While discussing what it is that makes the “pleasures of wealth and greatness ... strike the imagination as something grand and beautiful,” [Adam Smith] remarks that “in the languor of disease and the weariness of old age” we cease to be so impressed, for we then take note of the fact that the acquisition of wealth and greatness leaves their possessors “always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow, to diseases, to danger, and to death” (The Theory of Moral Sentiments IV, chapter I). But to allow our attention to dwell on this is, on Smith’s view, misguided.To do so is to embrace a “splenetic philosophy,” the effect of “sickness or low spirits” upon an imagination “which in pain and sorrow seems to be confined,” so that we are no longer “charmed with the beauty of that accommodation which reigns in the palaces and economy of the great.” The imagination of those “in better health or in better humor” fosters what may, Smith concedes, be no more than seductive illusions about the pleasures of wealth and greatness, but they are economically beneficial illusions. “It is this deception which rouses and keeps in continual motion the industry of mankind.” So even someone as perceptive as Smith, when he does pause to recognize the perspectives of ill health and old age, finds reason at once to put them on one side. And in so doing Smith speaks for moral philosophy in general.

What strikes one here above all is the crudely empirical conception of profit derived from the outlook of the ordinary capitalist, which wholly contradicts the better esoteric understanding of Adam Smith.

Economic theory as derived from Adam Smith assumes first that homo economicus acts with perfect optimality on complete information, and second that when many of the species homo economicus do that, their actions add up to the best possible outcome for everybody. Neither of these assumptions stands up long against the evidence.

It appears... that a work similar in its object and general conception to that of Adam Smith, but adapted to the more extended knowledge and improved ideas of the present age, is the kind of contribution which Political Economy at present requires. The Wealth of Nations is in many parts obsolete, and in all, imperfect. Political Economy... has grown up almost from infancy since the time of Adam Smith; and the philosophy of society... has advanced many steps beyond the point at which he left it.

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. It was the human effect, the fact that economic forces were vastly changing the way a person thought and behaved in a given situation. What might lead one person to cheat or steal while another didn’t? How would one person’s seemingly innocuous choice, good or bad, affect a great number of people down the line? In Smith’s era, cause and effect had begun to wildly accelerate; incentives were magnified tenfold. The gravity and shock of these changes were as overwhelming to the citizens of his time as the gravity and shock of modern life may seem to us today.

He now and then revisited London. The last time he was there, he had engaged to dine with Lord Melville, then Mr Dundas, at Wimbledon; Mr Pitt, Mr Grenville, Mr Addington, afterwards Lord Sidmouth, and some other of his lordship's friends were there. Dr Smith happened to come late, and the company had sat down to dinner. The moment, however, he came into the room, the company all rose up; he made an apology for being late, and entreated them to sit down. "No," said the gentlemen, "we will stand till you are seated, for we are all your scholars."

Smith argued in 1776 that the division of labor was the basis for the separation between mental and manual labor, and therefore between natural philosopher and laborer.

It has been called “the outpouring not only of a great mind, but of a whole epoch.” Yet it is not, in the strict sense of the word, an “original” book. There is a long line of observers before Smith who have approached his understanding of the world: Locke, Steuart, Mandeville, Petty, Cantillon, Turgot, not to mention Quesnay and Hume again. Smith took from all of them: there are over a hundred authors mentioned by name in his treatise. But where others had fished here and there, Smith spread his net wide; where others had clarified this and that issue, Smith illuminated the entire landscape. The Wealth of Nations is not a wholly original book, but it is unquestionably a masterpiece.

The Wealth of Nations is in no sense a textbook. Adam smith is writing to his age, not to his classroom; he is expounding a doctrine that is meant to be of importance in running an empire, not an abstract treatise for academic distribution. The dragons that he slays (such as the Mercantilist philosophy, which takes over two hundred pages to die) were alive and panting, if a little tired, in his day. And finally, the book is a revolutionary one. To be sure, Smith would hardly have countenanced an upheaval that disordered the gentlemanly classes and enthroned the common poor. But the import of The Wealth of Nations is revolutionary, nonetheless.

Adam Smith’s laws of the market are basically simple. They tell us that the outcome of a certain kind of behavior in a certain social framework will bring about perfectly definite and foreseeable results. Specifically they show us how the drive of individual self-interest in an environment of similarly motivated individuals will result in competition; and they further demonstrate how competition will result in the provision of those goods that society wants, in the quantities that society desires, and at the prices society is prepared to pay. […] But self-interest is only half the picture. It drives men to action. Something else must prevent the pushing of profit-hungry individuals from holding society up to exorbitant ransom: a community activated only by self-interest would be a community of ruthless profiteers. This regulator is competition, the conflict of the self-interested actors on the marketplace. For each man, out to do his best for himself with no thought of social consequences, is faced with a flock of similarly motivated individuals who are engaged in exactly the same pursuit. Hence, each is only too eager to take advantage of his neighbor’s greed. A man who permits his self-interest to run away with him will find that competitors have slipped in to take his trade away; if he charges too much for his wares or if he refuses to pay as much as everybody else for his workers, he will find himself without buyers in the one case and without employees in the other. Thus very much as in The Theory of Moral Sentiments, the selfish motives of men are transmuted by interaction to yield the most unexpected of results: social harmony.

All this may seem somewhat elementary. But consider what Adam Smith has done, with his impetus of self-interest and his regulator of competition. First, he has explained how prices are kept from ranging arbitrarily away from the actual cost of producing a good. Second, he has explained how society can induce its producers of commodities to provide it with what it wants. Third, he has pointed out why high prices are a self-curing disease, for they cause production in those lines to increase. And finally, he has accounted for a basic similarity of incomes at each level of the great producing strata of the nation. In a word, he has found in the mechanism of the market a self-regulating system for society’s orderly provisioning.

Even today — in blithe disregard of his actual philosophy — Smith is generally regarded as a conservative economist, whereas in fact, he was more avowedly hostile to the motives of businessmen than most New Deal economists.

The answer is that Smith saw the all-important division of labor as a once-for-all, not a continuing, process. As has been recently pointed out, he did not see the organizational and technological core of the division of labor as a self-generating process of change, but as a discrete advance that would impart its stimulus and then disappear. Thus, in the very long run the growth momentum of society would come to a halt—Smith once mentions two hundred years as the longest period over which a society could hope to flourish. Thereafter the laborer would return to his subsistence wages, the capitalist to the modest profits of a stable market, and the landlord alone might enjoy a somewhat higher income as food production remained at the levels required by a larger, although no longer growing, population. For all its optimistic boldness, Smith’s vision is bounded, careful, sober—for the long run, even sobering.

For Smith’s encyclopedic scope and knowledge there can be only admiration. It was only in the eighteenth century that so huge, all-embracing, secure, caustic, and profound a book could have been written. Indeed, The Wealth of Nations and The Theory of Moral Sentiments, together with his few other essays, reveal that Smith was much more than just an economist. He was a philosopher-psychologist-historian-sociologist who conceived a vision that included human motives and historic “stages” and economic mechanisms, all of which expressed the plan of the Great Architect of Nature (as Smith called him). From this viewpoint, The Wealth of Nations is more than a masterwork of political economy. It is part of a huge conception of the human adventure itself.

Perhaps no economist will ever again so utterly encompass his age as Adam Smith. Certainly none was ever so serene, so devoid of contumacy, so penetratingly critical without rancor, and so optimistic without being utopian.

Upon the whole, I have always considered him, both in his lifetime and since his death, as approaching as nearly to the idea of a perfectly wise and virtuous man, as perhaps the nature of human frailty will permit.

Most economists now recognize climate change as a market failure, but only a few understand it as part of the larger pattern of environmental destruction that scientists have labelled the 'Great Acceleration'. Capitalism as currently practised has imperilled the existence of millions of planetary species, as well as the health and well-being of billions of humans. It also threatens the prosperity that it was intended to create. Challenging 250 years of dominant economic thinking, the climate crisis has shown that the unrestrained pursuit of self-interest does not serve the common good. It has shown, in the words of economist Joseph Stiglitz, that Adam Smith's invisible hand - the idea that free markets lead to efficiency as if consciously guided - is invisible because it is not there'. And it has proved, in the words of Pope Francis, that 'technological products are not neutral, for they create a framework which ends up conditioning lifestyles and shaping social possibilities along the lines dictated by the interests of certain powerful groups'.

[T]hat constant accumulation of capital, that continual tendency to increase, the operation of which is universally seen in a greater or less proportion, whenever it is not obstructed by some...mistaken and mischievous policy. ... Simple and obvious as this principle is... I doubt whether it has ever been fully developed and sufficiently explained, but in the writings of an author of our own time, now unfortunately no more (I mean the author of the celebrated treatise on the Wealth of Nations), whose extensive knowledge of detail, and depth of philosophical research, will, I believe, furnish the best solution of every question connected with the history of commerce, or with the system of political economy.

Thus, the original core components of classical political economy enumerated in Smith's Wealth of Nations, and transformed in the economic theorizing of later classicals – that is, until John Maynard Keynes chose in The General Theory of Employment, Interest and Money (1936) to alter retrospectively the referent of this denotation to include any “orthodox” (non-Marxist) economist who was a quantity theorist – comprised a set of conceptual tools for analyzing and understanding the operation of market and later capitalist production and exchange.

In generating the first ever systematic account of the market mechanism in commercial society, Smith's political economy drew not only on his critical reflections of the unsytematic nature of earlier economic writing, but equally on his didactic revisions of earlier natural law and natural jurisprudence traditions as well as the empirically suggestive but unsystematic historical inductive method of tracing the progress of civil society previously introduced by thinkers such as the great Montesquieu. These revisions can be linked directly to Smith's political thinking. It may be questioned whether Adam Smith can be said to have developed a political theory. Certainly, it has been and yet remains a subject of debate. Unquestionably, however, Smith isolated important political concerns and made political conceptual contributions which he linked systematically to his theory of commercial society and the conduct of the market.

In short, the mercantilists were preoccupied with the transfer of wealth, whether by export surpluses, imperialism, or slavery— all of which benefit some at the expense of others. Adam Smith was concerned with the creation of wealth, which is not a zero-sum process. Smith rejected government intervention in the economy to help merchants— the source of the name “mercantilism”— and instead advocated free markets along the lines of the French economists, the Physiocrats, who had coined the term laissez faire. ... The most fundamental difference between Adam Smith and the mercantilists was that Smith did not regard gold as being wealth. The very title of his book— The Wealth of Nations— raised the fundamental question of what wealth consisted of. Smith argued that wealth consisted of the goods and services which determined the standard of living of the people— the whole people, who to Smith constituted the nation. Smith rejected both imperialism and slavery— on economic grounds as well as moral grounds, ... Although Adam Smith is today often regarded as a “conservative” figure, he in fact attacked some of the dominant ideas and interests of his own times. Moreover, the idea of a spontaneously self-equilibrating system— the market economy— first developed by the Physiocrats and later made part of the tradition of classical economics by Adam Smith, represented a radically new departure, not only in analysis of social causation but also in seeing a reduced role for political, intellectual, or other elites as guides or controllers of the masses.

Few intellectual victories have been more overwhelming than that which the proponents of the new political economy won in the matter of the regulation of the internal corn trade... The "unlimited, unrestrained freedom of the corn trade" was...the demand of Adam Smith. The new economy entailed a de-moralizing of the theory of trade and consumption no less far-reaching than the more widely-debated dissolution of restrictions upon usury... [T]he new political economy was disinfested of intrusive moral imperatives... The prejudices against forestallers Smith dismissed curtly as superstitions on a level with witchcraft... In some respects Smith's model conformed more closely to eighteenth-century realities than did the paternalist; and in symmetry and scope of intellectual construction it was superior. But one should not overlook the specious air of empirical validation which the model carries. Whereas the first appeals to a moral norm—what ought to be men's reciprocal duties—the second appears to say: "this is the way things work, or would work if the State did not interfere". And yet if one considers these sections of The Wealth of Nations they impress less as an essay in empirical enquiry than as a superb, self-validating essay in logic.

He was a great thinker,—and that was much; but he also made men recognize him as a great thinker, because he was a great master of style,—which was more.

Here is the picture of this Old Master: a quiet, awkward, forceful Scotchman, whose philosophy has entered everywhere into the life of politics and become a world-force in thought; an impracticable Commissioner of Customs, who has left for the instruction of statesmen the best theory of taxation; an unbusiness-like professor, who established the science of business; a man of books, who is universally honored by men of action; plain, eccentric, learned, inspired. The things that strike us most about him are, his boldness of conception and wideness of outlook, his breadth and comprehensiveness of treatment, and his carefully clarified and beautified style.

Smith "wrote that the ultimate goal of business is not to make a profit. Profit is just the means. The goal is general welfare."

Smith. An Inquiry into the Nature and Causes of the Wealth of Nations. Ed. R. H. Campbell and A. S. Skinner. 2 vols. Glasgow Edition of the Works and Correspondence of Adam Smith 2. Oxford U. Press, 1976.

Economic liberalism

Today, classical political economy is often identified by contemporary economists with the quantity theory of money and the so-called “doctrine of free trade,” but historically there was in fact a large and variable set of positions on both within the classical orbit. And, in contrast to Marx's characterization of its scope and origins, the beginnings of a systematic classical political economy have been associated first and foremost with the work of the eighteenth-century Scottish philosopher, Adam Smith. In terms of illuminating our understanding of the significance of classical political economy for the history of political thought, its origins are identified with the time period roughly between 1750 and 1867, and with a group of economic thinkers drawing upon and revising Smith's Wealth of Nations as a basis for analyzing the production, distribution, and exchange of commodities in the market of commercial society, and later within industrial capitalism.

One dominant view in the eighteenth century, which was particularly persuasive among French economists, was that the government should actively promote trade and industry. Advocates of this view were called mercantilists. It was partly in response to the mercantilists that Adam Smith (who is often viewed as the founder of modern economics) wrote The Wealth of Nations (1776), in which he argued for a limited role for government. Smith attempted to show how competition and the profit motive would lead individuals—in pursuing their own private interests—to serve the public interest. The profit motive would lead individuals, competing against one another, to supply the goods other individuals wanted. Only firms that produced what was wanted and at as low a price as possible would survive. Smith argued that the economy was led, as if by an invisible hand, to produce what was desired—and in the best possible way. Adam Smith’s ideas had a powerful influence both on governments and on economists.

What the circumstances are, which, in modern Europe, have contributed to disturb this order of nature, and, in particular, to encourage the industry of towns, at the expense of that of the country, Mr. Smith has investigated with great ingenuity; and in such a manner, as to throw much new light on the history of that state of society which prevails in this quarter of the globe. His observations on this subject tend to show, that these circumstances were, in their first origin, the natural and the unavoidable result of the peculiar situation of mankind during a certain period; and that they took their rise, not from any general scheme of policy, but from the private interests and prejudices of particular orders of men.

Adam Smith was the first academic economist; and his career is not very different from that of many economists in the last hundred and fifty years.

Adam Smith discovered a remarkable property of a competitive market economy. Under perfect competition and with no market failures, markets will squeeze as many useful goods and services out of the available resources as is possible. But where monopolies or pollution or similar market failures become pervasive, the remarkable efficiency properties of the invisible hand may be destroyed.

To have never done any thing but make the eighteenth part of a pin, is a sorry account for a human being to give of his existence.

The global reach of Smith's moral and political reasoning is quite a distinctive feature of his thought, but it is strongly supplemented by his belief that all human beings are born with similar potential and, most importantly for policymaking, that the inequalities in the world reflect socially generated, rather than natural, disparities.There is a vision here that has a remarkably current ring. The continuing global relevance of Smith's ideas is quite astonishing, and it is a tribute to the power of his mind that this global vision is so forcefully presented by someone who, a quarter of a millennium ago, lived most of his life in considerable seclusion in a tiny coastal Scottish town. Smith's analyses and explorations are of critical importance for any society in the world in which issues of morals, politics and economics receive attention. The Theory of Moral Sentiments is a global manifesto of profound significance to the interdependent world in which we live.

Smith distinguishes with great sophistication the different kinds of reasons people have in taking an interest in the lives of others, separating out sympathy, generosity, public spirit and other motivations. Even though he acknowledged the role of mental attitudes and predispositions, he went on to discuss how reasoning, which is at the heart of rationality, must have a big role in preventing us from being – consciously or unconsciously – too self-centred, or thoughtlessly uncaring.

Smith had no illusion that this would be easy to do, nor did he suffer from the delusion that such an exercise would, in any sense, be perfect. But he did have the conviction that the exercise could still be very useful, and the best should not be made into an enemy of the good.

I owe to a journey I made with Mr Smith from Edinburgh to London, the difference between light and darkness through the best part of my life. The novelty of his principles, added to my youth and prejudices, made me unable to comprehend them at the time, but he urged them with so much benevolence, as well as eloquence, that they took a certain hold, which, though it did not develop itself so as to arrive at full conviction for some few years after, I can fairly say, has constituted, ever since, the happiness of my life, as well as any little consideration I may have enjoyed in it.

Everything that psychology has learned about the processes of human choice is consistent with the view expressed by Adam Smith. People do have reasons for what they do, but these reasons depend very much on how people frame or represent the situations in which they find themselves, and upon the information they have or obtain about the variables that they take into account. Their rationality is a procedural rationality; there is no claim that they grasp the encironment accurately or comprehensively. To predict their behavior in specific instances, we must ourselves know what they are attending to, and what information they have.

[T]he great and leading object of Mr. Smith's speculations is to illustrate the provision made by nature in the principles of the human mind, and in the circumstances of man's external situation, for a gradual and progressive augmentation in the means of national wealth; and to demonstrate, that the most effectual plan for advancing a people to greatness, is to maintain that order of things which nature has pointed out; by allowing every man, as long as he observes the rules of justice, to pursue his own interest in his own way, and to bring both his industry and his capital into the freest competition with those of his fellow-citizens. Every system of policy which endeavours, either by extraordinary encouragements, to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it; or, by extraordinary restraints, to force from a particular species of industry some share of the capital which would otherwise be employed in it, is in reality, subversive of the great purpose which it means to promote.

[http://www.econlib.org/library/Smith/smWN.html An Inquiry into the Nature and Causes of the Wealth of Nations] at the Library of Economics and Liberty

An idea is always older than its name. The idea of cybernetics was used implicitly by the French physiologist, Claude Bernard, in 1878. The scottish physicist, Clerk Maxwell, also used it in 1868 in developing the theory of the steam-engine governor. But long before both of them Adam Smith had just as clearly used the idea in his The Wealth of Nations (1776). The "invisible hand" that regulates prices to a nicety is clearly this idea. In a free market, says Smith in effect, prices are regulated by negative feedback.

Civil government, so far as it is instituted for the security of property, is in reality instituted for the defence of the rich against the poor, or of those who have some property against those who have none at all.

Nothing but the most exemplary morals can give dignity to a man of small fortune.

It is unjust that the whole of society should contribute towards an expence of which the benefit is confined to a part of the society.

Lands for the purposes of pleasure and magnificence, parks, gardens, public walks, &c. possessions which are every where considered as causes of expence, not as sources of revenue, seem to be the only lands which, in a great and civilized monarchy, ought to belong the crown.

I. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities, that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

II. The tax which each individual is bound to pay ought to be certain, and not arbitrary.

III. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.

IV. Every tax ought to be contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the state.

The evident justice and utility of the foregoing maxims have recommended them more or less to the attention of all nations.