The Development of Economics

Chapter VI

ADAM SMITH AND THE EVOLUTION OF THE WEALTH OF NATIONS

Adam Smith’s life spanned the period from June 5, 1723, to July 17, 1790. He was born at Kirkcaldy, near Edinburgh, in Scotland; was educated at the Universities of Glasgow and Oxford; for three years lectured at the University of Edinburgh on English literature and political economy; and for thirteen years, 1751-1763, was professor first of logic, and later of moral philosophy, at the University of Glasgow. Then followed nearly three years of travel and residence abroad, in the capacity of tutor to the young Duke of Buccleugh, eighteen months of this time being spent in Toulouse, two months in travel in the South of France, two months in Geneva, and ten months in Paris. The remainder of his life was spent in Scotland and England, the greater part in private study and in the composition and revision of The Wealth of Nations. During the last twelve years of his life, 1778 to 1790, he held the office of commissioner of customs at Edinburgh, and during the last three years he was also rector of the University of Glasgow. He was never married, and his home life was made for him by his mother and by a cousin, Miss Jean Douglas, to both of whom he was very sincerely attached.

He was a man of unusually delicate and refined sentiments, of exemplary conduct throughout his life, and of great learning. His life was so far removed from the turmoil and passion of business and politics that he was able to view the course of events objectively and without prejudice; and the poise, keenness, and power of his intellect and years of unremitting effort enabled him to penetrate far beneath the surface and to discern fundamental principles. Few men of his generation were better equipped by nature and by training for the work he undertook, and into few treatises on any science has the better part of the life of so well equipped a man been put.

It is difficult to account for such a man or to point out the influences which molded him. Like poets, such men are born, not made. A few of the sources from which he drew inspiration and ideas may, however, be indicated.

Another influence of a personal nature was exerted by David Hume, who was a personal friend and intimate associate of Smith for nearly twenty years. The youngest son of a Scottish lord, Hume was born April 26, 1711. He was broadly educated at the University of Edinburgh and in France and studied law, but turned to philosophy, in which he did distinguished work as an original thinker and author. He became also an historian of England and an essay-writer on moral, political, literary, and economic topics. As a means of earning a living he was at one time in early life connected with a mercantile establishment in Bristol and later occupied the position of secretary to General St. Clair during his incumbency of the position of ambassador to Vienna and Zurich. He was also at different times librarian of the Advocates library in Edinburgh, secretary to the British legation at Paris and Undersecretary of State in London.

In an essay on taxes he criticized the physiocratic doctrine of the single tax and the idea current in his day that public debts are advantageous in themselves regardless of the purposes for which they are contracted. He was opposed to raising funds for public enterprises by loans, thus placing the burden of payment upon posterity.

His method of treatment of economic facts was historical and sociological. He emphasized their connection with other classes of social phenomena and with the development of civilization in general and connected the contemporary state of social development with the past.

Smith’s connection with Hume began when the former was a lad of sixteen. He had written an abstract of Hume’s Treatise on Human Nature, then recently published, which pleased the author so much that he presented Smith with a copy of the book and had the abstract printed in London. This was during Smith’s student days. His intimate personal acquaintance with Hume did not begin before he assumed his professorship at Glasgow. After that it speedily ripened into a warm friendship. That the attachment was mutual is evident from the correspondence between them, which was intimate and which shows that they discussed with each other matters of mutual interest and consulted each other regarding their personal affairs. When Smith gave up the chair of logic at Glasgow to take that of moral philosophy, he urged the appointment of Hume as his successor, and Hume in turn attempted on at least one occasion to get Smith an appointment at Edinburgh. It is evident from the correspondence that Smith was consulted in advance of the publication of some of Hume’s essays, while Hume followed the production of the Theory of Moral Sentiments and The Wealth of Nations with a fatherly interest.

That these men greatly influenced each other cannot be doubted, but it is not possible to trace the interactions of this mutual influence in detail. Hume was the older man and, having developed his philosophical ideas early, doubtless helped Smith in the formation of his. Hume’s political economy was also developed before Smith had proceeded very far with his, but in directing the latter’s thought in this field Hutcheson had the first opportunity and probably started trains of thought which Hume helped to strengthen and to enrich.

The influence of the Physiocrats upon Smith can be estimated with a considerable degree of accuracy by a comparison between his lectures on “Justice, Police, Revenue, and Arms” delivered in the University of Glasgow before his visit to France, and The Wealth of Nations. This comparison was made possible by the discovery of a student’s notes on these lectures which came into Mr. Edwin Cannan’s hands through a Mr. Charles C. Maconochie, who found them among a heap of books in his great-uncle’s attic. These notes, together with a comparison with The Wealth of Nations, were published by Mr. Cannan in 1896. The comparison shows that, while the fundamental doctrines of The Wealth of Nations had been developed before Smith met the Physiocrats, indeed before they began to write, additions of considerable importance were made after his return from Paris which might have been and perhaps were the result of physiocratic influence.

The known facts regarding Smith’s association with this sect are as follows: During the ten months spent by him in Paris which closed his foreign sojourn with the Duke of Buccleugh, he had access to the leading salons of the great capital and met its leading thinkers and statesmen, including Quesnay, Dupont, Turgot, and probably other Physiocrats. These ten months belong to the period during which these economists were rapidly gaining influence and recognition, but before they had reached the zenith of their power. Mira-beau’s Tuesday receptions had not yet begun, but frequent meetings of the sect were held in Quesnay’s apartments, and Dupont mentions the fact that Smith was often there and that he freely discussed with them ideas which he contemplated embodying in his proposed book, of the existence of which in at least a tentative form he made no secret. That he frequently met Turgot and discussed economic questions with him is also certain. The latter was at that very time preparing his Réflexions sur la formation et la distribution des richesses, which was published three years later. Doubtless the two men discussed the leading doctrines subsequently incorporated in their respective works.

Smith owed his great opportunities in Paris partly to Hume, who was very popular there and who was in Paris long enough after Smith’s arrival to introduce him to the people of influence and importance. Smith’s Theory of Moral Sentiments, published in 1759, was also well and favorably known in Paris, having been read in the original by a good many distinguished people and having been made accessible to all through a French translation. His contact here With such men as Diderot, Marmontel, Raynol, Galiani, Morellet, Helve-tius, D’Alembert, Grimm, Condillac, and Necker, not to mention many famous women, could not have been without great influence in broadening his horizon and stimulating his thought.

B. Evolution of “The Wealth of Nations”

The beginnings of The Wealth of Nations may be traced back to the instruction which Smith received from Hutcheson at Glasgow. The lectures to which he listened were probably organized under the heads “Elements of Ethics,” “Elements of the Law of Nature,” and “Principles of Economics and Politics.” At any rate, a little volume published by Hutcheson in Latin in 1745 was thus organized. When Smith became professor of moral philosophy at Glasgow, he was doubtless influenced in the organization of his own lectures by the plan of his old teacher and predecessor in the chair. Dugald Stewart, one of Smith’s biographers, says that he learned from a student that Smith’s lectures were organized under the heads “Natural Theology,” “Ethics,” “Jurisprudence,” and “Political Regulations Founded upon Expediency and Calculated to Increase the Riches, the Power and the Prosperity of the State.” The student’s notes published by Cannan were headed “Lectures on Justice, Police, Revenue, and Arms,” and doubtless covered the third and fourth parts of this course.

Smith’s book entitled Theory of Moral Sentiments and published in 1759 was doubtless an outgrowth of the second part, and The Wealth of Nations of the fourth. This latter part was doubtless suggested by his old master’s lectures on “Principles of Economics and Politics.” A comparison of the student’s notes published by Mr. Cannan with Hutcheson’s little book above mentioned indicates that Smith built his course on Hutcheson’s, expanding and modifying it, however, to such a degree that the resemblance between the two is confined to a few points only.

The evolution of The Wealth of Nations from Smith’s lectures may be assumed from the concluding paragraph of his Theory of Moral Sentiments, in which he promised later to discuss such subjects as “the general principles of law and government, and of the different revolutions that they have undergone in the different ages and periods of society, not only in what concerns justice, but in what concerns policy, revenue, and arms, and whatever else is the object of law”; and from the preface to the sixth edition of this book, in which he notes that The Wealth of Nations was at least a partial fulfilment of that promise.

The ten years succeeding his return from France were spent in the studies incident to and the composition of The Wealth of Nations. The first six months of this period were spent in London, where he had access to the British Museum and where he conferred with members of the cabinet and many other persons in possession of the information he desired. He then spent seven years in study and writing at his old home at Kirkcaldy, where he had access to the libraries of Edinburgh. By 1773 he had a manuscript completed, and in the spring of that year he went to London again to give it the finishing touches and to provide for its publication. Evidently he found much more to do than he anticipated, for the finishing touches occupied three years.

From the foregoing it is obvious that The Wealth of Nations was the product of the better part of Adam Smith’s life. From at least 1752 to 1776 he was thinking, studying, lecturing, and working on the subject. His character, intellect, and leisure formed a rare combination. Few books have been written on any subject under similarly favorable conditions. It ought to have been a great book, and that it is one of the world’s great books is the verdict of history.

Footnotes

1 See John Rae, Life of Adam Smith (London: Macmillan & Co., Ltd., 1895).

2 Rae, op. cit., pp. 11-15.

3 Ingram, A History of Political Economy, pp. 81-84.

4 Quoted by Rae, op. cit., pp. 178, 179.

• 1Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 2Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 3The industrial organization of the towns was also gradually weakened by conflicts of interest between townsmen themselves and the oppression of the weaker trades by the stronger, and by the growth of domestic industries. Increasing interference of the central government in town affairs was invited by these conditions, and the power of resistance to it was weakened. The growth of a merchant class in London and some of the other large towns also contributed to the same result. The interests of this class extended beyond the boundaries of the town in which they lived and were promoted by the breaking-down of local trade barriers. The power of this class grew rapidly in and after the sixteenth century.
• 4By the seventeenth century a national commercial and industrial organization had developed, the chief organs of which were middlemen who intervened between producers and consumers and between different classes of producers. Among those of chief importance were the wool-staplers, the clothiers, the drapers, and the foreign trading companies. The wool-staplers purchased the farmers’ wool, their most important staple, and sold it to manufacturers or foreign merchants. The clothiers acted as middlemen between the carders, spinners, weavers, and other handicraftsmen engaged in transforming the wool into cloth. They purchased the wool from the staplers, delivered it to the carders and spinners, distributed the yarn among the weavers to be woven into cloth, and then placed the cloth in the hands of the “fuller,” “walker,” or “tucker” to be fulled and cleansed. The spinners, carders, weavers, and fullers were scattered throughout the hamlets and villages as well as the cities of the country, in many, perhaps most cases, doing agricultural work as a main or a side occupation. The drapers purchased the cloth and sold it to consumers or to foreign merchants; some of them were themselves connected with one of the trading companies. Foreign commerce was chiefly carried on by these latter organizations, to each of which a charter had been granted conferring the exclusive right to trade in a specified part of the world. The Eastland Company, for example, had the exclusive right to trade with Scandinavia and the Baltic region; the Russian Company, with Russia; the Merchant Adventurers, with the Netherlands; the Levant Company, with the Mediterranean region; the Guinea or African Company, with Africa; the East India Company, with the countries of Asia; and several other companies with portions of the American field. At the beginning of the seventeenth century France, Spain, and Portugal were the only countries with which trade could be carried on by an Englishman not a member of one of the companies.