Smith, Adam

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Adam Smith

A Scottish philosopher who is credited with developing most of the ideas of modern economics. Smith believed that economies work most efficiently when economic actors attempt to maximize their own self-interests, and that doing so tends to maximize the interests of society as a whole. He also coined the term Invisible Hand, which is a metaphor for the free market. He published a number of influential works, most notably the Theory of Moral Sentiments and the Wealth of Nations. He lived from 1723 to 1790.

Smith, Adam

(1723–90) a Scottish economist whose writings formed the basis of CLASSICAL ECONOMICS. Smith's most famous book, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), stressed the benefits of division of labour, discussed the need for SPECIALIZATION and exchange, and outlined the workings of the market mechanism (PRICE SYSTEM). Smith argued that if producers were free to seek profits by providing goods and services, then the ‘invisible hand’ of market forces would ensure that the right goods and services were produced. Provided that markets were free of government regulation, then in this LAISSEZ FAIRE environment competition would organize production in ways that would increase public wellbeing.

In competitive markets, producers would compete to sell more goods, forcing prices down to the lowest level that would cover production costs and allow normal profit to be made. Furthermore, if certain goods were scarce, buyers would offer higher prices, drawing more producers into these industries and swelling supply. In this manner, production in the market system would be driven by what consumers wanted.

Smith's outline of the market mechanism described the new economic system that was beginning to emerge in the newly industrializing Western countries. For the system to work, however, Smith acknowledged that two important conditions needed to be met:

  1. markets needed to be free of government intervention, without the close government regulation of economic activity as had prevailed prior to Smith's day;
  2. the self-seeking behaviour of producers could only be harnessed to the common good where competition prevailed, and Smith was deeply suspicious of MONOPOLIES, considering them to be conspiracies against the consumer. See PRIVATE-ENTERPRISE SYSTEM.
References in classic literature ?
Beauty Smith strode into camp and stood over White Fang.
He saw Beauty Smith go away and return with a stout club.
If Smith had been in his right senses he would have been sensible of something wrong in my pace, but he was too drunk to notice.
Smith was flung off by my fall, and, owing to the speed I was going at, he must have fallen with great force.
"Yes," said Mrs Smith more doubtingly, "sometimes it may, though I fear its lessons are not often in the elevated style you describe.
It was but a passing emotion however with Mrs Smith; she shook it off, and soon added in a different tone--
Smith had not been effected without a shock--that much one must recognize.
Thus he learned that, after long persecutions, Smith reappeared in Illinois, and in 1839 founded a community at Nauvoo, on the Mississippi, numbering twenty-five thousand souls, of which he became mayor, chief justice, and general-in-chief; that he announced himself, in 1843, as a candidate for the Presidency of the United States; and that finally, being drawn into ambuscade at Carthage, he was thrown into prison, and assassinated by a band of men disguised in masks.
The tall lad, standing in the porch, turned his bleared eyes from the publican to the smith and back again as if considering whom he ought to fight now.
Smith shrugged his shoulders and helped himself to a cigarette.
Smith.--There is a boatman here with a wherry, Watson.
Smith, to resist the temptation of returning here soon, and yet aware that by declining your invitation, by saying that he was going away for some time, he should seem to act an ungenerous, a suspicious part by our family, be might well be embarrassed and disturbed.