We don’t know the day he was born, but Adam Smith was baptized on this date 300 years ago. Since then, the ideas of the man widely considered the father of modern economics have changed the world and remain as relevant as ever.
As a central figure of the Scottish enlightenment, Smith is best known for The Wealth of Nations, a work in which he challenged the world’s prevailing economic system. Smith opposed privileges imposed by law, including trade protectionism. He further called mercantilism—a doctrine that argued that to accumulate wealth, countries must export more than they import—“absurd.”
A keen observer of reality, Smith explained that “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it off them with some part of the produce of our own industry, employed in a way in which we have some advantage.” For instance, Smith asserted that good wine could be produced in Scotland, but he calculated that its cost would be 30 times that of good wines that could be imported from other countries.
Smith took a dim view not just of protectionism, but most any attempt on the part of the authorities to direct the economy. The true origin of wealth is explained by a counterintuitive concept based on another of Smith’s observations: The pursuit of self‐interest in the marketplace, not mere benevolence or a plan imposed by rulers, ultimately produces prosperity and improves the welfare of others.
But Smith, a professor of moral philosophy, understood that people are complex and not just materialistic.
“How selfish soever man may be supposed, 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.”
So he wrote in his first book, The Theory of Moral Sentiments. According to Smith, empathy arises from interacting in society, which also makes people want to be loved and want to deserve it. Experience, not intellectual reasoning, gives rise to moral sentiments and attitudes such as benevolence.
How do we reconcile self‐interest with sympathy for others? For Smith, there is no contradiction. In the free market, one can only act with the interests of others in mind since exchanges are voluntary.
As Smith tells us in his “Lectures on Jurisprudence,” such exchange is based on “the natural inclination everyone has to persuade.” He adds, “The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade one to do so and so as it is for his interest.”
Smith believed justice is a pillar that is essential to the functioning of society. Where justice exists, even the impersonal exchanges of an ever‐expanding marketplace are characterized by collaboration and respectful treatment of the other. These exchanges also encourage benevolence; according to Professor Smith, even a beggar who receives monetary charity ultimately depends on the market.
In his writings, Smith was concerned for the happiness of the poor, who at the time comprised almost the entire population of Scotland and the world. He opposed empires, slavery, and the mistreatment of indigenous people overseas. Since his death, as the world has liberalized, global poverty has plummeted, wealth has soared, empires have fallen, chattel slavery has been officially abolished, and human rights have been extended to a growing portion of the global population.
As long as humans celebrate moral and material progress, so should they celebrate Adam Smith.
Note: This article is based on a version that was originally published in El Comercio (Peru) on June 13, 2023.