theology, the second ethics, the third jurisprudence; whilst in the See also:

fourth " he examined those political regulations which are founded upon expediency, and which are calculated to increase the riches, the power, and the prosperity of a state." The last two branches of inquiry are regarded as forming but a single body of doctrine in the well-known passage of the Theory of Moral Sentiments in which the author promises to give in another discourse " an account of the See also:general principles of See also:law and See also:government, and of the different revolutions they have undergone in the different ages and periods of society, not only in what concerns justice, but in what concerns See also:police, See also:revenue and arms, and whatever else is the subject of law." This shows how little it was Smith's See also:habit to separate (except provisionally), in his conceptions or his researches, the economic phenomena of society from all the See also:rest. The words above quoted have, indeed, been not unjustly described as containing " an anticipation, wonderful for his period, of general See also:sociology." There has been much discussion on the question—What is the scientific method followed by Smith in his great work? By some it is considered to have been purely deductive, a view which See also:Buckle has perhaps carried to the greatest extreme. He asserts that in Scotland the inductive method was unknown, and that although Smith spent some of the most important years of his youth in See also:England, where the inductive method was supreme, he yet adopted the deductive method because it was habitually followed in Scotland. That the inductive spirit exercised no influence on Scottish philosophers is certainly nottrue; Montesquieu, whose method is essentially inductive, was in Smith's time closely studied by Smith's See also:fellow-countrymen. What may justly be said of Smith is that the deductive See also:bent was not the predominant character of his mind, nor did his great excellence See also:lie in the " See also:dialectic skill " which Buckle ascribes to him. What strikes us most in his See also:book is his wide and keen observation of social facts, and his perpetual tendency to dwell on these and elicit their significance, instead of See also:drawing conclusions from abstract principles by elaborate chains of reasoning. That Smith does, however, largely employ the deductive method is certain; and that method is legitimate when the premises from which the See also:deduction sets out are known universal facts of human nature and properties of See also:external See also:objects. But there is another See also:species of deduction which, as Cliffe Leslie has shown, seriously tainted the philosophy of Smith—in which the premises are not facts ascertained by observation, but the a priori assumptions which we found in the physiocrats. In his view, Nature has made See also:provision for social wellbeing by the principle of the human constitution which prompts every man to better his See also:condition: the individual aims only at his private gain, but is " led by an invisible See also:hand " to promote the public See also:good; human institutions, by interfering with this principle in the name of the public interest, defeat their own end; but, when all systems of preference or See also:restraint are taken away, " the obvious and simple system of natural liberty establishes itself of its own See also:accord." This theory is, of course, not explicitly presented by Smith as a foundation of his economic doctrines, but it is really the secret substratum on which they rest. Yet, whilst such latent postulates warped his view of things, they did not entirely determine his method. His native bent towards the study of things as they are preserved him from extravagances into which many of his followers have fallen.

But besides this, as Leslie has pointed out, the influence of Montesquieu tended to counterbalance the theoretic prepossessions produced by the doctrine of the See also:

jus naturae. We are even informed that Smith himself in his later years was occupied in preparing a commentary on the Esprit See also:des lois. He was thus affected by two different and incongruous systems of thought—one setting out from an imaginary See also:code of nature intended for the benefit of man, and leading to an optimistic view of the economic constitution founded on enlightened self-interest; the other following inductive processes, and seeking to explain the several states in which the human See also:societies are found existing, as results of circumstances or institutions which have been in actual operation. And we find accordingly in his great work a See also:combination of inductive inquiry with a priori See also:speculation founded on the " Nature " See also:hypothesis. Some have represented Smith's work as of so loose a texture and so defective in arrangement that it may be justly described as consisting of a See also:series of monographs. But this is certainly an exaggeration. The book, it is true, is not framed on a rigid See also:mould, nor is there any See also:parade of systematic divisions and subdivisions. But, as a body of exposition, it has the real unity which results from a mode of thinking homogeneous throughout and the general See also:absence of such contradictions as would arise from an imperfect digestion of the subject. Smith sets out from the thought that the See also:annual labour of a nation is the source from which it derives its See also:supply of the necessaries and conveniences of life. He does not of course contemplate labour as the only See also:factor in production; but it has been supposed that by emphasizing it at the outset he at once strikes the note of difference between himself on the one hand, and both the mercantilists and the physiocrats on the other. The improvement in the productiveness of labour depends largely on its See also:division; and he proceeds accordingly to give his unrivalled exposition of that principle, of the grounds on which it rests, and of its greater applicability to manufactures than to See also:agriculture, in consequence of which the latter relatively lags behind in the course of economic development. The origin of the division of labour he finds in the propensity of human nature " to See also:truck, See also:barter or See also:exchange one thing for another." He shows that a certain See also:accumulation of See also:capital is a condition precedent of this division, and that the degree to which it can be carried is dependent on the extent of the See also:market.

When the division of labour has been established, each member of the society must have recourse to the others for the supply of most of his wants; a See also:

medium of. exchange is thus found to be necessary, and See also:money comes into use. The exchange of goods against each other or against money gives rise to the notion of value. This word has two meanings—that of utility, and that of purchasing power; the one may be called value in use, the other value in ex-See also:change. Merely mentioning the former, Smith goes on to study the latter. What, he asks, is the measure of value? what regulates the amount of one thing which will be given for another? Labour," Smith answers, " is the real measure of the, exchangeable value of all commodities." " Equal quantities of labour at all times and places, are of equal value to the labourer." " Labour alone, therefore, never varying in its own value, is alone the ultimate and real See also:standard by which the value of all commodities can at all times and places be estimated and compared. It is their real See also:price; money is their nominal price only." Money, however, is in men's actual trans-actions the measure of value, as well as the vehicle of exchange; and the See also:precious metals are best suited for this See also:function, as varying little in their own value for periods of moderate length; for distant times, See also:corn is a better standard of comparison. In relation to the earliest social stage, we need consider nothing but the amount of labour employed in the production of an See also:article as determining its ex-change value; but in more advanced periods price is complex, and consists in the most general See also:case of three elements—See also:wages, profit and See also:rent. Wages are the See also:reward of labour. Profit arises as soon as stock, being accumulated in the hands of one See also:person, is employed by him in setting others to work, and supplying them with materials and subsistence, in See also:order to make a gain by what they produce. Rent arises as soon as the See also:land of a See also:country has all become private See also:property; " the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce." In every improved society, then, these three elements enter more or less into the price of the far greater part of commodities. There is in every society or neighbourhood, an See also:ordinary or See also:average See also:rate of wages and profit in every different employment of labour and stock, regulated by principles to be explained hereafter, as also an ordinary or average rate of rent.

These may be called the natural rates at the time when and the place where they prevail; and the natural price of a commodity is what is sufficient to pay for the rent of the land, the wages of the labour, and the profit of the stock necessary for bringing the commodity to market. The market price may rise above or fall below the amount so fixed, being determined by the proportion between the quantity brought to market and the demand of those who are willing to pay the natural price. Towards the natural price as a centre the market-price, regulated by competition, constantly gravitates. Some commodities, however, are subject to a See also:

monopoly of production, whether from the peculiarities of a locality or from legal See also:privilege: their price is always the highest that can be got; the natural price of other commodities is the lowest which can be taken for any length of time together. The three component parts or factors of price vary with the circumstances of the society. The rate of wages is determined by a dispute " or struggle of opposite interests between the employer and the workman. A minimum rate is fixed by the condition that they must be at least sufficient to enable a man and his wife to maintain themselves and, in general, bring up a family. The excess above this will depend on the circumstances of the country, and the consequent demand for labour—wages being high when national wealth is increasing, See also:low when it is declining. The same circumstances determine the variation of profits, but in an opposite direction; the increase of stock, which raises wages, tending to See also:lower profit through the mutual competition of capitalists. " The whole of theadvantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality "; if one had greatly the See also:advantage over the others, peoplewould See also:crowd into it, and the level would soon be restored. Yet pecuniary wages and profits are very different in different employments—either from certain circumstances affecting the employments, which recommend or disparage them in men's notions, or from national policy, " which nowhere leaves things at perfect liberty." Here follows Smith's admirable exposition' of the causes which produce the inequalities in wages and profits just referred to,. a passage affording ample See also:evidence of his habits of See also:nice observation of the less obvious traits in human nature, and also of the operation both of these and of social institutions on economic facts. The rent of land comes next to be considered, as the last of the three elements of price.

Rent is a monopoly price, equal, not to what the landlord could afford to take, but to what the See also:

farmer can afford to give. " Such parts only of the produce of land can commonly be brought to market, of which the ordinary price is sufficient to replace the stock which must be employed in bringing them thither, together with the ordinary profits. If the ordinary price is more than this, the surplus part will naturally go to the rent of the land. If it is not more, though the commodity may be brought to market, it can afford no rent to the landlord. Whether the price is or is not more depends on the demand." " Rent, therefore, enters into the price of commodities in a different way from wages and profits. High or low wages and profit are the causes of high or low price; high or low rent is the effect of it." Rent, wages and profits, as they are the elements of price, are also the constituents of income; and the three great orders of every civilized society, from whose revenues that of every other order is ultimately derived, are the landlords, the labourers and the capital- See also:xxv. gists. The relation of the interests of these three classes to those of society at large is different. The interest of the landlord always coincides with the general interest: whatever promotes or obstructs the one has the same effect on the other. So also does that of the labourer: when the wealth of the nation is progressive, his wages are high ; they are low when it is stationary or retrogressive. " The interest of the third order has not the same connexion with the general interest of the society as that of the other two; . , it is always in some respects different from and opposite to that of the public." The subject of the second book is " the nature, accumulation and improvement of stock." A man's whole stock consists of two portions—that which is reserved for his immediate See also:consumption, and that which is employed. so as to yield a revenue to its owner. This latter, which is his " capital," is divisible into the two classes of " fixed " and " circulating." The first is such as yields a profit without passing into other hands.

The second consists of such goods, raised, manufactured or See also:

purchased, as are sold for a profit and replaced by other goods; this sort of capital is therefore constantly going from and returning to the hands of its owner. The whole capital of a society falls under the same two heads. Its fixed capital consists chiefly of (I) See also:machines, (2) buildings which are the means of procuring a revenue, (3) agricultural improvements and (4) the acquired and useful abilities of all members of the society (since sometimes known as " See also:personal capital "). Its circulating capital is also composed of four parts—(t) money, (2) provisions in the hands of the dealers, (3) materials and (4) completed work in the hands of the manufacturer or See also:merchant. Next comes the distinction of the See also:gross national revenue from the See also:net—the first being the whole produce of the land and labour of a country, the second what remains.after deducting the expense of maintaining the fixed capital of the country and that part of its circulating capital which consists of money. Money, " the great See also:wheel of circulation," is altogether different from the goods which are circulated by means of it; it is a costly See also:instrument by means of which all that each individual receives is distributed to him; and the See also:expenditure required, first to provide it, and afterwards to maintain it, is a deduction from the net revenue of the society. In development of this See also:consideration, Smith goes on to explain the gain to the community arising from the substitution of See also:paper money for that composed of the precious metals; and here occurs the remarkable See also:illustration in which the use of See also:gold and See also:silver money is compared to a See also:highway on the ground, that of paper money to a See also:wagon way through the See also:air. In proceeding to consider the accumulation of capital, he is led to the distinction between productive and unproductive labour—the former being that which is fixed or realized in a particular See also:object or vendible article, the latter that which is not so realized. The former is exemplified in the labour of the manufacturing workman, the latter in that of the See also:menial servant. A broad See also:line of demarcation is thus See also:drawn between the labour which results in commodities or increased value of commodities, and that which does no more than render services: the former is productive, the latter unproductive. " Productive " is by no means See also:equivalent to " useful ": the labours of the See also:magistrate, the soldier, the See also:church-man, lawyer and physician, are, in Smith's sense, unproductive. Productive labourers alone are employed out of capital; unproductive labourers, as well as those who do not labour at all, are all maintained by revenue.

In advancing industrial communities, the See also:

port;,w{pn of annual produce set apart as capital, bears an increasing proportion to that which is immediately destined to constitute a revenue, either as rent or as profit. See also:Parsimony is the source of the increase of capital; by augmenting the fund devoted to the See also:maintenance of productive hands, it puts in See also:motion an additional quantity of See also:industry, which adds to the value of the annual produce. What is annually saved is as regularly consumed as what is spent, but by a different set of persons, by productive labourers instead of idlers or unproductive labourers; and the former reproduce with a profit the value of their consumption. The prodigal, encroaching on his capital, diminishes, as far as in him lies, the amount of productive labour, and so the wealth of the country; nor is this result affected by his expenditure being on home-made, as distinct from See also:foreign commodities. Every prodigal, therefore, is a public enemy; every frugal man a public benefactor. The only mode of increasing the annual produce of the land and labour is to increase either the number of productive labourers or the productive powers of those labourers. Either See also:process will in general require additional capital, the former to maintain the new labourers, the latter to provide improved machinery or to enable the employer to introduce a more See also:complete division of labour. In what are commonly called loans of money, it is not really the money, but the money's See also:worth, that the borrower wants; and the lender really assigns to him the right to a certain portion of the annual produce of the land and labour of the country. As the general capital of a country increases, so also does the particular portion of it from which the possessors wish to derive a revenue without being at the trouble of employing it themselves, and, as the quantity of stock thus available for loans is augmented, the interest diminishes, not merely " from the general causes which make the market price of things commonly diminish as their quantity increases," but because, with the increase of capital, " it becomes gradually more and more difficult to find within the country a II profitable method of employing any new capital "—whence arises a competition between different capitals, and a lowering of profits, which must diminish the price which can be paid for the use of capital, or in other words the rate of interest. It was formerly wrongly supposed, and even See also:Locke and Montesquieu did not See also:escape this error, that the fall in the value of the precious metals consequent on the See also:discovery of the See also:American mines was the real cause of the general lowering of the rate of interest in Europe. But this view, already refuted by Hume, is easily seen to be erroneous. " In some countries the interest of money has been prohibited by law.

But, as something can everywhere be made by the use of money, some-thing ought everywhere to be paid for the use of it," and will in fact be paid for it; and the See also:

prohibition will only heighten the evil of See also:usury by increasing the See also:risk to the lender. The legal rate should be a very little above the lowest market rate; sober people will then be preferred as borrowers to prodigals and projectors, who at a higher legal rate would have an advantage over them, being alone willing to offer that higher rate. As to the different employments of capital, the quantity of productive labour put in motion by an equal amount varies extremely according as that amount is employed—0) in the improvement of lands, mines or See also:fisheries, (2) in manufactures, (3) in wholesale or (4) See also:retail trade. In agriculture " Nature labours along with man," and not only the capital of the farmer is reproduced with his See also:pro-fits, but also the rent of the landlord. It is therefore the employment of a given capital which is most advantageous to society. Next in order come manufactures; then wholesale trade—first the home trade, secondly the foreign trade of consumption, last the carrying trade. All these employments of capital, however, are not only advantageous, but necessary, and will introduce themselves in the due degree if See also:left to individual enterprise. These first two books contain Smith's general economic See also:scheme; and we have stated it as fully as was consistent with the brevity here necessary, because from this formulation of doctrine the English classical school set out, and See also:round it the discussions of more modern times in different countries have in a great measure revolved. The See also:critical philosophers of the 18th century were often destitute of the historical spirit, which was no part of the endowment needed for their See also:principal social See also:office. But some of the most eminent of them, especially in Scotland, showed a marked capacity and predilection for historical studies. Smith was among the latter; Karl Knies and others justly remark on the masterly sketches of this See also:kind which occur in the Wealth of Nations. The longest and most elaborate of these occupies the third book; it is an account of the course followed by the nations of modern Europe in the successive development of the several forms of industry.

It affords a curious example of the effect of doctrinal prepossessions in obscuring the results of historical inquiry. Whilst he correctly describes the European See also:

movement of industry, and explains it as arising out of adequate social causes, he yet, in accordance with the See also:absolute principles which tainted his philosophy, protests against it as involving an entire See also:inversion of the " natural order of things." First agriculture, then manufactures, lastly foreign commerce; any other order than this he considers " unnatural and See also:retrograde." The fourth book is principally devoted to the elaborate and, exhaustive polemic against the mercantile system which finally drove it from the See also:field of science, and has exercised a powerful influence on economic legislation. When See also:protection is now advocated, it is commonly on different grounds from those which were in current use before the time of Smith. He believed that to look for the restoration of freedom of foreign trade in Great See also:Britain would have been " as absurd as to expect that an Oceana or See also:Utopia should be established in it." His teaching on the subject is not altogether unqualified; but, on the whole, with respect to exchanges of every kind, where economic motives alone enter, his See also:voice is in favour of freedom. He has regard, however, to political as well as economic interests, and on the ground that " See also:defence is of much more importance than opulence " pronounces the See also:Navigation See also:Act to have been " perhaps the wisest of all the commercial regulations of England." Whilst objecting to the prevention of the export of See also:wool, he proposes a tax on that export as somewhat less injurious to the interest of growers than the prohibition, whilst it would "afford a sufficient advantage" to the domestic over the foreign manufacturer. This is, perhaps, his most marked deviation from the rigour of principle; it was doubtless a concession to popular opinion with a view to an attainable practical improvement The See also:wisdom of See also:retaliation in order to procure the See also:repeal of high duties or prohibitions imposed by foreign governments depends, he says, altogether on the likelihood of its success in effecting the object aimed at, but he does not conceal his contempt for the practice of such expedients. The restoration of freedom in any manufacture, when it has grown to considerable dimensions by means of high duties, should, he thinks, from motives of humanity, be brought about only by degrees and with circumspection—though the amount of evil which would be caused by the immediate abolition-of the duties is, in his opinion, commonly exaggerated The case in which J S See also:Mill justified protection—that, namely, in which, an industry well adapted to a country is kept down by the acquired ascendancy of foreign producers—is referred to by Smith; but he is opposed to the See also:admission of this exception for reasons which do not appear to be conclusive. He is perhaps scarcely consistent in ap- ADAM proving the concession of temporary monopolies to See also:joint-stock companies undertaking risky enterprises " of which the public is after-wards to reap the benefit."' He is less absolute in his doctrine of governmental non-interference when he comes to consider in his fifth book the "expenses of the See also:sovereign or the See also:commonwealth." He recognizes as coming within the functions of the state the erection and maintenance of those public institutions and public See also:works which, though advantageous to the society, could not repay, and therefore must not be thrown upon, individuals or small See also:groups of individuals. He remarks in a just historical spirit that the performance of these functions requires very different degrees of expense in the different periods of society. Besides the institutions and works intended for public defence and the See also:administration of justice, and those required for facilitating the . commerce of the society. he considers those necessary for promoting the instruction of the people. He thinks the public at large may with propriety not only facilitate and encourage, but even impose upon almost the whole body of the people, the acquisition in youth of the most essential elements of education. He suggests as the mode of enforcing this See also:obligation the requirement of submission to a test examination " before any one could obtain the freedom in any See also:corporation, or be allowed to set up a trade in any See also:village or See also:town corporate." Similarly, he is of opinion that some See also:probation, even in the higher and more difficult sciences, might be enforced as a condition of exercising any liberal profession, or becoming a See also:candidate for any honourable office.

The expense of the institutions for religious instruction as well as for general education, he holds, may without injustice be defrayed out of the funds of the whole society, though he would apparehtly prefer that it should be met by the voluntary contributions of those who think they have occasion for such education or instruction. To sum up, it may be said that the Wealth of Nations certainly operated powerfully through the See also:

harmony of its critical See also:side with the tendencies of the See also:half-century which followed its publication to the assertion of personal freedom and " natural rights." It discredited the economic policy of the past, and promoted` the overthrow of institutions which had come down from earlier times, but were unsuited, to modern society. As a theoretic treatment of social economy, and therefore as a See also:guide to social reconstruction and practice in the future, it is provisional, not definitive. But when the study of its subject comes to be systematized on the basis of a general social philosophy more complete and durable than Smith's, no contributions to that final construction will be found so valuable as his. Buckle has the idea that the two principal works of Smith, the Theory of Moral Sentiments and the Wealth of Nations, are mutually complementary parts of one great scheme, in which human nature is intended to be dealt with as a whole—the former exhibiting the operation of the benevolent feelings, the latter of what, by a singular nomenclature, inadmissible since Butler wrote, he. calls the See also:passion of selfishness." In each division the See also:motive contemplated is regarded as acting singly, without any interference of the opposite principle. This appears to be an artificial and misleading notion. Neither in the plan of Smith's university course nor in the well-known passage at the end of his Moral Sentiments is there any indication of his having conceived such a bipartite scheme. The object of the Wealth of Nations is surely in no sense psychological, as is that of the Moral Sentiments. The purpose of the work is to exhibit social phenomena, not to demonstrate their source in the See also:mental, constitution of the individual. - The following maybe referred to for See also:biographical details: Dugald Stewart, Biographical Memoir of Adam Smith, originally read (10793) before the Royal Society of Edinburgh, and afterwards prefixed to Smith's Essays on Philosophical Subjects; J. A. See also:Farrer, Adam Smith (1881); R.

B. See also:

Haldane, Life of Smith (1887), and the very full and excellent Life of Adam Smith by John See also:Rae (1895). Additional particulars are given in See also:Brougham's Men of Letters and Science, Burton's Life of Hume and See also:Alexander See also:Carlyle's Autobiography; and some characteristic anecdotes of him will be found in See also:Memoirs of the Life and Works of Sir John See also:Sinclair (1837). For comments on his Theory of Moral Sentiments, see, besides Stewart, as cited -above, Dr T. Brown's Philosophy of the Human Mind, lects. 8o and 81; Sir J, See also:Mackintosh's Dissertation on the Progress of Ethical Philosophy; and the See also:art. ETHIcs in the present work. On the Wealth of Nations, see the prefaces to M'Culloch's, Rogers's, See also:Shield See also:Nicholson's and Cannan's editions of that work; Rogers's Historical Gleanings (1869)_; the art. " Smith " in See also:Coquelin and Guillaumin's Dictionnaire de l'economie politique; See also:Bagehot's Economic Studies (188o); and See also:Cossa's Guide to the Study of Political Economy (Eng. trans., 1880), See also:chap. v. See also Professor Shield Nicholson's Project of See also:Empire (1909), which is a critical study of the Economics of Imperialism, with See also:special reference to the ideas of Adam Smith; and Professor W. See also:Ashley's See also:essay in Compatriots Club Lectures (1905) on " Political Economy and the See also:Tariff Problem." See also Professor W. J Ashley's Select Chapters and Passages from the " Wealth of Nations " (1895)• (J.

K.

End of Article: SMITH, ADAM (1723–1790)

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