Sarah Mae H.

Cayabyab BSBA 1
ADAM SMITH
Adam Smith was an economist and philosopher who wrote what is considered the "bible of
capitalism," The Wealth of Nations, in which he details the first system of political economy.
Early Years
While his exact date of birth isnt known, Adam Smiths baptism was recorded on June 5,
1723, in Kirkcaldy, Scotland. He attended the Burgh School, where he studied Latin, mathematics,
history and writing. Smith entered the University of Glasgow when he was 14 and in 1740 went to
Oxford.
Professional Life
In 1748, Adam Smith began giving a series of public lectures at the University of Edinburgh.
Through these lectures, in 1750 he met and became lifelong friends with Scottish philosopher and
economist David Hume. This relationship led to Smith's appointment to the Glasgow University
faculty in 1751.
In 1759 Smith published The Theory of Moral Sentiments, a book whose main contention is that
human morality depends on sympathy between the individual and other members of society. On
the heels of the book, he became the tutor of the future Duke of Buccleuch (17631766) and
traveled with him to France, where Smith met with other eminent thinkers of his day, such as
Benjamin Franklin and French economist Turgot.
After toiling for nine years, in 1776 Smith published An Inquiry into the Nature and Causes of the
Wealth of Nations (usually shortened to The Wealth of Nations), which is thought of as the first
work dedicated to the study of political economy. Economics of the time were dominated by the
idea that a countrys wealth was best measured by its store of gold and silver. Smith proposed
that a nations wealth should be judged not by this metric but by the total of its production and
commercetoday known as gross domestic product (GDP). He also explored theories of the
division of labor, an idea dating back to Plato, through which specialization would lead to a
qualitative increase in productivity.
Smiths ideas are a reflection on economics in light of the beginning of the Industrial
Revolution, and he states that free-market economies (i.e., capitalist ones) are the most productive
and beneficial to their societies. He goes on to argue for an economic system based on individual
self-interest led by an invisible hand, which would achieve the greatest good for all.
In time, The Wealth of Nations won Smith a far-reaching reputation, and the work, considered a
foundational work of classical economics, is one of the most influential books ever written.
In 1787, Smith was named rector of the University of Glasgow, and he died just three years later,

at the age of 67.

The Wealth of Nations

by Adam Smith
Smith's seminal work, The Wealth of Nations, aims to create a new understanding of economics.
Smith writes largely against the mercantile system that existed at the time of writing, but, along
the way, gives a complicated but brilliant account of an economic system based in human nature
and deeply rooted social dynamics. The text is characterized by fact-heavy digressions, tables, and
appendices that blend hard research with broad generalities, demonstrating his commitment to
give evidence for what seem like timeless observations about the nature of economics.
Books I and II focus on developing the idea of the division of labor, and describing how this
division adds to the opulence of a given society by creating enormous surpluses, which can be
exchanged among members. The division of labor also fuels technological innovation, by giving
intense focus to certain tasks, and allowing workers to brainstorm ways to make these tasks more
efficient. This, again, adds to efficiency and grows surpluses. Surpluses, Smith writes, may be
either traded or re-invested. In the latter case, technologies are likely to improve, leading to even
greater efficiencies.
Book III considers Great Britain in the context of the the social evolution of society in general,
which begins, according to Smith, with hunting and gathering societies and progresses through
agricultural stages to arrive at a state of international commerce. According to Smith, the fall of
Rome and the rise of feudalism retarded this progression by creating a system of decreased
efficiency.
Book IV goes on to criticize the mercantile commerce that characterized much of Smith's
Europe. Smith's first major criticism of mercantilism is that it conflates value and wealth with
precious metals. According to Smith, the real measure of the wealth of a nation is the stream of
goods and services that the nation creates. In making this point, Smith invents the idea of gross
domestic product, which has become central to modern economics. The wealth of a nation is
increased not by hoarding metals, but by increasing the productive capacity by expanding the
marketby increasing trade.
An important theme that persists throughout the work is the idea that the economic system is
automatic, and, when left with substantial freedom, able to regulate itself. This is often referred to
as the invisible hand. The ability to self-regulate and to ensure maximum efficiency, however,
is threatened by monopolies, tax preferences, lobbying groups, and other privileges extended
to certain members of the economy at the expense of others.
Finally, in the last book of The Wealth of Nations, Smith describes what he considers to be the
appropriate roles of government, namely defense, justice, the creation and maintenance of public
works that contribute to commerce, education, the maintenance of the dignity of the

sovereign,activities that are to be financed by fair and clear taxation.