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With his book The Wealth of Nations, Adam Smith installed himself as the leading expositor of economic thought. Today, Smith’s reputation rests on his explanation of how rational self-interest in a free-market economy leads to economic well-being. He also identified the division of labor and specialization as a key element of prosperity. It may surprise those who would discount Smith as an advocate of ruthless individualism that his first major work, The Theory of Moral Sentiments, concentrates on ethics and charity.
However, Smith also recognized that charity, while a virtuous act, cannot alone provide the essentials for living. He viewed self-interest as the mechanism that could remedy this shortcoming. Said Smith: “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”
Smith was also one of the first to articulate the concept of spontaneous order. This can clearly be seen in his famous quote: “By directing that industry in such a manner as its produce may be of greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”
Adam Smith has sometimes been caricatured as someone who saw no role for government in economic life. In fact, he believed that government had an important role to play. Like most modern believers in free markets, Smith believed that the government should enforce contracts and grant patents and copyrights to encourage inventions and new ideas. He also thought that the government should provide public works, such as roads and bridges, that, he assumed, would not be worthwhile for individuals to provide. Interestingly, though, he wanted the users of such public works to pay in proportion to their use.
Smith’s writings are both an inquiry into the science of economics and a guide for realizing the wealth of nations. Smith believed that economic development was best fostered in an environment of free competition that operated in accordance with universal “natural laws.” Because Smith’s was the most systematic and comprehensive study of economics up until that time, his economic thinking became the basis for classical economics. And because more of his ideas have lasted than those of any other economist, some regard Adam Smith as the alpha and the omega of economic science.
Bio text originally from The Library of Economics and Liberty
Full Bio: http://www.econlib.org/library/Enc/bios/Smith.html
EconTalk – Klein on The Theory of Moral Sentiments, Episode 1 of 6 — An Overview: http://www.econtalk.org/archives/2009/04/klein_on_the_th.html
The Wealth of Nations: http://www.econlib.org/library/Smith/smWN.html
The Theory of Moral Sentiments: http://www.econlib.org/library/Smith/smMS.html