By Aidan Hackett. Edited by Arjun Chandrasekar.
Prior to the industrial revolution, the economic theory of the day was “mercantilism”. This theory posited that trade was a zero sum game – that is, for me and my country to get wealthier, it was necessary that we had to steal the wealth from somewhere or someone else. This theory held true in that time seeing as the only productive thing a nation could do was grow crops. Farming was the only productive sector of the economy. Farming took land, and if my nation wanted to be richer, they needed more farmland. The rest of the economy was spent in fighting wars, preparing for wars, and splitting the spoils of the wars, all for the acquisition of more land. At the beginning of the age of exploration, some of this effort put towards fighting wars was put towards discovering new land and plundering it of its resources, as this was a new way to increase a countries wealth under mercantilism. And the adage held true – if Belgium was getting richer, it was because the Congo was getting poorer, and the same held true across the globe.
Then the agricultural revolution took place. Now, not as many people were needed for farming, so many could leave farming altogether. With all this free time, people started to produce at a scale never seen before. As production became feasible on a larger scale (production meaning being able to get something and craft it in a way such that that you could sell it for more than the component parts), mercantilism became less viable. Wars now did not have to be fought to acquire land and gain wealth – wealth could now be created. While colonialism did persist, the economic viability of it became less as the grip of productive economies on the world became greater and greater. Because of this newfound ability to create on a mass scale, a second revolution took place — the Industrial revolution.
At the beginning of the Industrial revolution, old questions came begging for new answers. “Where do I work,” “for whom should I work,” “how much money should I work for.” No one had the answers. This is where Adam Smith stepped in.
Adam Smith, often called “the father of economics” or “the father of capitalism”, was born in 1723 to a wealthy family in Scotland. His father, a legal professional, died before Smith was born, leaving his mother to raise him. Little is known about his childhood, other than the fact he received world-class education in Scotland and enrolled at the University of Glasgow at the age of 14 to study moral philosophy. Recognized as a top student, he was awarded a scholarship to Balliol College, Oxford. Smith did not enjoy his time at Oxford but he did use the Bodleian library to strengthen the depth and breadth of his philosophical knowledge.
Upon leaving Oxford, Smith took up teaching and lecturing posts for rhetoric, logic, and philosophy in Scotland at the Universities of Glasgow and Edinburgh for many years, before embarking on a speaking tour that lasted many years. Coming back from this tour, he lived out the rest of his life in high intellectual society in Scotland and England, becoming the chair of logic in 1751, and then the chair of moral philosophy in 1752, both at the University of Glasgow. He also published two books, the Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776), the latter becoming famous as the first text on economic theory.
Today, Smith is best remembered for his logical explanation as to why and how individuals who are only looking out for themselves ultimately benefit society more than altruistic individuals who actively seek to better society. He asserted that self interest in a free-market was the ultimate tool to achieve economic well-being. Because of this staunch individualism, it comes as a surprise to many that his first book (which not many bother to read), advocates on ethics and charity.
While Adam Smith is often credited with “inventing” economics, he was merely doing his job as a philosopher. When you think about it, economics is nothing more than the philosophy of work and exchange. We have fluffy mathematical models today that make it seem like an exact science, but economics is just guessing about what humans will and will not do, given a set of circumstances. Adam Smith did not answer all the questions asked by workers, not even all the questions he asked himself, and we still have not, hence the ongoing debates on free-markets versus controlled-markets, but he laid the foundations for the way that we should approach these issues in a logical fashion.
For further information, we highly recommend watching this video by Economics Explained. Also, get a free PDF copy of The Wealth of Nations here.