Adam Smith Flashcards
Where and when was Adam Smith born?
Kirkcaldy, Scotland, 1723
What was Adam Smith’s profession?
Lecturer of Moral Philosophy, University of Glasgow
What were Adam Smith’s major works?
The Theory of Moral Sentiments (1759)
An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
What was the Scottish Enlightenment?
A period of great intellectual and scientific progress occurring at the University of Glasgow and other areas of Scotland throughout the 18th and early 19th centuries. Centred around rational humanism, and a fervent rejection of any ideas that could not be explained by reason. Influential throughout UK and Europe
What was Physiocracy?
Emerged in early 18th century France, generally considered to be one of the first well-developed theories of economics. Crucially identified the circular flow of wealth, but claimed that only agricultural labour produced ‘true’ wealth and ignored the contributions of industry. Exemplified by Quesnay and the Tableau Economique (1758)
What did preindustrial Britain look like?
Smith’s economy was generally one of ‘atomistic competition’, with competitive independent producers, many labourers, and high levels of poverty and infant mortality. A capitalist class was beginning to emerge, but the advent of mass production and corporations had not yet occurred
What were the Navigation Acts?
A series of protectionist acts passed by the British Parliament. Beginning in 1651, the Acts declared that only English ships could transport goods to England, and severely limited colonies from exporting to any country but England. A form of mercantilism (maximising accumulation of resources, one-sided trade)
Summarise Adam Smith’s views on Self-Interest/Markets
Smith identifies self-interest as the ‘mechanism of the market’
Seeking to increase their own wealth, producers will respond to consumer demand and create the product and quantity desired
This market system is regulated by competition and the natural setting of prices, which ensures self-interested actors produce optimal outcomes for society
Summarise Adam Smith’s views on protectionism
Smith suggests that protectionism ‘imposes a real tax upon the whole country’ by raising the price of the production of goods
It also limits how much of a good can be produced from domestic resources, leading to potential market inefficiencies between demand and supply
Smith concedes that to prevent ‘dumping’, protectionism should be slowly phased out – a way to facilitate this is to remove the barriers to entry for labourers changing industries and employment
Summarise Adam Smith’s views on population growth
Smith grappled with the question of what would occur in a successful economy, as ever-greater production resulted in higher and higher wages
Infant mortality was extremely high in the 18th century, and Smith suggested that as wages improved, more children of the working class would survive, creating more future labourers, eventually driving down wages
The market mechanism is in action again – the obstacle of higher wages is solved by the population growth such higher wages made possible
Summarise Adam Smith’s views on the role of the consumer
Smith believed that the self-interested consumer was what made the market mechanism work, and was thus the most critical factor
This explains his firm opposition to protectionism (intervention on behalf of the producer) monopoly, and accumulation for accumulation’s sake (Smith believed the purpose of accumulation was to facilitate more production/consumption)
Smith was in favour of public education to better inform consumers – the general concept of broader welfare legislation was virtually non-existent in his time
What was the influence of the Physiocrats on Adam Smith?
Smith spent time in France with the Physiocratic School. The Physiocrats were the first to challenge the mercantilist assumption that wealth was static, and Smith utilised their circular model of economic activity. The Physiocrats were also among the earliest to oppose market intervention – their motto was ‘Let do and let pass, the world goes on by itself’. However, Smith challenged their idea that industry was unimportant to production – Smith argued the most successful economies have a strong industrial sector, because this is where the division of labour could best occur.
