Economist Adam Smith Quotes

Thanks to economists, all of us, from the days of Adam Smith and before right down to the present, tariffs are perhaps one tenth of one percent lower than they otherwise would have been. … And because of our efforts, we have earned our salaries ten-thousand fold.

When Adam Smith, extolling the power of the market, noted that, ‘it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner’, he forgot to mention the benevolence of his mother, Margaret Douglas, who had raised her boy alone from birth. Smith never married so had no wife to rely upon (nor children of his own to raise). At the age of 43, as he began to write his opus, The Wealth of Nations, he moved back in with his cherished old mum, from whom he could expect his dinner every day. But her role in it all never got a mention in his economic theory, and it subsequently remained invisible for centuries.

In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. In

The Americans, the Scottish economist Adam Smith warned, “feel in themselves at this moment a degree of importance which, perhaps, the greatest subjects in Europe scarce feel.… [They] are employed in contriving a new form of government for an extensive empire, which, they flatter themselves will become, and which indeed seems very likely to become, one of the greatest and most formidable that ever was in the world.

Adam Smith FRSE (baptised June 5, 1723 O.S. / June 16 N.S. – July 17, 1790) was a Scottish moral philosopher and a pioneering political economist. He is also the founder of economics. One of the key figures of the intellectual movement known as the Scottish Enlightenment, he is known primarily as the author of two treatises: The Theory of Moral Sentiments (1759), and An Inquiry into the Nature and Causes of the Wealth of Nations (1776). The latter was one of the earliest attempts to systematically study the historical development of industry and commerce in Europe, as well as a sustained attack on the doctrines of mercantilism. Smith's work helped to create the modern academic discipline of economics and provided one of the best-known intellectual rationales for free trade, capitalism, and libertarianism. Adam Smith is now depicted on the back of the Bank of England £20 note. Source: Wikipedia

Hutton luxuriated in its enriching possibilities. He became a leading member of a society called the Oyster Club, where he passed his evenings in the company of men such as the economist Adam Smith, the chemist Joseph Black, and the philosopher David Hume, as well as such occasional visiting sparks as Benjamin Franklin and James Watt.

Central planning was just not good at replacing what the great eighteenth-century economist Adam Smith called the “invisible hand” of the market. When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from ceilings.

In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. In the eighth chapter of its first volume, Smith made the following novel argument: when a landlord, a weaver, or a shoemaker has greater profits than he needs to maintain his own family, he uses the surplus to employ more assistants, in order to further increase his profits. The more profits he has, the more assistants he can employ. It follows that an increase in the profits of private

(...) his (Adam Smith's) theory of sympathy rejected self-love as the basic motive for behaviour. He also defined virtue as consisting of three elements: propriety, prudence and benevolence. By this he meant propriety or the appropriate control and directing of our affections; prudence or the judicious pursuit of our private interests; and benevolence or the exercise of only those affections that encourage the happiness of others. How poor Adam Smith got stuck with disciples like the market economists and the neo-conservatives is hard to imagine. He is in profound disagreement with their view of society. (V - From Ideology Towards Equilibrium)

The belief in the growing global pie eventually turned revolutionary. In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. In the eighth chapter of the first volume, Smith raised the following novel argument: When a landlord, a weaver, or a shoemaker has greater profits than what he judges sufficient to maintain his own family, he uses the surplus to employ more assistants, in order to further increase his profits. The more profits he has, the more assistants he will employ. It follows that an increase in the profits of private entrepreneurs is the basis for the increase in collective wealth and prosperity.

Behavioural economics is an odd term. As Warren Buffett’s business partner Charlie Munger once said, ‘If economics isn’t behavioural, I don’t know what the hell is.’ It’s true: in a more sensible world, economics would be a subdiscipline of psychology.* Adam Smith was as much a behavioural economist as an economist – The Wealth of Nations (1776) doesn’t contain a single equation. But, strange though it may seem, the study of economics has long been detached from how people behave in the real world, preferring to concern itself with a parallel universe in which people behave as economists think they should. It is to correct this circular logic that behavioural economics – made famous by experts such as Daniel Kahneman, Amos Tversky, Dan Ariely and Richard Thaler – has come to prominence. In many areas of policy and business there is much more value to be found in understanding how people behave in reality than how they should behave in theory.

As the brilliant economist-educator Russell Roberts points out, chroniclers of the cult of celebrity have an extensive pedigree. Writing in The Theory of Moral Sentiments in 1759, Adam Smith points out, 'We frequently see the respectful attentions of the world more strongly directed towards the rich and the great, than towards the wise and the virtuous.' This perfectly anticipates the modern day cult around Z list celebrities. He argues that a fascination with others who are loved is part of our natural desire to be loved ourselves. So a natural obsession with celebrities is funneled toward managers, regardless of their virtue.

Firms in industries with the greatest increase in concentration enjoyed higher profits. But, as Adam Smith observed, monopolies don’t serve the public good. Rather, monopolies create barriers to entry which discourage the establishment of new firms and innovation.29 Rising industry concentration was associated with higher pay for senior executives, a decline in workers’ bargaining power, and falling investment and R&D. Economists at the National Bureau of Economic Research found that while ‘low interest rates have traditionally been viewed as positive for economic growth … extremely low interest rates may lead to slower growth by increasing market concentration.

[Adam Smith] was above all an ethical thinker. He wrote the two books, The Theory of Moral Sentiments (1759, finishing the much-amended sixth edition just before he died, in 1790) and An Inquiry into the Nature and Causes of the Wealth of Nations (1776, with its own sixth edition, slightly amended, appearing in 1791). Such a meager output would make him a borderline case for tenure nowadays in many universities, and a sure-fire no in most departments of economics. “Good Lord,” the economists would say after a hurried look at his academic credentials, “he didn’t publish any articles in the American Economic Review reporting statistical tests or field experiments or mathematical proofs of existence!

The problem is there’s no evidence that it ever happened, and an enormous amount of evidence suggesting that it did not. For centuries now, explorers have been trying to find this fabled land of barter—none with success. Adam Smith set his story in aboriginal North America (others preferred Africa or the Pacific). In Smith’s defense, at least it could be said that in his time, reliable information on Native American economic systems was unavailable in Scottish libraries. His successors have no excuse. By mid-century, Lewis Henry Morgan’s descriptions of the Six Nations of the Iroquois, among others, were widely published—and they made clear that the main economic institution among the Iroquois nations were longhouses where most goods were stockpiled and then allocated by women’s councils, and no one ever traded arrowheads for slabs of meat. Economists simply ignored this information.15 Stanley Jevons, for example, who in 1871 wrote what has come to be considered the classic book on the origins of money, took his examples straight from Smith, with Indians swapping venison for elk and beaver hides, and made no use of actual descriptions of Indian life that made it clear that Smith had simply made this up.

I think that's quite true. and in fact the people who understand this the best are those who are carrying out the control and domination in the more free societies. like the U.S. and England, where popular struggles have have won a lot of freedoms over the years and the state has limited capacity to coerce. It is very striking that it's precisely in those societies that elite groups—the business world, state managers and so on—recognized early on that they are going to have to develop massive methods of control of attitude and opinion, because you cannot control people by force anymore and therefore you have to modify their consciousness so that they don't perceive that they are living under conditions of alienation, oppression, subordination and so on. In fact, that's what probably a couple trillion dollars are spent on each year in the U.S., very self-consciously, from the framing of television advertisements for two-year olds to what you are taught in graduate school economics programs. It's designed to create a consciousness of subordination and it's also intended specifically and pretty consciously to suppress normal human emotions. Normal human emotions are sympathy and solidarity, not just for people but for stranded dolphins. It's just a normal reaction for people. If you go back to the classical political economists, people like Adam Smith, this was just taken for granted as the core of human nature and society. One of the main concentrations of advertising and education is to drive that out of your mind. And it's very conscious. In fact, it's conscious in social policy right in front of our eyes today. Take the effort to destroy Social Security. Well, what's the point of that? There's a lot of scam about financial problems, which is all total nonsense. And, of course, they want Wall Street to make a killing. Underlying it all is something much deeper. Social Security is based on a human emotion and it's a natural human emotion which has to be driven out of people minds, namely the emotion that you care about other people. You care. It's a social and community responsibility to care whether a disabled widow across town has enough food to eat, or whether a kid across the street can go to school. You have to get that out of people's heads. You have to make them say, "Look, you are a personal, rational wealth maximizer. If that disabled widow didn't prepare for her own future, it's her problem not your problem. It's not your fault she doesn't have enough to eat so why should you care?

gave up on the idea of creating “socialist men and women” who would work without monetary incentives. In a famous speech he criticized “equality mongering,” and thereafter not only did different jobs get paid different wages but also a bonus system was introduced. It is instructive to understand how this worked. Typically a firm under central planning had to meet an output target set under the plan, though such plans were often renegotiated and changed. From the 1930s, workers were paid bonuses if the output levels were attained. These could be quite high—for instance, as much as 37 percent of the wage for management or senior engineers. But paying such bonuses created all sorts of disincentives to technological change. For one thing, innovation, which took resources away from current production, risked the output targets not being met and the bonuses not being paid. For another, output targets were usually based on previous production levels. This created a huge incentive never to expand output, since this only meant having to produce more in the future, since future targets would be “ratcheted up.” Underachievement was always the best way to meet targets and get the bonus. The fact that bonuses were paid monthly also kept everyone focused on the present, while innovation is about making sacrifices today in order to have more tomorrow. Even when bonuses and incentives were effective in changing behavior, they often created other problems. Central planning was just not good at replacing what the great eighteenth-century economist Adam Smith called the “invisible hand” of the market. When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from ceilings. By the 1940s, the leaders of the Soviet Union, even if not their admirers in the West, were well aware of these perverse incentives. The Soviet leaders acted as if they were due to technical problems, which could be fixed. For example, they moved away from paying bonuses based on output targets to allowing firms to set aside portions of profits to pay bonuses. But a “profit motive” was no more encouraging to innovation than one based on output targets. The system of prices used to calculate profits was almost completely unconnected to the value of new innovations or technology. Unlike in a market economy, prices in the Soviet Union were set by the government, and thus bore little relation to value. To more specifically create incentives for innovation, the Soviet Union introduced explicit innovation bonuses in 1946. As early as 1918, the principle had been recognized that an innovator should receive monetary rewards for his innovation, but the rewards set were small and unrelated to the value of the new technology. This changed only in 1956, when it was stipulated that the bonus should be proportional to the productivity of the innovation. However, since productivity was calculated in terms of economic benefits measured using the existing system of prices, this was again not much of an incentive to innovate. One could fill many pages with examples of the perverse incentives these schemes generated. For example, because the size of the innovation bonus fund was limited by the wage bill of a firm, this immediately reduced the incentive to produce or adopt any innovation that might have economized on labor.

If morality represents the way we would like the world to work and economics represents how it actually does work, then the story of Feldman’s bagel business lies at the very intersection of morality and economics. Yes, a lot of people steal from him, but the vast majority, even though no one is watching over them, do not. This outcome may surprise some people — including Feldman’s economist friends, who counseled him twenty years ago that his honor-system scheme would never work. But it would not have surprised Adam Smith. In fact, the theme of Smith’s first book, The Theory of Moral Sentiments, was the innate honesty of mankind. “How selfish soever man may be supposed,” Smith wrote, “there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.” There is a tale, “The Ring of Gyges,” that Feldman sometimes tells his economist friends. It comes from Plato’s Republic. A student named Glaucon offered the story in response to a lesson by Socrates — who, like Adam Smith, argued that people are generally good even without enforcement. Glaucon, like Feldman’s economist friends, disagreed. He told of a shepherd named Gyges who stumbled upon a secret cavern with a corpse inside that wore a ring. When Gyges put on the ring, he found that it made him invisible. With no one able to monitor his behavior, Gyges proceeded to do woeful things—seduce the queen, murder the king, and so on. Glaucon’s story posed a moral question: could any man resist the temptation of evil if he knew his acts could not be witnessed? Glaucon seemed to think the answer was no. But Paul Feldman sides with Socrates and Adam Smith — for he knows that the answer, at least 87 percent of the time, is yes.

Economics today creates appetites instead of solutions. The western world swells with obesity while others starve. The rich wander about like gods in their own nightmares. Or go skiing in the desert. You don’t even have to be particularly rich to do that. Those who once were starving now have access to chips, Coca-Cola, trans fats and refined sugars, but they are still disenfranchized. It is said that when Mahatma Gandhi was asked what he thought about western civilization, he answered that yes, it would be a good idea. The bank man’s bonuses and the oligarch’s billions are natural phenomena. Someone has to pull away from the masses – or else we’ll all become poorer. After the crash Icelandic banks lost 100 billion dollars. The country’s GDP had only ever amounted to thirteen billion dollars in total. An island with chronic inflation, a small currency and no natural resources to speak of: fish and warm water. Its economy was a third of Luxembourg’s. Well, they should be grateful they were allowed to take part in the financial party. Just like ugly girls should be grateful. Enjoy, swallow and don’t complain when it’s over. Economists can pull the same explanations from their hats every time. Dream worlds of total social exclusion and endless consumerism grow where they can be left in peace, at a safe distance from the poverty and environmental destruction they spread around themselves. Alternative universes for privileged human life forms. The stock market rises and the stock market falls. Countries devalue and currencies ripple. The market’s movements are monitored minute by minute. Some people always walk in threadbare shoes. And you arrange your preferences to avoid meeting them. It’s no longer possible to see further into the future than one desire at a time. History has ended and individual freedom has taken over. There is no alternative.

Glaucon’s story posed a moral question: could any man resist the temptation of evil if he knew his acts could not be witnessed? Glaucon seemed to think the answer was no. But Paul Feldman sides with Socrates and Adam Smith—for he knows that the answer, at least 87 percent of the time, is yes.

John Law’s role in resolving the Water Diamond Paradox has been largely forgotten. The name now associated with it is another Scottish economist, Adam Smith. Writing over seventy years after the publication of 'Money and Trade Considered', Smith’s celebrated restatement of the paradox of value, in 'An Inquiry into the Nature and Causes of the Wealth of Nations' is astonishing not for its originality, but for its similarity with John Law’s resolution decades before.

Even when bonuses and incentives were effective in changing behavior, they often created other problems. Central planning was just not good at replacing what the great eighteenth-century economist Adam Smith called the “invisible hand” of the market. When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from ceilings.

The logic of the market is excellent when deciding which sort of lipstick should be produced, for whom it should be produced, in which colours it should be produced and what it should cost. But American satirist H. L. Mencken’s observation that on noticing that roses smell better than cabbage, you can’t conclude that they will make better soup can also be applied to the logic of the market. Just because it works well in some areas doesn’t mean it should be applied to all areas. Unfortunately, applying the logic of the market to everything has largely become the project of economists in recent decades. What we call economic theory is the formal version of the dominant world view in our society. The greatest story of our time: who we are, why we are here and the reason we do what we do.

it’s claimed that they can tell us most things about life. This trend isn’t just found in popular science books. At universities, economists analyse ever greater parts of existence as if it were a market. From suicide (the value of a life can be calculated like the value of a company, and now it’s time to shut the doors) to faked orgasms (he doesn’t have to study how her eyes roll back, her mouth opens, her neck reddens and her back arches – he can calculate whether she really means it). The question is what Keynes would think about an American economist like David Galenson. Galenson has developed a statistical method to calculate which works of art are meaningful. If you ask him what the most renowned work of the last century is, he’ll say ‘Les Demoiselles d’Avignon’. He has calculated it. Things put into numbers immediately become certainties. Five naked female prostitutes on Carrer d’Avinyó in Barcelona. Threatening, square, disconnected bodies, two with faces like African masks. The large oil painting that Picasso completed in 1907 is, according to Galenson, the most important artwork of the twentieth century, because it appears most often as an illustration in books. That’s the measure he uses. The same type of economic analysis that explains the price of leeks or green fuel is supposed to be able to explain our experience of art.

No, the art of government was to curb and guide men’s greedy appetites into useful courses, so that, as the Scottish economist Adam Smith proposed, private vice could be public gain. Hamilton

Let’s assume that MI (the Man I) loves Ws (the Woman she) if her prosperity contributes to his utility function and perhaps also if MI values emotional and physical contact with Ws. Then, it is clear that MI can benefit from a partnership with Ws. If they were together, it would have a greater impact on her prosperity (nuzzle her neck on a whim, reach the tins on the high shelf in the kitchen and hold her tight at night). Thereby, he’d also contribute to his own gain. The goods that measure ‘contact’ with Ws could indeed be produced more cheaply in a relationship than if MI and Ws lived each on their own. Even if Ws didn’t love MI she’d benefit from being in a relationship with him. Because he loves her, her well-being is part of his utility function, and he can therefore be expected to transfer resources to her, which increases her profits, even if she doesn’t love him back. Economists describe romantic relationships like a rational calculation between two independent individuals. They do away with everything that has any bearing on the actual romantic relationship. Then they say that they have found the solution. Rational solutions for irrational problems. A chaos of specific ideas. Even our romantic relationships must conform to the cold, hard logic of the market. Both man and woman become economic man. We always have the full picture, we always keep a distance and stand a bit outside ourselves. Total control. And total security.

Economic theories don’t help us understand either what our day-to-day choices mean for the whole and for society or what they’ll mean for the future that we will leave behind us one day, no matter how much we pretend that our actions are isolated impulses in a void. Economists should help us understand who we are by creating tools and methods for organizing a society with room for the entire human experience. Together with others, as part of the whole, the only unit through which we become intelligible. Intelligible to ourselves, to others and, for that matter, even to mathematical formulas.

There is a story that George Stigler, one of the leading lights of the Chicago School of economists, gave a seminar at the University of St Andrews on Adam Smith. His opening words, "Adam Smith is alive and well, and living in Chicago," invited the heckle, "And how is the prisoner?" Given that as well as being a formidable historian of economics, Stigler was also a fabulist, the story may have got better in the telling. All the economists who have contributed to this volume have rejected the Chicago reading of Smith. Freeing Stigler's prisoner, they have shown that for Smith, it was impossible to separate economy and society. They have noted that where the Chicago reading emphasised his support for free enterprise and accepted the outcome of markets as being the best possible, Smith instead emphasised the importance of 'commercial society.

This sordid exercise has a soothing, if mystifying name: ‘dividend recapitalisation’ – though to call it that would be akin to relabelling a bank robbery as ‘asset redistribution’. The private equity firm that cost Gillian her job has practised straightforward asset-stripping, with financialisation providing the necessary smoke and mirrors. Looters, who have created no new value, have simply ransacked a pre-existing care provider. To use the language of early economists like Adam Smith, it is a classic case of feudal rent defeating capitalist profit; of wealth extraction by those who already have it triumphing over the creation of new wealth by entrepreneurs. And the key point to note is that the success of such a scheme depends on these looters being able to sell subsidiaries like PropCom at high enough prices once the original company has been destroyed.

In his 2001 book, Economics as Religion, economist Robert Nelson recounted the ways in which economics came to operate in society with its own religion-like structure. Nelson argues that modern economics has operated in many ways as a secularized version of Protestant theology in which the primary evil is economics scarcity and in which deliverance from this evil (and the attainment of heaven on earth) will come through application of economic science to promote efficiency (and fairness) in production and distribution. In this worldview, economists, as technical advisors to governmental managers, serve as a new “scientific” priesthood effecting a secular salvation of human society through the application of constructivist reason, the sort of reasoning that seeks to deliberately design choices and institutions to generate what are perceived as “optimal” outcomes. Here, then, within the very discipline to which Vernon Smith has devoted his life’s work, there seems to be a persistent tendency if not to outright materialism then to a reduction of human rationality within constructivist constraints. As Smith acknowledges, “predominantly, both economists and psychologists are reluctant to allow that naive and unsophisticated agents can achieve socially optimal ends without a comprehensive understanding of the whole, as well as their individual parts, implemented by deliberate action. There is no magic.

How valid, then, is the progressive critique that “you didn’t build that”? The pitch itself has two parts. The first is that society did it, not business; the second is that workers did most of it, not CEOs and entrepreneurs. Both these arrows strike at the same target: entrepreneurs. Consequently an exposé of the progressive pitch requires a refutation of this dual attack and also a defense of the entrepreneur, an explanation of what it is that entrepreneurs actually do. This explanation is, oddly enough, lacking. Adam Smith didn’t provide it in his Wealth of Nations, and most entrepreneurs, for reasons we will explore, don’t provide it today. One of the few writers to celebrate entrepreneurs was Ayn Rand; she unapologetically defends capitalism, the system, and also capitalists, the people! In my view, the most insightful defender of entrepreneurs was the economist Joseph Schumpeter, and we will be learning a lot from him in this chapter. Ultimately, we will see the progressive pitch for what it is, an ingenious scam aimed at depriving wealth creators of the wealth they have created. Rand calls them the “looters,” and this is basically a clinically accurate term for a group that is very much with us today.

For centuries now, explorers have been trying to find this fabled land of barter- none with success. Adam Smith set his story in aboriginal North America (others preferred Africa or the Pacific). In Smith’s time, at least it could be said that reliable information on Native American economic systems was available in Scottish libraries. But by mid-century, Lewis Henry Morgan’s descriptions of the six nations of the Iroquois, among others, were widely published- and they made clear that the main economic institution among the Iroquois nations were longhouses where most goods were stockpiled and then allocated by women’s councils, and no one ever traded arrowheads for slabs of meat. Economists simply ignored this information. Stanley Jevons, for example, who in 1871 wrote what has come to be considered the classic book on the origins of money, took his examples straight from Smith, with Indians swapping venison for elk and beaver hides, and made no use of actual descriptions of Indian life that made it clear that Smith had simply made this up. Around that same time, missionaries, adventurers, and colonial administrators were fanning out across the world, many bringing copies of Smith’s book, expecting to find the land of Barter. None ever did. They discovered and almost endless variety of economic systems. But to this day, no one has been able to locate a part of the world where the ordinary mode of economic transition between neighbours takes the form of “I’ll give you twenty chickens for that cow.

the author of the chapter in question, entitled “Of the Nature of Self-Deceit” in the original English, is known today not only as an economist, but as the founding father of modern economics. He is none other than Adam Smith, about whom the most arrant nonsense has been written for more than three hundred years. And yet at the time he composed The Theory of Moral Sentiments, in 1759, he was not yet the economist he was to become over the course of the next two decades while composing An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776. Smith started out as a moral philosopher, teaching at Glasgow, and became a foremost representative of the Scottish Enlightenment. His Theory—the womb from which, as Smith himself insisted, the Inquiry sprang—remains the most complete statement of his thinking about man and society. Wealth, he holds, attracts the envious notice of others, because they wish to be wealthy themselves; and if they desire wealth, it is so that they themselves may be noticed in their turn. The poor man suffers less from being poor than from the fact that no one pays attention to him. If,

True, earlier figures like Adam Smith and David Ricardo were suspicious of credit systems, but already by the mid–nineteenth century, economists who concerned themselves with such matters were largely in the business of trying to demonstrate that, despite appearances, the banking system really was profoundly democratic.

Later in the 1700s, the preeminent economist Adam Smith actually wrote The Wealth of Nations in a coffeehouse, after having repeatedly circulated drafts for input among the regulars there. Beyond

Economists talk about an invisible hand, in which the self-interested, short-term activities of people lead to what Adam Smith called “the wealth of nations.” Geopolitics applies the concept of the invisible hand to the behavior of nations and other international actors. The pursuit of short-term self-interest by nations and by their leaders leads, if not to the wealth of nations, then at least to predictable behavior and, therefore, the ability to forecast the shape of the future international system.

the worldviews of two scholars, Thomas Robert Malthus and Adam Smith, both of whom wrote in the late 1700s. Thomas Robert Malthus (1766–1834), English cleric and economist who wrote An Essay on the Principle of Population in 1798. Malthus argued that the growing population would overwhelm the world, leading to widespread famine. Smith argued that businessmen could adapt and innovate rapidly enough that productivity could increase faster than consumption. Where Malthus saw disaster, Smith saw opportunity. While over time there have been eruptions of famine and shortage in different parts of the world, Smith was right.

Economists have not always been so dense about self-control problems. For roughly two centuries, the economists who wrote on this topic knew their Humans. In fact, an early pioneer of what we would now call a behavioral treatment of self-control was none other than the high priest of free market economics: Adam Smith. When most people think about Adam Smith, they think of his most famous work, The Wealth of Nations

The fact that bonuses were paid monthly also kept everyone focused on the present, while innovation is about making sacrifices today in order to have more tomorrow. Even when bonuses and incentives were effective in changing behavior, they often created other problems. Central planning was just not good at replacing what the great eighteenth-century economist Adam Smith called the “invisible hand” of the market. When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from ceilings. By

In his Inquiry into the Nature and Causes of the Wealth of Nations, Bentham’s contemporary Adam Smith warned that it was a deception to believe that wealth and comfort alone would bring happiness. But this didn’t stop his followers or the governments they advised from increasingly relying on the crude measures of income when measuring human progress over the next two centuries. As long as economic numbers grew, economists insisted that life was getting better and people were getting happier. Under this peculiar analysis, our estimation of well-being is actually inflated by divorces, car crashes and wars, as long as those calamities produce new spending on goods and services.

Ultimately, the most powerful way to rebalance the interests of private owners and the common good is by shifting the focus towards taxes on wealth - that is, asking those who have accummulated substantial assets down the years (or with inherited wealth, down the centuries) to make a fairer contribution. The case is indisputable: since 2008, average earnings have hardly risen, while the amount of wealth held by the better-off has sky-rocketed. Clearly paying for shocks such as the 2008 crash or the Covid-19 pandemic should not fall solely on those dependent on their immediate income. A Land Value Tax could also play an important role: a policy that would be difficult to evade, and would tackle the vast windfall profits that come from the development of land. It's an idea that has long enjoyed support from all sides of the political spectrum, including Winston Churchill, as well as from economists as divergent as Milton Friedman, Adam Smith and J.K. Galbraith. Given its elegant simplicity and essential fairness, the fact that it has not been introduced in England is a case-book example of the landowners' ability to block reform.

Human beings have always been infatuated with gambling because it puts us head-to-head against the fates, with no holds barred. We enter this daunting battle because we are convinced that we have a powerful ally: Lady Luck will interpose herself between us and the fates (or the odds) to bring victory to our side. Adam Smith, a masterful student of human nature, defined the motivation: “The overweening conceit which the greater part of men have of their own abilities [and] their absurd presumption in their own good fortune.”1 Although Smith was keenly aware that the human propensity to take risk propelled economic progress, he feared that society would suffer when that propensity ran amuck. So he was careful to balance moral sentiments against the benefits of a free market. A hundred and sixty years later, another great English economist, John Maynard Keynes, agreed: “When the capital development of a country becomes the by-product of the activities of a casino, the job is likely to be ill-done.

The key reason the Prophet Muhammad ﷺ was able to directly influence such tolerant and compassionate societies was because affirming the Oneness of God, pleasing and worshipping Him, was the spiritual and moral basis of his life and the lives of those who loved and followed him. This provided timeless, objective moral grounding to achieve what the 18th century economist Adam Smith claimed was the first nation: “…under which the world enjoyed that degree of tranquillity which the cultivation of the sciences requires….”[549]

Gregg: I notice you did not use the word greed in that answer. When many people hear “self-interest,” they think “greed”. So are you suggesting that a Smithian approach actually has nothing to do with greed at all when it comes to self-interest properly understood? Smith: It’s not a matter of greed. It’s a matter of, as Smith says, the individual being fitter than anyone else to take care of himself or herself in terms of knowing what he or she wants and in making judgments about that. And so, knowing that other people are also self-interested, I know what action I take would be hurtful to them. And then I take that into account. In other words, being self-interested is an input to our socializing process. There are many experimental economists and behavioral economists who want to explain that with a utility function so that if I am other-regarding, it’s because I am taking into account your reward as well as mine. Adam Smith says no. Adam Smith is right. It is not in the utility function. That’s the difference between an emphasis on outcomes and process.

economist and moral philosopher Adam Smith predicted as much over two and a half centuries ago: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism,” he wrote in 1755, “but peace, easy taxes, and a tolerable administration of justice.”[2] Clearly, if I cared about prosperity, equal rights, and justice, I had to care about war.

let’s turn to the formula, talking about accumulation: M C C’ M’. M, money, C, input commodities, one cycle; M prime, more money. What happens in this process to allow M to become M prime, which is the whole point? You wouldn’t go through all of this if you ended up at the end with the same money as you started out with at the beginning. M just came out as M. The whole point is to get from M to M prime. To understand this, we have to examine this peculiar commodity of labor power. As an analysis of how more money emerges from the production process than goes in, Marx first rules out any possibilities of cheating or unfairness. In his analysis of the capitalist system, Marx is in a conversation with, and often in argumentation with, the economists, and political economists who came before them, principally the classical political economists. People like David Ricardo, Adam Smith, and a number of others. He wanted to make his analysis within their frame of rules, which presents capital in its best light. So that if in fact he shows it not to produce the advantages that they claim, he will have done it on their terms. One of the things he does is to rule out things like cheating, like buying low and selling high, which is a sort of principal character of mercantilism. The reason he rules this out is, he says, that on balance in society, this doesn’t produce any additional surplus value or wealth. It simply redistributes what value or wealth already exists. That it all averages out; if you cheat somebody, you may have gotten something, but they lost something. It’s a kind of zero-sum thing. He rules that out. Everything in the process as Marx analyzes it trades at its true value. The means of production cannot be the source of the additional value. Remember, he’s trying to figure out in his process how we get from M to M prime. One of the things that capitalists do is buy means of production. He says, those cannot be the source of additional value. The reasons are this. They either transfer part of their value to the new products, or, for example, you depreciate machinery over time. You can calculate how much of the value goes into a production in each cycle of production. Or the means of production actually end up incorporated into the new product itself, but there is no new value there. So, if you make something, if you make bread out of wheat, it becomes incorporated in the bread, but there is no new value there. It’s necessary for the capitalists to find on the market the commodity that produces more value than it itself costs. That’s the trick. This unique commodity is labor power, and is the only element in the process that produces surplus value, which is the source of profit.

The executives claim that “market forces” determine their salary. However, as Moshe Adler, in his article “Overthrowing the Overpaid,” points out, economists David Ricardo and Adam Smith, writing more than two hundred years ago, “concluded that what a person earns is determined not by what that person has produced but by that person’s bargaining power.

Adam Smith. The eighteenth-century Scottish philosopher and economist is widely accepted as the father of economics and modern capitalism. “Consumption,” he wrote in The Wealth of Nations, “is the sole end and purpose of all production and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.” He went on to explain, “The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it.” Put simply, the company’s interests should always be secondary to the interest of the consumer (ironically, a point Smith believed so “self-evident,” he felt it was absurd to try to prove it, and yet here I am writing a whole book about it).

In the long term,” wrote the English economist John Maynard Keynes, “we are all dead.” The Scottish Enlightenment learned a different lesson from the changes brought by union with England. Its greatest thinkers, such as Adam Smith and David Hume, understood that change constantly involves trade-offs, and that short-term costs are often compensated by long-term benefits. “Over time,” “on balance,” “on the whole”—these are favorite sentiments, if not expressions, of the eighteenth-century enlightened Scot. More than any other, they capture the complex nature of modern society. And the proof came with the Act of Union. Here was a treaty, a legislative act inspired not by some great political vision or careful calculation of the needs of the future, or even by patriotism. Most if not all of those who signed it were thinking about urgent and immediate circumstances; they were in fact thinking largely about themselves, often in the most venal terms. Yet this act—which in the short term destroyed an independent kingdom, created huge political uncertainties both north and south, and sent Scotland’s economy into a tailspin—turned out, in the long term, to be the making of modern Scotland Nor did Scots have to wait that long. Already by the 1720s, as the smoke and tumult of the Fifteen was clearing, there were signs of momentous changes in the economy. Grain exports more than doubled, as Scottish agriculture recovered from the horrors of the Lean Years and learned to become more commercial in its outlook. Lowland farmers would be faced now not with starvation, but with falling prices due to grain surpluses. Glasgow merchants entered the Atlantic trade with English colonies in America, which had always been closed to them before. By 1725 they were taking more than 15 percent of the tobacco trade. Inside of two decades, they would be running it. A wide range of goods, not just tobacco but also molasses, sugar, cotton, and tea, flooded into Scotland. Finished goods, particularly linen textiles and cotton products, began to flood out, despite the excise tax. William Mackintosh of Borlum saw even in 1729 that Scotland’s landed gentry were living better than they ever had, “more handsomely now in dress, table, and house furniture.” Glasgow, the first hub of Scotland’s transatlantic trade, would soon be joined by Ayr, Greenock, Paisley, Aberdeen, and Edinburgh. By the 1730s the Scottish economy had turned the corner. By 1755 the value of Scottish exports had more than doubled. And it was due almost entirely to the effect of overseas trade, “the golden ball” as Andrew Fletcher had contemptuously called it, which the Union of 1707 had opened.

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of greatest value… he generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.… He intends his own security; … he intends only his own gain and he is in this … led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest he frequently promotes that of society more effectually than when he really intends to promote it. —Adam Smith,9 18th century political economist

It is worth remembering that Adam Smith, the founder of classical economics, was first and foremost a philosopher. He strove to be a moralist and, in doing so, became an economist. When he published The Theory of Moral Sentiments in 1759, modern capitalism was just getting under way. Smith was entranced by the sweeping changes wrought by this new force, but it wasn’t just the numbers that interested him.

The difference between the earnings of a common labourer and those of a well employed lawyer or physician, is evidently much greater than that between the ordinary profits in any two different branches of trade. The apparent difference, besides, in the profits of different trades, is generally a deception arising from our not always distinguishing what ought to be considered as wages, from what ought to be considered as profit.

Today, Adam Smith is famous as the father of capitalism and an advocate of a central tenet of free market thought: that greed is supposedly good and it drives markets. This was an idea pushed by neoliberal economists, inspired by Friedrich Hayeck and Milton Friedman, who had no knowledge of the history of moral philosophy, or of Scotland. What they missed is that no gentleman of his time could ever espouse greed, least of all a professor of moral philosophy. Indeed, Adam Smith recognized greed as an economic driver, and saw it as necessary, but also realized that it was a problem for society. His work was not an espousal of greed, but rather a response to it. His work was an attempt to find a way to reign in commercial greed to support the agrarian order, which he believed to be inherently more productive than business.

A decade later, Adam Smith had a go at his own definition but followed Steuart’s lead in considering political economy to be a goal-oriented science. It had, he wrote, ‘two distinct objects: to supply a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services’.4 This definition not only defies Smith’s ill-deserved modern reputation as a free-marketeer but also keeps its eyes firmly on the prize by articulating a goal for economic thought.

Where did this infamous character come from? His most intimate early portrait was created by Adam Smith in two major works, his 1759 Theory of Moral Sentiments and his 1776 book known as The Wealth of Nations. Today Smith is best remembered for having noted the human propensity to ‘truck, barter and exchange’ and the role of self-interest in making markets work.2 But although he believed self-interest was ‘of all virtues that which is most helpful to the individual’, Smith also believed it was far from the most admirable of our traits, knocked off that top spot by our ‘humanity, justice, generosity and public spirit . . . the qualities most useful to others’. Did he consider humankind to be motivated by self-interest alone? Not at all. ‘How selfish soever man may be supposed,’ he wrote, ‘there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.’3 Furthermore, Smith believed that an individual’s self-interest and concern for others combined with their diverse talents, motivations and preferences to produce a complex moral character whose behaviour could not easily be predicted.

Adam Smith was right when he said that we love to truck, barter and exchange, but he was also right that we and our societies flourish best when we display our ‘humanity, justice, generosity and public spirit’. Rather than pick and choose just one of these many names for our new self-portrait, we should convey all of them within it. Having taken the cartoon of rational economic man down from the gallery wall, perhaps the most apt thing to do is replace it with a hologram of humanity, ever changing in the light.

The Worldly Philosophers by Robert Heilbroner. For people who want to operate on the B and I side, his book is a must-read, for it traces the greatest economists of all time, starting with Adam Smith who wrote The Wealth of Nations.

Back in Ancient Greece when Xenophon first posed the economic question ‘How should a household best manage its resources?’ he was literally thinking about a single household. Towards the end of his life he turned his attention to the next level up, the economics of the city state, and proposed a set of trade, tax and public investment policies for his home town of Athens. Jump forwards almost two thousand years to Scotland, where Adam Smith decisively raised the focus of economics to the next level up again, the nation state, asking why some nations’ economies thrived while others stagnated. Smith’s nation-state economic lens has gripped policy attention for over 250 years and is entrenched by those yearly statistical comparisons of national GDP. But now faced with a globally connected economy, it is time for this generation of thinkers to take the inevitable next step. Ours is the era of the planetary household—and the art of household management is needed more than ever for our common home.

The intervention of John Millar, prominent exponent of the Scottish Enlightenment, was especially stinging: It affords a curious spectacle to observe, that the same people who talk in a high strain of political liberty, and who consider the privilege of imposing their own taxes as one of the inalienable rights of mankind, should make no scruple of reducing a great proportion of their fellow-creatures into circumstances by which they are not only deprived of property, but almost of every species of right. Fortune perhaps never produced a situation more calculated to ridicule a liberal hypothesis, or to show how little the conduct of men is at the bottom directed by any philosophical principles.48 Millar was a disciple of Adam Smith. The master seems to have seen things in the same way. When he declared that to a ‘free government’ controlled by slaveowners, he preferred a ‘despotic government’ capable of erasing the infamy of slavery, he made explicit reference to America. Translated into directly political terms, the great economist’s words signify: the despotism the Crown is criticized for is preferable to the liberty demanded by the slave-owners, from which only a small class of planters and absolute masters benefits.

As one economist explained, it should be in the public interest “in every country” to let the people “buy whatever they want from those who sell it cheapest…The proposition is so very manifest that it seems ridiculous to take any pains to prove it.” This wasn’t a recent observation. It was the father of capitalism, Adam Smith, writing in the 1700s. His point is more relevant than ever.

Economists have always recognised that some kind of initial accumulation was necessary for the rise of capitalism. Adam Smith called this ‘previous accumulation’, and claimed that it came about because a few people worked really hard and saved their earnings– an idyllic tale that still gets repeated in economics textbooks. But historians see it as naïve. This was no innocent process of saving. It was a process of plunder.

Economists came to see their work as like physics, or perhaps engineering: if you tell me what your goals are, I can tell you how best to achieve them; or, I can tell you what the likely consequences are of policies you are contemplating, but I leave it to you or others to decide whether those consequences are good or bad.

Economists sometimes joke that if a man marries his housekeeper, the GDP of the country declines. If, on the other hand, he sends his mother to an old-age home, it increases again. In addition to the joke saying a lot about the perception of gender roles among economists, it also shows how the same kind of work can be counted or not counted as part of the GDP.

The economic principles of Modern Socialism are a logical deduction from the principle laid down by Adam Smith in the early chapters of his "Wealth of Nations,"—namely, that labor is the true measure of price. But Adam Smith, after stating this principle most clearly and concisely, immediately abandoned all further consideration of it to devote himself to showing what actually does measure price, and how, therefore, wealth is at present distributed. Since his day nearly all the political economists have followed his example by confining their function to the description of society as it is, in its industrial and commercial phases. Socialism, on the contrary, extends its function to the description of society as it should be, and the discovery of the means of making it what it should be. Half a century or more after Smith enunciated the principle above stated, Socialism picked it up where he had dropped it, and, in following it to its logical conclusions, made it the basis of a new economic philosophy.

For example, Stewart downplayed the “common” aspect of the commonsense philosophy, and implied it should really be read as “good sense”—in other words, that our commonsense judgments reflect “that prudence and discretion which are the foundation of successful conduct.” While the foundations of truth were still equally available to all human beings, it was also clear that, in that respect, some are more equal than others. A trained political economist such as Adam Smith, Stewart would argue, will have more insight into the laws of human behavior, and be better able to predict how a certain fiscal policy will compel people to act, than the people themselves. Likewise, an experimental scientist such as Joseph Black will be able to offer a more comprehensive and more precise account of our daily reality than our own untrained and unscientific understanding.

Moshe Adler, in his article “Overthrowing the Overpaid,” points out, economists David Ricardo and Adam Smith, writing more than two hundred years ago, “concluded that what a person earns is determined not by what that person has produced but by that person’s bargaining power. Why? Because production is typically carried out by teams…and the contribution of each member cannot be separated from that of the rest.

The belief in the growing global pie eventually turned revolutionary. In 1776 the Scottish economist Adam Smith published The Wealth of Nations, probably the most important economics manifesto of all time. In the eighth chapter of its first volume, Smith made the following novel argument: when a landlord, a weaver, or a shoemaker has greater profits than he needs to maintain his own family, he uses the surplus to employ more assistants, in order to further increase his profits. The more profits he has, the more assistants he can employ. It follows that an increase in the profits of private entrepreneurs is the basis for the increase in collective wealth and prosperity. This may not strike you as very original, because we all live in a capitalist world that takes Smith’s argument for granted. We hear variations on this theme every day in the news. Yet Smith’s claim that the selfish human urge to increase private profits is the basis for collective wealth is one of the most revolutionary ideas in human history – revolutionary not just from an economic perspective, but even more so from a moral and political perspective. What Smith says is, in fact, that greed is good, and that by becoming richer I benefit everybody, not just myself. Egoism is altruism.