Adam Smith

1. Adam Smith CIA 4U Analyzing Current Economic Issues

2. “The Father of Modern Economics & Founder of Capitalism”

3. Overview Biography Economic Times Ideas that Advanced Economic Thought

4. Biography • Born: ? • Exact date is unknown, but was baptized on June 5, 1723 . • Place of Birth: • Kirkcaldy, Fife, Scotland.

5. Biography • Family • Father was the controller of the customs at Kirkcaldy • Strong interest in Christianity • Belonged to Church of Scotland (national church) • Died 6 months previous to Adam’s baptism • Mother raised him until age of 14 *At age 4, kidnapped by Gypsies, but was rescued by uncle and returned to Mother

6. Biography • University • Age of 14, proceeded to University of Glasgow • Studied ‘Moral Philosophy’ • concepts such as right, wrong, good, evil, and responsibility • Developed strong passion for liberty, reason, and free speech • Influenced heavily by Francis Hutcheson (famous philosopher)

7. Biography • 1740 -1746 • Attended Balliol College, Oxford upon winning a scholarship. • “Gave little if any help towards his lifework”

8. Biography • 1748 • Began delivering public lectures in Edinburgh • Influenced by Henry Home (Lord Kames)

9. Biography • Edinburgh • Lectures dealt primarily with rhetoric or ‘belles-lettres’ • literary works, especially fiction, poetry, drama, or essays, valued for their aesthetic qualities and originality of style and tone • Later took up subject of “The Progress of Opulence” • Progress of being wealthy, rich, or affluent

10. Biography • Edinburgh • First thought of the economic philosophy of “the obvious and simple system of natural liberty” (Main thesis of his ‘Inquiry into the Nature and Causes of the Wealth of Nations’)

11. Biography • 1750 • Met David Hume, who became one of his closest friends • Scottish philosopher, economist, and historian • One of the World’s most important philosophers • Humean Philosophy - human knowledge comes to us through our senses “We cannot be certain a thing, such as God, a soul, or a self, exists unless we can point out the impression from which the idea of the thing is derived.”

12. Biography • 1750 • Beginning of his role in the emergence of the Scottish Enlightenment “Scottish thinkers began questioning assumptions previously taken for granted; and with Scotland's traditional connections to France, then in the throes of the Enlightenment, the Scots began developing a uniquely practical branch of humanism to the extent that Voltaire said "We look to Scotland for all our ideas of civilisation."

13. Biography • 1750 • Went to England with intention of a career in Church of England (footsteps of his father) • Lost his belief and returned to Scotland as a Deist • reject supernatural events (prophecy, miracles) and divine revelation, along with holy books and revealed religions that assert the existence of such things. • hold that correct religious beliefs must be founded on human reason and observed features of the natural world, and that these sources lead to belief in the existence of one God or supreme being.

14. Biography • 1751-1752 • Appointed Proffessor of Logic at the University of Glasgow • Transferred to the Chair of Moral Philosophy • Lectured on fields of ethics, rhetoric, jurisprudence, political economy, and “police and revenue”

15. Biography • 1759 • Published ‘Theory of Moral Sentiments’ which embodied his lectures • Established his reputation, became Dean of the Univeristy, and became Glasgow’s most illustrious citizen. • Work concerned with how human communication depends on sympathy between agent and spectator (individual and other members of society) • His own capacity for fluent, persuasive argument (rhetoric) was evident • Very different from other thinkers of the time who stated communication was based on morals or utility

16. Biography • 1759-1763 • Began to give more attention to jurisprudence and economics, and less to theories of morals

17. Biography • End of 1763 - 1766 • lucrative offer from Charles Townshend to tutor his stepson, the Duke of Buccleuch • Traveled with pupil, mostly in France, and around Europe • Came to know intellectual leaders, and learn and respect many of their works

18. Biography • 1764 • Became acquainted with a new school of economic though whose leaders were known as ‘physiocrats’ • laws created by humans are artificial and unneccessary • interfere with natural laws, ie. individuals pursuit of self-interest, which would ultimately benefit all society. • Became known as ‘Laissez-Faire’ – leave to do, or leave things alone so that matters can work out naturally.

19. Biography • 1766-1776 • Returned to Kirkcaldy • Devoted his time to creating his two-volume, master work “An Inquiry into the Nature and Causes of the Wealth of Nations” (aka. “The Wealth of Nations”) • Published his work in 1776 where it became very, well-received and popular amongst the society of the day. • Recognized as the foundation of ‘Modern Economic Theory’

20. Biography • 1778 • His work made him famous, as it was the first to outline in detail the characteristics and benefits of a complete economic system – the free-market economy • Appointed to Commissioner of Customs of Scotland • Lived with his mother in Edinburgh

21. Biography • 1790 • Died after a painful illness on July 17 • Buried in the Canongate Kirkyard, Royal Mile, in Edinburgh • Became known after his death of his numerous acts of charity • Left behind many notes and unpublished material, but gave instructions to destroy anything that was not fit for publication.

22. The Times • Mercantilism • Prevailing economic system • State control of economic production and trade, with goal of exporting as many goods as possible for sale abroad while, at the same time, importing as few foreign goods as possible. • When successful, gold flows in while very little flows out.

23. The Times • Mercantilism • Gold & Silver reserves were thought to constitute the real wealth of a nation. • A country’s government had to adopt a protectionist policy to safeguard its gold and silver reserves by limiting entry of foreign goods. • Imposed stiff taxes/tariffs on imported goods, to make them more expensive than the goods produced in the country

24. The Times • Mercantilism • Each of the society’s class felt increasingly handcuffed by government regulations and taxes. • Negative effect on: • Trade; and • Prices

25. The Times • Laissez-Faire • Provided a strong argument for replacing state control of economy on natural laws to regulate activity • This led to the French Revolution • The American Revolution to the British was also a direct result of this thinking – Declaration of Independence in 1776 • Too much interference from government that had a long history was now being rejected.

26. The Times • Enclosure Movement • Smith’s ideas developed in response to rapid economic changes observed in Britain • Broke up the large plots of land that towns had held in common since the Middle Ages • Redistributed them in small plots to individuals • These individuals ran these farms for profit rather than subsistence

27. The Times • Enclosure Movement • Inventions made it possible for factory owners to increase both their scale of operations and profits • Made workers perform more specialized tasks using variety of machines • Technological innovation created the ‘Industrial Revolution’

28. Ideas that Advanced Economic Thought • Self Interest • Human beings motivated by this • The desire to better our condition in life • Profit motive is thus the major stimulus for economic growth and prosperity • Greater production is not because of generous producers, but desire for profit

29. Ideas that Advanced Economic Thought Self Interest • Trick is to ensure that desire for profit does not overwhelm sense of obligation to society • Free market – many producers in competition, none of whom can raise their prices too high • Self-interest and competition work in unison • Government regulation not necessary – invisible hand at work (natural control)

30. Ideas that Advanced Economic Thought • Ongoing Progress & Prosperity • Division of Labour • specialization of workers in a complex and mechanized production process. • Law of Accumulation • accumulated profits invested in additional capital goods increase total production and efficiency as a whole. • Law of Population • increase in production means more workers, and must attract workers through higher wages, which leads to better living conditions, reduced mortality rates, and a natural increase in the population.