GOATOMICS: ADAM SMITH

by Research Division HIMA ESP FEB Unpad

Known as the father of economics, Adam Smith was born in Kirkcaldy, Scotland on June 19, 1723, although there are still many differences in various sources. Adam Smith attended primary school in his hometown, and at the age of four he was brought in by gypsies and then after a long chase, Adam Smith was abandoned by his captors, “He would have made, I fear, a poor gipsy,” commented the Scottish journalist John Rae (1845–1915), Smith’s principal biographer. In 1737 Smith entered the University of Glasgow as a student and then in 1751 Smith was appointed professor of logic at this University.

In 1759 Smith published his first work, The Theory of Moral Sentiments. This book has seven part in it and each part of the book has a different number of sections and chapters; Part I: Of the propriety of action.; Part II: Of merit and demerit; or of the objects of reward and punishment.; Part III: Of the foundations of our judgments concerning our own sentiments and conduct, and of the sense of duty.; Part IV: Of the effect of utility upon the sentiments of approbation.; Part V: Of the influence of custom and fashion upon the sentiments of moral approbation and disapprobation.; Part VI: Of the character of virtue.; Part VII: Of systems of moral philosophy.

The Theory of Moral Sentiments discusses humans and social habits is based on a question, what is the main source in conducting social and personal assessments, where these assessments seem beyond one’s own abilities. In the process of writing the book The Theory of Moral Sentiments, Smith was assisted by Francis Hutcheson to provide a psychological perspective. In explaining morals, Hutcheson hypothesized that morality in humans is due to the existence of a “sixth sense.” In answering this question, Smith raised the concept of impartial spectator, in which he revealed that humans have an aspect of lust and simultaneously this desire is limited by the ability to think and human empathy. These differences in human abilities can be used as a basis for observations in interactions between individuals to produce rational actions which then lead to mutual welfare. In-depth observations on this concept are continued in the book The Wealth of Nations, “those who seek wealth led by an invisible hand… without knowing it, without intending it, [to] advance the interest of the society. “

The following is an excerpt from The Theory of Moral Sentiments in Part I, Section I, Chapter III: Of the manner in which we judge of the propriety or impropriety of the affections of other men by their concord or dissonance with our own.

“Utopian” or Ideal Political Systems: “The man of system. . . is apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder. “

In 1776, Adam Smith published the next work which became the basis of classical economic thought, namely An Inquiry into the Nature and Causes of the Wealth of Nations or briefly called The Wealth of Nation, where in this book Smith discusses how a country can achieve prosperity, including topics on labor, productivity and markets. This book is divided into two volumes, where the first volume includes books I-III and the second volume includes IV-V.

In the book I Smith discusses The Causes of Improvement in the productive Powers of Labor reviewing the division of labor divisions formed as a result of the desire for mutual benefit, this division causes an increase in production on other factors, but this division is limited by how wide the market is available. In addition, this first book also discusses how the dynamics of determining labor wages between workers and business owners, then also explains the profit indicators of a share from the existing interest rate.

Book II discusses The Nature, Accumulation, and Employment of Stock, which includes the division of stock, Money Considered as a particular Branch of the General Stock of the Society, the Accumulation of Capital, or of Productive and Unproductive Labor, Stock Lent at Interest, and different employment of Capital. The following is an excerpt from book II.

“A capital may be employed in four different ways; either, first, in procuring the rude produce annually required for the use and consumption of the society; or, secondly, in manufacturing and preparing that rude produce for immediate use and consumption; or, thirdly in transporting either the rude or manufactured produce from the places where they abound to those where they are wanted; or, lastly, in dividing particular portions of either into such small parcels as suit the occasional demands of those who want them. “

In book III, Smith explains the different Progress of Opulence in different Nations, which includes how economic growth works in the long run, then gives the view that Agricultural work is a more desirable situation than industrial work because the owner is in complete control, then discusses the issue of the Discouragement of Agriculture, and How the Commerce of the Towns Contributed to the Improvement of the Country; Smith often harshly criticized those who act purely out of self-interest and greed, and warns that,

“… all for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.” (Book III, Chapter 4)

In book IV which discusses the political economy system, Smith gives attacks to two major tenets of mercantilism:

  1. The idea that protectionist tariffs serve the economic interests of a nation (or indeed any purpose whatsoever) and
  2. The idea that large reserves of gold bullion or other precious metals are necessary for a country’s economic success. This critique of mercantilism was later used by David Ricardo when he laid out his Theory of Comparative Advantage.

Smith’s argument about the international political economy opposed the idea of Mercantilism. While the Mercantile System encouraged each country to hoard gold, while trying to grasp hegemony, Smith argued that free trade eventually makes all actors better off. This argument is the modern ‘Free Trade’ argument.

Book V discusses the Revenue of the Sovereign or Commonwealth, Smith then goes on to say that even if money was set aside from future revenues to pay for the debts of war, it seldom actually gets used to pay down the debt. Politicians are inclined to spend the money on some other scheme that will win the favour of their constituents. Hence, interest payments rise and war debts continue to grow larger, well beyond the end of the war. Smith postulated four “maxims” of taxation: proportionality, transparency, convenience, and efficiency. Some economists interpret Smith’s opposition to taxes on transfers of money, such as the Stamp Act, as opposition to capital gains taxes, which did not exist in the 18th century.

Of the various existing works, unfortunately because the tradition at that time prefers to destroy the relics of famous people. “I am a beau in nothing but my books,” Smith once told a friend to whom he was showing his library of some 3,000 volumes. Likewise, Smith’s file is not found much and there is also no record of his personal life, and much of Smith’s work may be unfinished but must be destroyed.

REFERENCES

O’Rourke, P. J. (2007). On The Wealth of Nations. New York Times. 18 October 2018.

Sutherland, Kathryn. (2008). Note on the Text An Inquiry into the Nature and Causes of the Wealth of Nations: A Selected Edition. By Smith, Adam. Oxford University Press. p. 31. ISBN 978-0191504280.

See Smith, Adam. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations1 (1 ed.). London: W. Strahan. Retrieved 7 December2012., volume 2 via Google Books.

Robert L. Heilbroner. (2020). Adam Smith – Scottish philosopher. Retrived 10 April 2021. Britannica.com.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s