Transcript Adam Smith “The Father of Modern Economics & Founder of

Adam Smith
CIA 4U
Analyzing Current
Economic Issues
“The Father of Modern
Economics & Founder
of Capitalism”
Overview
Biography
Economic Times
Ideas that Advanced Economic
Thought
Biography
Born: ?
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Exact date is
unknown, but was
baptized on June 5,
1723 .
Place of Birth:
Kirkcaldy, Fife,
Scotland.
Biography
Family
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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
Biography
University
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Age of 14, proceeded to University of
Glasgow
Studied ‘Moral Philosophy’
concepts such as right, wrong,
good, evil, and responsibility
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Developed strong passion for
liberty, reason, and free speech
 Influenced heavily by Francis
Hutcheson (famous philosopher)
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Biography
1740 -1746
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Attended Balliol College, Oxford upon
winning a scholarship.
“Gave little if any help towards his
lifework”
Biography
1748
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Began delivering public lectures in Edinburgh
Influenced by Henry Home (Lord Kames)
Biography
Edinburgh
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Lectures dealt primarily with rhetoric or
‘belles-lettres’
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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”
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Progress of being wealthy, rich, or affluent
Biography
Edinburgh
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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’)
Biography
1750
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Met David Hume, who became one
of his closest friends
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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.”
Biography
1750
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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."
Biography
1750
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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
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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.
Biography
1751-1752
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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”
Biography
1759
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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
Biography
1759-1763
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Began to give more
attention to
jurisprudence and
economics, and
less to theories of
morals
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
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Biography
1764
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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.
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Biography
1766-1776
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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’
Biography
1778
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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
Biography
1790
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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.
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.
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The Times
Mercantilism
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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
The Times
Mercantilism
Each of the society’s class felt
increasingly handcuffed by government
regulations and taxes.
 Negative effect on:
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Trade; and
 Prices
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The Times
Laissez-Faire
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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
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Too much interference from government that
had a long history was now being rejected.
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
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The Times
Enclosure
Movement
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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’
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
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Ideas that Advanced Economic
Thought
Self Interest
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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)
Ideas that Advanced
Economic Thought
Ongoing Progress & Prosperity
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Division of Labour
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Law of Accumulation
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specialization of workers in a complex and
mechanized production process.
accumulated profits invested in additional capital
goods increase total production and efficiency as a
whole.
Law of Population
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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.