Throughout American history there’ve been many unsung heroes whose contributions have been often overlooked and unrecognized. The roles and accomplishments of these men and women were vital for American growth and development that we know of and live by today. Among all these considered unsung heroes is one of my personal favorite historical figures to have had a great influence on our nation, which is the brilliant minded Adam Smith, who is now widely considered the father of modern economics, and the founder of capitalism.
I. A Brief Biography.
Unfortunately, history hasn’t been able to tell us the exact date of Adam Smith’s birth. However, we do know that he was born in Kirkcaldy, Fife, Scotland and his baptism is recorded on June 5, 1723. Although, Adam Smith’s religious views are debated among many historians and economists to this day. During his childhood, Smith studied Latin, mathematics, history, and writing at Burgh School of Kirkcaldy, and by the age of thirteen he had attended the University of Glasgow and the University of Oxford to study social and moral philosophy through scholarship.
After his graduation, Smith had started to gain publicity after giving successful lectures to the public in Edinburgh, and essentially helped spark the Scottish enlightenment with David Hume. Later on Adam Smith was offered a teaching job at Glasgow University in moral philosophy, and the year afterwards he became the head of moral philosophy at the university.
During this time, students all over Europe had begun to flourish into Glasgow University in order to be taught by Smith, and in 1759 he published his first novel, The Theory of Mortal Sentiments.
Smith’s teaching career ended four years later in 1763 when he was offered and accepted a tutoring job for Henry Scott. In doing so, Smith had the opportunity to travel all over Europe. It was during this time Smith began to conjure an interest and passion for economics, and after returning home he dedicated the next ten years of his life to writing his magnum opus, An Inquiry into the Nature and Causes of the Wealth of Nations. It was published in 1776 and had international, instant success. Adam Smith died in Edinburgh Scotland on July17, 1790.
II. Before Adam Smith.
The influence of Adam Smith and his great economic theory of capitalism helped build the foundation of our nation’s government and economy. In fact, we’ve grown so accustomed to it our whole lives that it’s hard to imagine any other kind of economic structure. However; for hundreds of years, business and economics were completely upside down from us today. All marketing and economic interactions we’re controlled by tradition and authority. Those times are now recognized as the Dark Ages.
Firstly, tradition, or religion, was the primary concern for everyone. That’s just how it was back then. Separation of church and state hadn’t been established, so everything religion declared and taught was the supreme law of the land. Clergy and churches throughout European countries taught that God wanted everyone to be content and grateful with the property they were blessed to have at birth, and if you sought any profit, or had any desire whatsoever to increase you’re standard of living, you were labeled as a sinner, an evil being, and even an anti – Christ. This lifestyle was completely normal for most European’s, and the incentive to do labor for profit or property simply didn’t exist in their minds. If you were born into a wealthy, noble family you were more blessed than others living in poverty.
However; as noted before, tradition alone wasn’t the only obstacle in business. The marketplace was completely regulated by the secular government and any other form of higher authority. There was no such thing as a free market, and businesses were limited with, if any, their own decisions within the company. Essentially, the marketplace and economy as a whole
was a monopoly itself. Regardless of what a business sold, they had no freedom over the price and quantity their products were sold at. All these decisions were entirely regulated and watched over by authority and established order.
III. What Exactly is Capitalism?
Now that we’ve had a brief explanation of the history of economics, what exactly is Adam Smith’s theory of capitalism, and how does it contrast to traditional economics? As stated before, American’s have naturally adapted to a capitalistic lifestyle, and it’s all that we really know when it comes to our economy and business itself. What exactly did Adam Smith advocate through capitalism? Well, during the industrial revolution in the mid-18th century, Adam Smith published his novel An Inquiry to the Nature and Causes to the Wealth of Nations in 1776, and its sole purpose was to lecture on how to run a nation economically. Here he introduced his capitalistic theory and what major lessons can be learned from it, to the world. They’re the following.
The first and foremost component in the Wealth of Nations that Smith introduced and pioneered is the “Invisible Hand Theory.” In the Wealth of Nations, Adam Smith described the “invisible hand” effect by stating:
”Generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other eases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”
Ultimately, Adam Smith saw the “invisible hand” as a moral justification, and what he supported was that if one individual seeks a profit, he or she would be unknowingly benefiting many others in a society and not just the greedy. The wealth would essentially “trickle down” in
the social classes and still supply for all the necessities of life. For example, if someone purchased a car from a dealer, the dealer could have used their profit to purchase another good or service, and so on and so forth. Essentially, the money would be flowing through a constant cycle.
After Smith established his outstanding “Invisible Hand Theory”, a second thing he advocated was that businesses should be privately owned operated in a free market economy. He used the term laissez fair, meaning “leave it alone,” to promote that there should be no secular or government regulation and control on business decisions within a particular firm. This meant that businesses could make their own private decisions regarding supply, demand, price, distribution, investments, etc. In addition, Smith also details different business strategies and identifications in Wealth of Nations to help instruct different businesses and entrepreneurs.
The third basic component to the theory of capitalism is that it creates the incentive for people to work for money. Traditionally, doing labor for personal benefits was a foreign thought and it was common for any profits made to go directly to the church. However, capitalism sparked the motivation to work. People could do labor or services for a business and receive wages for their contributions. In addition, people could use their profits to invest in the company and take partial ownership in the business, giving them a voice and say on company decisions.
The final and most important major thing Adam Smith promoted in his theories is that the motivation to be greedy and seek profit is good. Not only because it simply helps someone increase their standard of living, but most importantly because it promotes and allows the “invisible hand” to take its full effect. All of these theories and statements Smith favored turned heads and attracted ears all over the globe. It was also a total smack in the face for all theocratic and autocratic societies. It was a shock to the world, and there’s no wonder why afterwards Adam Smith was highly considered as an anti – Christ by many religions. Regardless, Smith’s work was glorified. Shortly after, seemingly overnight, a profit motive and work – hard ethic had begun to spark in laborers all over the earth, and it still exists in us to this day.
While many were in favor of Adam Smith’s new proposal of economic flow, there have been some intellects that were skeptical and even opposed. Some of these men were Joseph E. Stiglitz, Thorstein Veblen, and Karl Marx.
Nobel Prize Winner and economist Joseph E. Stiglitz published a book titled Making Globalization Work where he famously stated "the reason that the invisible hand often seems invisible is that it is often not there." In the book, Stiglitz criticized Smith’s theories of free markets and the invisible hand, saying that free markets often do not lead to what is best for other members of society. Stiglitz also concluded that in modern times government regulation is vital towards stabilizing the market and economy as a whole.
Thorstein Veblen was a capitalist man, but was skeptical about exactly how Adam Smith imagined. In his novel titled Theory of the Leisure Class Veblen discusses his bad taste on how the wealthy people think and live, and explains their behavior in two different terms; conspicuous consumption and pecuniary emulation. According to Veblen conspicuous consumption is where the wealthy insist on displaying their wealth, power, and status. Veblen saw this as a waste of money and a violation towards capitalism and the invisible hand. Secondly Veblen uses pecuniary emulation to describe that we become the very thing we worship, and if the wealthy insist on boosting their egos continually nothing is being accomplished properly. In summary, Veblen wants the invisible hand to work, but because of the immoral nature of the wealthy it won’t.
Finally there’s Karl Marx. Marx opposed almost everything Adam Smith stood for, and in fact, you could say that they were complete opposites. In his book “Alienated Labor”, Marx expressed his views towards what he considered the reality of economics, and he opens his book by saying “workers of the word unite. Throw off the chains of your oppressors.” Marx believed that the employed were not being treated properly by those who held all the capital in a company, and that the labor is the true owner of the wealth because without them nothing would get accomplished. The labored, Marx explains, are nothing more than disposable commodities by management and machinery, and the more you work the less valuable you become for the
company. Ultimately, Marx believed that the “invisible hand” was too ideal, and that the only way to solve the problem was through a new and refined distribution of wealth that was equal for everyone. This is now commonly known as communism. When you look at it, Marx and his insights were really depressing yet they couldn’t be ignored. Marx sparked a new fear in capitalist business owners and nations around the globe, and shortly after communist revolutions had begun to emerge.
V. Smith and the United States.
Now that we’ve identified the key points that make up Adam Smith’s economic theory of capitalism, is it beginning to look familiar? It definitely should. As stated before, these principles are the base of our economic system in the United States. But in the beginning, how exactly did our founding fathers stumble across Adam Smith’s ideas, and why did they choose his instruction among all the other ideologies and confusion?
Our founding fathers and first settlers had escaped from traditional economic conditions, very similar to the ones we’ve discussed earlier in the paper. King George III had abused the Colonies and gave them little, if any, sovereignty of their own. From overseas the British had total control and regulation over economic and government functions. Finally when they had declared their independence and were on their own, they had begun constructing a Constitution for government and economic change. The solution was found from three men, and they turned to their works and minds regarding economic instruction. Those men were Adam Smith, Edward Gibbon, and David Hume. Adam Smith’s major economic influence found in Wealth of Nations, as we’ve discussed throughout this whole paper, over all promoted a free market, profit motive, and advocated the theory of the invisible hand. But what about the other two economic minds and how did their works contribute to capitalism? Since this paper isn’t primarily about them their stories will be short, but they should definitely be acknowledged.
Along with Adam Smith, Edward Gibbon, an English man who was a member of Parliament, had also published a novel in 1776 titled “The History of Decline and Fall of the Roman Empire.” In his novel Gibbon criticized traditional theocratic governments, saying that because the church held the government and economy on such a tight leash, it ended up being the
leading cause for the destruction of many Western Europe civilizations. Christianity, Gibbon stressed, was to blame for everything, and it wasn’t until people started questioning the church when things began to take a step in the right direction. In summary, the message that Gibbon stressed to the world and our founding fathers is that governments and religion should be completely separated into two different realms and never to interfere with each other. We now call this the separation of church and state.
David Hume, a Scottish philosopher, economist, and fellow friend of Adam Smith, also released a book in 1757 titled “Natural History of Religion.” In his writings, Hume examined the history of religion scientifically, and discussed how traditionally people thought nations were made by God. However; Hume went bold with his views, and had bluntly stated that nations aren’t made by God; they are made by man and no one else. The overall message that Hume was trying to send was that God doesn’t influence order and nations. According to Hume, men are the masters of their own destiny, and if a nation fails, it’s the fault of those who’ve governed it.
Adam Smith’s logic and legacy changed the face of business and economics completely in the United States and all over the world. Because of him businesses are free from any government and religious bindings; and we can attend to a job to make money, or go to school and gain an education because we want to. It’s all so we can better ourselves as individuals; and evidently by doing so we can benefit the well-being of many others through the invisible hand. Overall, maybe it’s because of what Adam Smith had to say, the United States is now the strongest nation in the world and the home of the American Dream. It’s a good thing we listened. With that being said, Adam Smith truly is the father of modern economics, founder of capitalism, and a great unsung hero.