Adam Smith: Who He Was, Early Life, Accomplishments and Legacy
Adam Smith is considered the father of modern economics
By RAKESH SHARMA
Updated September 30, 2023
Adam Smith was an 18th-century Scottish economist, philosopher, and author who is considered the
father of modern economics. Smith argued against mercantilism and was a major proponent of laissez-
faire economic policies. In his first book, The Theory of Moral Sentiments, Smith proposed the idea of an
invisible hand—the tendency of free markets to regulate themselves using competition, supply and
demand, and self-interest.
Library of Congress. "Adam Smith: The Theory of Sentiments."
Smith is also known for creating the concept of gross domestic product (GDP) and for his theory of
compensating wage differentials. According to this theory, dangerous or undesirable jobs tend to pay
higher wages to attract workers to these positions.
Smith's most notable contribution to the field of economics was his 1776 book, An Inquiry into the
Nature and Causes of the Wealth of Nations.
KEY TAKEAWAYS
Adam Smith was an 18th-century Scottish philosopher.
He is considered the father of modern economics.
Smith is most famous for his 1776 book, The Wealth of Nations.
Smith's writings were studied by 20th-century philosophers, writers, and economists.
Smith's ideas—the importance of free markets, assembly-line production methods, and gross
domestic product (GDP)—formed the basis for theories of classical economics.
During his time in France and abroad, his contemporaries included Voltaire, Jean-Jacques Rousseau,
Benjamin Franklin, Anne-Robert-Jacques Turgot, and François Quesnay.
Early Life
The recorded history of Smith's life begins at his baptism on June 5, 1723, in Kirkcaldy, Scotland; his exact
birthdate is undocumented, but he was raised by his mother, Margaret Douglas, after the death of his
father, Adam Smith. He attended the University of Glasgow at the age of 13 and attended Balliol College
at Oxford University, where he studied European literature. He returned home and delivered a series of
well-received lectures at Glasgow University, which appointed him first as the chair of logic in 1751 and
then chair of moral philosophy in 1752.
Smith moved to France in 1763 to accept a more remunerative position as a personal tutor to the
stepson of Charles Townshend, an amateur economist and the future Chancellor of the Exchequer.
During his time in France, Smith counted as his contemporaries Benjamin Franklin and the philosophers
David Hume and Voltaire.
Adam Smith
Notable Accomplishments and The Wealth of Nations
During his years spent teaching and working at Glasgow, Smith worked on getting some of his lectures
published. His book The Theory of Moral Sentiments was eventually published in 1759. Smith published
his most important work, An Inquiry into the Nature and Causes of the Wealth of Nations (shortened to
The Wealth of Nations), in 1776 after returning from France and retiring to his birthplace of Kirkcaldy,
Scotland.
University of Groningen. "Biography of Adam Smith (1723-1790)."
In his book, Smith popularized many of the ideas that form the basis for classical economics. Other
economists built on Smith's work to solidify classical economic theory, the dominant school of economic
thought through the Great Depression. Smith's ideas are evident in the work of David Ricardo and Karl
Marx in the 19th century and John Maynard Keynes and Milton Friedman in the twentieth century.
Smith's work discusses the evolution of human society from a hunter stage without property rights or
fixed residences to nomadic agriculture with shifting residences. The next stage is a feudal society where
laws and property rights are established to protect privileged classes. Finally, modern society is
characterized by laissez-faire or free markets, where new institutions are established to conduct market
transactions. Smith's work addresses the idea of the "economic man," defined as someone who pursues
their self-interested goals and interests, which impacts their behavior in economics.
The Philosophy of Free Markets
The philosophy of free markets emphasizes minimizing the role of government intervention and taxation
in the free markets. Although Smith advocated for a limited government, he did see the government as
responsible for the education and defense sectors of a country.
From Smith comes the idea of the "invisible hand" that guides the forces of supply and demand in an
economy. According to this theory, by looking out for themselves, every person inadvertently helps
create the best outcome for all.
A hypothetical butcher, brewer, and baker in this economy hope to make money by selling products that
people want to buy. If they are effective in meeting the needs of their customers, they will enjoy
financial rewards. While they are engaging in enterprise to earn money, they also provide products that
people want. Smith argued that this kind of system creates wealth for the butcher, brewer, and baker
and creates wealth for the entire nation.
The Invisible Hand Theory
According to Smith's beliefs and theory, a wealthy nation is one that is populated with citizens working
productively to better themselves and address their financial needs. In this kind of economy, according
to Smith, a man would invest his wealth in the enterprise most likely to help him earn the highest return
for a given risk level. The invisible-hand theory is often presented in terms of a natural phenomenon that
guides free markets and capitalism in the direction of efficiency, through supply and demand and
competition for scarce resources, rather than as something that results in the well-being of individuals.
For Smith, an institutional framework is necessary to steer humans toward productive pursuits that are
beneficial to society. This framework consists of institutions like a justice system designed to protect and
promote free and fair competition. However, there must be competition undergirding this framework,
and competition is the "desire that comes with us from the womb, and never leaves us, until we go into
the grave."
While Smith is considered "the father of economics," his studies were in philosophy and literature.
Wealth and Production of Goods
The ideas promoted by The Wealth of Nations generated international attention and were a motivating
factor in the evolution from land-based wealth to wealth created by assembly-line production methods
made possible by the division of labor. Smith used the example of the labor required to make a pin to
illustrate the effectiveness of this method.
If one person were to undertake the 18 steps required to complete the tasks, they could only make a
handful of pins per week. However, if the 18 tasks were completed in assembly-line fashion by 10
individuals, production would jump to thousands of pins per week. Smith argued that the division of
labor and resulting specialization produces prosperity.
Gross Domestic Product (GDP)
The ideas in The Wealth of Nations provided the genesis for the concept of gross domestic product
(GDP) and transformed the importing and exporting business. Before the publication of The Wealth of
Nations, countries declared their wealth based on the value of their gold and silver deposits.
However, Smith was highly critical of mercantilism; he argued that countries should be evaluated based
on their levels of production and commerce. This concept was the basis for creating the GDP metric for
measuring a nation's prosperity.
When The Wealth of Nations was published, many countries were hesitant to trade with other countries.
Smith argued that a free exchange should be created because both countries are better off from the
exchange.
As a result of this shift in attitudes toward trading, there was an increase in imports and exports. Smith
also argued for legislation that would make trading as easy as possible.
Adam Smith ordered that all his unpublished works be destroyed after his death.
Legacy
Smith's most prominent ideas—the "invisible hand" and division of labor—are now foundational
economic theories. His theories on economics continue to live on in the 21st century in modern
economic theory.
Smith was a proponent of the belief that the labor of the poor is a key measure of how an economy
performs, but Smith was known for being concerned with inequality itself. Karl Marx, a political
economist and social philosopher like Smith, was greatly inspired by The Wealth of Nations and built
greatly upon Smith's works. However, while Smith wrote that capitalism was an ideal state for economic
growth, Marx believed that capitalism led to greed and inequality among citizens, and would ultimately
lead itself to collapse.
Adam Smith's writings influence economics today as he believed wealth is created via labor, and self-
interest spurs people to use their resources to earn money. Smith's theories that economies thrive with
competition, capitalism, and a free market are alive and well in the 21st century.
Honors and Awards
In 2007, the Bank of England placed Smith's image on the £20 note.
He was a fellow of the Royal Society of Arts, and several buildings in Scotland are named after him. An
award in his name, the Adam Smith Award, is the highest honor bestowed by The Association of Private
Enterprise Education. The University of Glasgow has a chair, library, research center, and building in his
name.
Why Is Adam Smith Called the Father of Economics?
Adam Smith is called the "father of economics" because of his theories on capitalism, free markets, and
supply and demand.
What Books Did Adam Smith Write?
Adam Smith wrote The Wealth of Nations, The Theory of Moral Sentiments, Lectures on Justice, Police,
Revenue, and Arms, and Essays on Philosophical Subjects.
What Were Adam Smith's 3 Laws of Economics?
The law of self-interest, the law of competition, and the law of supply and demand were the three
laws of economics written by Adam Smith.
The Bottom Line
Adam Smith died on July 17, 1790, at age 68, in Edinburgh, Scotland, and was buried in Canongate
Kirkyard.
The ideas he popularized live on in the classical school of economics and in institutions like the Adam
Smith Institute, Britain's leading free-market neoliberal think tank.
After returning to Scotland, Smith held a series of public lectures at the University of Edinburgh. The
success of his lecture series helped him earn a professorship at Glasgow University in 1751. He
eventually earned the position of Chair of Moral Philosophy. During his years spent teaching and working
at Glasgow, Smith worked on getting some of his lectures published. His book The Theory of Moral
Sentiments was eventually published in 1759.
