Adam Smith was not your typical intellectual. Sure, he was highly respected for his intellectual ability, but his personality also contributed to his popularity. He was horribly absentminded, and would often bungle every-day tasks. Often, the slightest insignificant observation would deter him from his train of though. However, even with these 'flaws', he was still a highly respected intellectual. His book, Wealth of Nations has been one of the most influential books of modern times, and the foundation of economic thought.
He began his studies on an Oxford scholarship. However, the Oxford of his day was much different than the Oxford of today. None of the professor's cared about instructing, and any learning usually took place independently of the classroom. (Wait, maybe that isn't much different than today's schools...) At the age of 28, he was offered the Chair of Logic at Glasgow, a university that at least had some respect for education. Glasgow was, however, still caught up in it's religious backgrounds, and highly critical of some of Smith's teaching methods. The 'establishment' was not ready Smith's enthusiastic teaching and occasional light-heartedness. The colleges still served religion first, and education second.
During his tenure at Glasgow (where he would eventually become Dean), Smith gradually gained popularity for his eccentric personality. His entertaining lectures and absentmindedness were well known throughout the land. He also published a book, The Theory of Moral Sentiments, that gained widespread popularity. It also attracted the attention of Charles Townshend, who desired to have his daughter tutored by Smith. The large sum of money offered by Townshend was enough incentive for Adam Smith. He left Glasgow for France. He had little command of the French language, and thus, to occupy his time in France he began writing his most famous book, The Wealth of Nations.
While in France, Smith met Fracois Quesnay, a physician who belonged to the Physiocracy school of economics. Physiocracy held that wealth did not come from gold and silver, but instead came from production, and circulated through society. The Physiocratic laissez-faire reasoning enthralled Smith, but he found one major flaw with it. Physiocracy only counted agriculture as production, and considered all other forms of production to be mere alterations of the original product. Smith grew up surrounded by trading, and thus felt ALL types of labor were of equal importance. Thus his 'great insight came about': "labor, not nature, was the source of 'value'". In 1776, he published The Wealth Of Nations, containing this, and many other economic insights. Shortly afterwards, he was appointed Commissioner of Customs for Edinburgh. In that capacity, Smith spent the remainder of his life, still unmarried and absent-minded.
In the book and other writings, Adam Smith found order in the chaos of his world. His world, was indeed chaotic: outdated customs prevailed, inefficiency abounded, and the dark side of society was predominate. Women and children worked the dirtiest of jobs; carnal appetites were immediately satisfied. However, these conditions did contain the beginnings of the economic order that Adam Smith wrote about. Work was beginning to be organized and factories started to spurt up; the market system had finally begun to replace the feudal system.
The Wealth of Nations represented the accumulation of the accumulation of an enormous amount of economic insight. While containing only a small number of original ideas, the book is considered a masterpiece because of its all-encompassing nature. Smith summed up the thinking of many other great thinkers before him, and spared no details in his 900 page tome. A modern economist would find it impossible to write such an all-encompassing economics text due to the vastness of 'knowledge' in today's society. Luckily, Smith lived at a time when it was quite possible for an intellectual to "embrace the great body of knowledge of his times." His book was not meant to be relegated to the pillars of academia. Instead, it was written for the general populace.
He sought to provide a blueprint for running an economy, not a basic economics text. He revolutionized economic thought with his notions of the wealth of an entire nation. No longer would wealth of kings alone be adequate.
In espousing the market system, Smith sought to explain how society would stay together without a commanding force. In other societies, traditional or powerful leadership dictated the economic goals. However, the market system lacked any central authority. How would it stay together? Smith answered this using "the invisible hand" that guided each man's private interest to the direction most beneficial to society. Furthermore, he sought to explain another key problem: "whither society?" He saw society, not as a entity continually reproducing identical copies of itself, but as an ever-changing organism. Indeed, society is a living organism that grows and changes. The interests of men cause the society to constantly change and evolve to a system more suited for an individual time period.
Competition regulated man's individual self-interest. If a shoemaker charged too much for his shoes, his patrons would buy their shoes from a more reasonably priced shoemaker. If people demanded more shoes than were being produced, the shoemaker could safely raise his prices. The high profits would encourage others to produce shoes, thus eventually forcing the prices to be reduced. Competition served was an uncompromising force to be reckoned with in the economy. However, occasionally businesses would sidestep the force of competition. Monopoly's and price-fixing would offset the competitive processes. Labor unions would keep wages unreasonably high. In Smith's age, companies were small, and those forces were negligible. Today, mammoth corporations rule the market. They can use their size to overpower the competitive push to alter prices. Furthermore, the government intervenes in many aspects of the market. Cable, electricity, and gas rates are all heavily regulated by the government. Other industries are also affected, in differing degrees, by the government. However, even with these alterations, Smith's basic market structure remains.
Another key point of Smith's economic philosophy was that of upward movement. He observed a "concealed dynamic beneath the surface of things" that would power society to move slowly towards Valhalla. Division of labor was the primary cause of upward movement. As labor was further divided, productivity would be increased, and resources can be allocated elsewhere. Furthermore, the market system encourages innovation and risk taking in order to obtain greater wealth. The accumulation of wealth would lead to investment to further improve business. Smith also saw population as a self-regulator. When business increased, the child mortality rate would decrease, due to higher wages and better living conditions. Thus, more need for work would eventually lead to greater numbers of workers.
Smith's ideas were quickly grasped by the rising capitalist class, despite comments that they "neither are, nor ought to be, the rulers of mankind." Despite this, and other attacks on themselves, the new capitalists seized Smith's primary idea, "let the market alone." They, however, interpreted Smith as being much more laissez-faire conservative than he actually was. He wasn't opposed to all government intervention as some people thought. In fact, he advocated government interventions to prevent the undue demise of the labor class. However, he wasn't pro-labor, or even pro-business; the only group he showed bias towards was the consumer. Similarly, his greatest enemy wasn't the government, as some people construed, but monopolies. He saw any meeting of businessmen to be a restriction of the free-trade system.
Even with his far-reaching vision, Smith failed to notice one of the most substantial changes of society: the industrial revolution. The offspring of the revolution - the business cycle, large corporations, and new social organizations - would have a far reaching effect on the new economic system. However, when Smith wrote The Wealth of Nations, the revolution was still fifty years away. His theories were based on the eighteenth-century society he knew. Ironically, even though he advocated specialization, it was Smith's broad learning that enabled his book to be a success. Only during the eighteenth century could such an all-encompassing work be produced. The days knowledge in a vast array of fields was incorporated in the work. Reason and logic, the predominate areas of 18th century philosophy, held it together. Adam Smith had used past knowledge to synthesized a new economic blueprint that would still be followed (to some extent) 200 years from its publication.
Though he failed to see some key changes, his reasoning was still correct, and he remains one of the most influential men of history.
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