Barack Obama’s favourite economist marks tercentenary

Adam Smith’s ideas and terminology pepper parliamentary debates and party manifestos centuries after they were written down.

However, the so-called “Father of Economics” is as misunderstood as he is revered says Dr Craig Smith, Adam Smith Senior Lecturer in the Scottish Enlightenment at the University of Glasgow.

Usually, he says, by those who haven’t actually read his groundbreaking treatise.

“It happens to these figures who become world figures,” says Dr Smith.

“Everyone thinks they know what he thinks and they don’t because they have never read it [The Wealth of Nations].

“There is an image of Adam Smith that exists in the world as a symbol for certain ideas just as there is an image of Karl Marx that exists for certain ideas and that caricature does have a divisive effect. 

“Some people will not look at him, read him or consider him because they think he is this evil proponent of selfishness and capitalism and defender of corporations.

“And the problem with that is when you read him, he is not those things.”

Next year will mark the tercentenary of Smith’s birth in Kirkcaldy, Fife on June 1723.

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His illustrious career began when he enrolled at the University of Glasgow aged 14, which Dr Smith says was not that usual at that time.

What was unusual about him, he says, was that he was extremely gifted, so much so that he went straight into second year.

In 1740, Smith left to study at Oxford University but 11 years later he returned to his alma mater as a Professor of Logic, later becoming Professor of Moral Philosophy. 

While at Glasgow, he published the first edition of The Theory of Moral Sentiments in 1759, which was considered a scientific breakthrough and provided the philosophical and economic foundation for his later works, including The Wealth of Nations,

In it, Smith argues that moral ideas and actions are a product of our very nature as social creatures and that this social psychology is a better guide to moral action than reason.

As individuals, we have a natural tendency to look after ourselves. And yet as social creatures, explains Smith, we are also endowed with a natural sympathy – today we would say empathy – towards others.

“He is one of the first people to do I suppose what we would call social science and to apply that more widely than economics,” says Dr Smith.

“If you are looking at his contribution to an academic discipline, it’s probably economics where he has made the most impact because he produces the first systematic account of a modern commercial economy and comes up with all the terminology and concepts that still get used today.

“However his contribution is so much more.”

One of his most famous quotes is: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

The central thesis of Smith’s The Wealth of Nations is that our individual need to fulfill self-interest benefits society. He called the force behind this fulfilment the invisible hand.

Self-interest and the division of labour in an economy, he wrote, result in mutual interdependencies that promote stability and prosperity through the market mechanism.

He rejected government interference in market activities and believed that a government’s three functions should be to protect national borders, enforce civil law, and engage in public works such as education.

“Scholars have spent the last 50 years trying to get this across to people that there is more to Smith than the bits of Smith that are associated with this caricature,” says the academic.

“If you look in The Wealth of Nations itself you find a far more expansive role for the state than people would expect there to be.

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“You find Smith advocating for state intervention in the provision of education, in the provision of public works and goods. 

“You find him having his own theory of taxation and how the aims of taxation should be organised.

“In all of those kinds of things, Smith has a more sophisticated notion of the role of the government and in particular he focuses on the impact on the working poor.

“The justification which he gives right at the start for markets and for commercial society is that it improves the living standards of the poorest.

“In effect, that’s the justification for allowing people to pursue their own self interests - it unintentionally helps the poorest.”

While he is primarily associated with economics Dr Smith says there has been growing interest in his approach to morality.

Barack Obama has referenced Smith’s Theory of Moral Sentiments in which he discusses the ability of human beings to empathise with people who were very different from themselves.

“More and more people in recent years have become interested in his accounts of how we become moral creatures and looking at him as someone who made genuine contributions to what we would now call moral psychology.

“So explaining how human beings become the kinds of creatures that have beliefs about right and wrong."

When The Wealth of Nations was published, Frederick North was the Tory Prime Minister, widely regarded as a failure due to his association with Britain's catastrophic defeat in the American War of Independence (1775 to 1783).

What would Smith have made of today's Conservative Government?

“It’s always difficult to consider what a historical figure would do, says Dr Smith.

“But in the case of Smith there are some revealing clues.”

He definitely does not think Smith would not have approved of former chancellor Kwasi Kwarteng’s disastrous plan to borrow to fund £45bn of tax cuts for the rich while Covid furlough payments would have been a step too far in state intervention.

“He has quite a simple view in terms of how governments should behave and it basically parallels what people should do,” says Dr Smith.

“Don’t live beyond your means and always make sure you can organise your efforts in such a way that you get the best returns on them. 

“He is someone who favours prudent and careful management of individuals but also for the state.

"Someone seen as being reckless or being radical, he would be suspicious of it.

“He didn’t talk about pandemics obviously but he talked about roles which the government would have in ensuring various kinds of regulations for how people lived together.

“That I think he saw as a legitimate role for government.

“Whether he could have agreed with the government paying peoples’ wages for two years, I think that would have been too radical for him.”

Dr Smith says many people are surprised when they discover Adam Smith was the commissioner of customs in Edinburgh.

“I think that because he has this reputation as being pro free market, they find that very odd.

“His father was the commissioner in Kircaldy so he is following a family tradition. I think he thought it was a way for him to be useful - to do some public service.

“There’s another thing that get missed, again because people don’t really read what he says and that is, he really doesn’t like corporations.

“Our modern economy is typified by large multinational corporations and Smith doesn’t like them.

“He thinks they are dangerous because they can lobby and manipulate governments.

“So he attacks the East India Company which was the biggest corporation in Britain at the time.

“He attacks colonialism, he attacks the Empire.

“He’s a critic of that. He thinks that within those corporations you create an incentive that leads to mismanagement.

“Where they are working for someone else and investing in other peoples’ capital is one which creates incentives which are bound to be less effective for Smith.

“I think that whole section surprises people who go to the effort of reading it and thought he was this guy who supported big corporations and corporate power.

“And that’s not true, the hero of The Wealth of Nations is the prudent  small-scale entrepreneur who lives within his own means."

He said the long list of high-profile political figures who cite him as an influence was not that surprising because "you can probably find something that matches with any part of anyone’s political agenda.

“You can find somebody who stresses the free market part and someone who stressed the prudent use of taxation in government funds that Gordon Brown would talk about.”

The University of Glasgow is marking the 300th anniversary of the birth of one of its most famous graduates with a year-long celebration of his life, work and influence.

A host of events are planned across Scotland and around the world to inspire renewed discussion about Smith’s ideas and consider who they can help answer some of the biggest challenges we face today.

The programme includes talks by scholars from the  London School of Economics, the universities of Princeton and Harvard and the University of Cambridge and a new exhibition of significant and rare Smith-related artifacts – including letters, first edition books and material from the University of Glasgow’s archives.

Professor Sir Anton Muscatelli, Principal and Vice Chancellor, University of Glasgow, said: “Adam Smith is one of our most famous alumni and he left an indelible impact on the University of Glasgow, on the fields of economics and moral philosophy, and on the wider world. 

“His studies and writings introduced new ideas, insights and concepts that shaped our understanding of economics today but were revolutionary in their day.”