Adam Smith CIA 4U Analyzing Current Economic Issues.

Adam SmithAdam SmithCIA 4UCIA 4U

Analyzing Current Analyzing Current Economic IssuesEconomic Issues

““The Father of The Father of Modern Economics Modern Economics

& Founder of & Founder of Capitalism”Capitalism”

OverviewOverview

BiographyBiography

Economic TimesEconomic Times

Ideas that Advanced Economic Ideas that Advanced Economic ThoughtThought

BiographyBiography

Born: ?Born: ? Exact date is Exact date is

unknown, but unknown, but was baptized on was baptized on June 5, 1723 .June 5, 1723 .

Place of Birth: Place of Birth: KKirkcaldy, Fife, irkcaldy, Fife, Scotland. Scotland.

BiographyBiography

FamilyFamily Father was the controller of the customs Father was the controller of the customs

at Kirkcaldyat Kirkcaldy Strong interest in ChristianityStrong interest in Christianity Belonged to Church of Scotland (national Belonged to Church of Scotland (national

church)church) Died 6 months previous to Adam’s Died 6 months previous to Adam’s

baptismbaptism Mother raised him until age of 14Mother raised him until age of 14

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

BiographyBiography

UniversityUniversity Age of 14, proceeded to University of Age of 14, proceeded to University of

GlasgowGlasgow Studied ‘Moral Philosophy’ Studied ‘Moral Philosophy’

concepts such as right, wrong, concepts such as right, wrong,

good, evil, and responsibility good, evil, and responsibility

Developed strong passion for Developed strong passion for

liberty, reason, and free speechliberty, reason, and free speech Influenced heavily by Francis Influenced heavily by Francis

Hutcheson (famous philosopher)Hutcheson (famous philosopher)

BiographyBiography

1740 -17461740 -1746 Attended Balliol College, Oxford upon Attended Balliol College, Oxford upon

winning a scholarship.winning a scholarship. ““Gave little if any help towards his Gave little if any help towards his

lifework”lifework”

BiographyBiography

17481748 Began delivering public lectures in EdinburghBegan delivering public lectures in Edinburgh Influenced by Henry Home (Lord Kames)Influenced by Henry Home (Lord Kames)

BiographyBiography

EdinburghEdinburgh Lectures dealt primarily with Lectures dealt primarily with

rhetoric or ‘belles-lettres’rhetoric or ‘belles-lettres’ literary works, especially fiction, poetry, literary works, especially fiction, poetry,

drama, or essays, valued for their aesthetic drama, or essays, valued for their aesthetic qualities and originality of style and tone qualities and originality of style and tone

Later took up subject of “The Later took up subject of “The Progress of Opulence”Progress of Opulence”

Progress of being wealthy, rich, or affluentProgress of being wealthy, rich, or affluent

BiographyBiography

EdinburghEdinburgh First thought of the economic philosophy of First thought of the economic philosophy of

“the obvious and simple system of natural “the obvious and simple system of natural liberty” (Main thesis of his ‘Inquiry into the liberty” (Main thesis of his ‘Inquiry into the Nature and Causes of the Wealth of Nations’)Nature and Causes of the Wealth of Nations’)

BiographyBiography

17501750 Met David Hume, who became Met David Hume, who became

one of his closest friendsone of his closest friends Scottish philosopher, economist, Scottish philosopher, economist,

and historianand historian One of the World’s most One of the World’s most

important philosophersimportant philosophers Humean Philosophy - human Humean Philosophy - human

knowledge comes to us through knowledge comes to us through our sensesour senses

““We cannot be certain a thing, such as God, a soul, We cannot be certain a thing, such as God, a soul, or a self, exists unless we can point out the or a self, exists unless we can point out the

impression from which the idea of the thing is impression from which the idea of the thing is derived.”derived.”

BiographyBiography

17501750 Beginning of his role in the emergence of the Beginning of his role in the emergence of the

Scottish EnlightenmentScottish Enlightenment

““Scottish thinkers began questioning Scottish thinkers began questioning assumptions previously taken for assumptions previously taken for

granted; and with Scotland's traditional granted; and with Scotland's traditional connections to France, then in the throes connections to France, then in the throes

of the Enlightenment, the Scots began of the Enlightenment, the Scots began developing a uniquely practical branch of developing a uniquely practical branch of humanism to the extent that Voltaire said humanism to the extent that Voltaire said "We look to Scotland for all our ideas of "We look to Scotland for all our ideas of

civilisation."civilisation."

BiographyBiography

17501750 Went to England with intention of a Went to England with intention of a

career in Church of England (footsteps career in Church of England (footsteps of his father)of his father)

Lost his belief and returned to Scotland Lost his belief and returned to Scotland as a Deistas a Deist

reject supernatural events (prophecy, miracles) and reject supernatural events (prophecy, miracles) and divine revelation, along with holy books and revealed divine revelation, along with holy books and revealed religions that assert the existence of such things. religions that assert the existence of such things.

hold that correct religious beliefs must be founded on hold that correct religious beliefs must be founded on human reason and observed features of the natural human reason and observed features of the natural world, and that these sources lead to belief in the world, and that these sources lead to belief in the existence of one God or supreme being. existence of one God or supreme being.

BiographyBiography

1751-17521751-1752 Appointed Proffessor of Logic at the University of Appointed Proffessor of Logic at the University of

GlasgowGlasgow Transferred to the Chair of Moral PhilosophyTransferred to the Chair of Moral Philosophy Lectured on fields of ethics, rhetoric, jurisprudence, Lectured on fields of ethics, rhetoric, jurisprudence,

political economy, and “police and revenue”political economy, and “police and revenue”

BiographyBiography

17591759 Published ‘Theory of Moral Sentiments’ which Published ‘Theory of Moral Sentiments’ which

embodied his lecturesembodied his lectures Established his reputation, became Dean of the Established his reputation, became Dean of the

Univeristy, and became Glasgow’s most Univeristy, and became Glasgow’s most illustrious citizen.illustrious citizen.

Work concerned with how human communication Work concerned with how human communication depends on sympathy between agent and depends on sympathy between agent and spectator (individual and other members of spectator (individual and other members of society)society)

His own capacity for fluent, persuasive argument His own capacity for fluent, persuasive argument (rhetoric) was evident(rhetoric) was evident

Very different from other thinkers of the time who Very different from other thinkers of the time who stated communication was based on morals or stated communication was based on morals or utilityutility

BiographyBiography

1759-17631759-1763 Began to give Began to give

more attention more attention to jurisprudence to jurisprudence and economics, and economics, and less to and less to theories of theories of moralsmorals

BiographyBiography

End of 1763 - 1766 End of 1763 - 1766 lucrative offer from Charles lucrative offer from Charles

Townshend to tutor his stepson, the Townshend to tutor his stepson, the Duke of BuccleuchDuke of Buccleuch

Traveled with pupil, mostly in France, Traveled with pupil, mostly in France, and around Europeand around Europe

Came to know intellectual leaders, Came to know intellectual leaders,

and learn and respect many of their and learn and respect many of their

worksworks

BiographyBiography

17641764 Became acquainted with a new school of Became acquainted with a new school of

economic though whose leaders were economic though whose leaders were known as ‘physiocrats’known as ‘physiocrats’

laws created by humans are artificial and laws created by humans are artificial and unneccessary unneccessary

interfere with natural laws, ie. individuals interfere with natural laws, ie. individuals pursuit of self-interest, which would pursuit of self-interest, which would ultimately benefit all society.ultimately benefit all society.

Became known as ‘Laissez-Faire’ – leave to Became known as ‘Laissez-Faire’ – leave to do, or leave things alone so that matters can do, or leave things alone so that matters can work out naturally.work out naturally.

BiographyBiography

1766-17761766-1776 Returned to KirkcaldyReturned to Kirkcaldy Devoted his time to creating his two-Devoted his time to creating his two-

volume, master work “An Inquiry into volume, master work “An Inquiry into the Nature and Causes of the Wealth of the Nature and Causes of the Wealth of Nations” (aka. “The Wealth of Nations”)Nations” (aka. “The Wealth of Nations”)

Published his work in 1776 where it Published his work in 1776 where it became very, well-received and popular became very, well-received and popular amongst the society of the day.amongst the society of the day.

Recognized as the foundation of Recognized as the foundation of ‘Modern Economic Theory’‘Modern Economic Theory’

BiographyBiography

17781778 His work made him His work made him

famous, as it was the first famous, as it was the first to outline in detail the to outline in detail the characteristics and characteristics and benefits of a complete benefits of a complete economic system – the economic system – the free-market economyfree-market economy

Appointed to Appointed to Commissioner of Customs Commissioner of Customs of Scotlandof Scotland

Lived with his mother in Lived with his mother in EdinburghEdinburgh

BiographyBiography

17901790 Died after a painful Died after a painful

illness on July 17illness on July 17 Buried in the Canongate Buried in the Canongate

Kirkyard, Royal Mile, in Kirkyard, Royal Mile, in Edinburgh Edinburgh

Became known after his Became known after his death of his numerous death of his numerous acts of charityacts of charity

Left behind many notes Left behind many notes and unpublished and unpublished material, but gave material, but gave instructions to destroy instructions to destroy anything that was not fit anything that was not fit for publication.for publication.

The TimesThe Times

MercantilismMercantilism Prevailing economic systemPrevailing economic system State control of economic production State control of economic production

and trade, with goal of exporting as and trade, with goal of exporting as many goods as possible for sale abroad many goods as possible for sale abroad while, at the same time, importing as while, at the same time, importing as few foreign goods as possible.few foreign goods as possible.

When successful, gold flows in while When successful, gold flows in while very little flows out.very little flows out.

The TimesThe Times

MercantilismMercantilism Gold & Silver reserves were thought to Gold & Silver reserves were thought to

constitute the real wealth of a nation.constitute the real wealth of a nation. A country’s government had to adopt a A country’s government had to adopt a

protectionist policy to safeguard its gold protectionist policy to safeguard its gold and silver reserves by limiting entry of and silver reserves by limiting entry of foreign goods.foreign goods.

Imposed stiff taxes/tariffs on imported Imposed stiff taxes/tariffs on imported goods, to make them more expensive goods, to make them more expensive than the goods produced in the countrythan the goods produced in the country

The TimesThe Times

MercantilismMercantilism Each of the society’s class felt Each of the society’s class felt

increasingly handcuffed by increasingly handcuffed by government regulations and taxes.government regulations and taxes.

Negative effect on:Negative effect on: Trade; andTrade; and PricesPrices

The TimesThe Times

Laissez-FaireLaissez-Faire Provided a strong argument for replacing Provided a strong argument for replacing

state control of economy on natural laws state control of economy on natural laws to regulate activityto regulate activity

This led to the French RevolutionThis led to the French Revolution The American Revolution to the British The American Revolution to the British

was also a direct result of this thinking – was also a direct result of this thinking – Declaration of Independence in 1776Declaration of Independence in 1776

Too much interference from government Too much interference from government that had a long history was now being that had a long history was now being rejected.rejected.

The TimesThe Times

Enclosure MovementEnclosure Movement Smith’s ideas developed in response to rapid Smith’s ideas developed in response to rapid

economic changes observed in Britaineconomic changes observed in Britain Broke up the large plots of land that towns Broke up the large plots of land that towns

had held in common since the Middle Ageshad held in common since the Middle Ages Redistributed them in small Redistributed them in small

plots to individualsplots to individuals These individuals ran these These individuals ran these

farms for profit rather than farms for profit rather than

subsistencesubsistence

The TimesThe Times

Enclosure Enclosure MovementMovement

Inventions made it Inventions made it possible for factory possible for factory owners to increase owners to increase both their scale of both their scale of operations and profitsoperations and profits

Made workers perform Made workers perform more specialized tasks more specialized tasks using variety of using variety of machinesmachines

Technological Technological innovation created the innovation created the ‘Industrial Revolution’‘Industrial Revolution’

Ideas that Advanced Ideas that Advanced Economic ThoughtEconomic Thought

Self InterestSelf Interest Human beings motivated by thisHuman beings motivated by this The desire to better our condition in The desire to better our condition in

lifelife Profit motive is thus the major stimulus Profit motive is thus the major stimulus

for economic growth and prosperityfor economic growth and prosperity Greater production is not because of Greater production is not because of

generous producers, but desire for generous producers, but desire for profitprofit

Ideas that Advanced Ideas that Advanced Economic ThoughtEconomic Thought

Self InterestSelf Interest Trick is to ensure that desire for profit Trick is to ensure that desire for profit

does not overwhelm sense of obligation does not overwhelm sense of obligation to societyto society

Free market – many producers in Free market – many producers in competition, none of whom can raise competition, none of whom can raise their prices too hightheir prices too high

Self-interest and competition work in Self-interest and competition work in unisonunison

Government regulation not necessary – Government regulation not necessary – invisible hand at work (natural control)invisible hand at work (natural control)

Ideas that Advanced Ideas that Advanced Economic ThoughtEconomic Thought

Ongoing Progress & ProsperityOngoing Progress & Prosperity Division of LabourDivision of Labour

specialization of workers in a complex and specialization of workers in a complex and mechanized production process.mechanized production process.

Law of AccumulationLaw of Accumulation accumulated profits invested in additional accumulated profits invested in additional

capital goods increase total production and capital goods increase total production and efficiency as a whole.efficiency as a whole.

Law of PopulationLaw of Population increase in production means more workers, increase in production means more workers,

and must attract workers through higher and must attract workers through higher wages, which leads to better living wages, which leads to better living conditions, reduced mortality rates, and a conditions, reduced mortality rates, and a natural increase in the population.natural increase in the population.