Adam Smith has had a wide variety of philosophical contributions, although nothing he’s written is better known and studied than his contributions to economics. In 1776, Smith wrote The Wealth of Nations, in which he introduced his concept of “the invisible hand”, which had philosophical, political, moral, and economic implications that are still studied widely in economic classrooms to this day. In this book, Smith argued that people seeking their own financial gain will lead to overall prosperity in society and that following an economic philosophy of limited regulation is the best way to accomplish this. These concepts that Smith discusses have a strong relation to political structure, as well as to the morality of human behavior. Despite the counterintuitive nature of these claims, Smith strongly believed it them and gave much reason for this belief, despite criticism.
The implementation of an ideal economic philosophy has been debated for years, ranging from total government control and regulation to Smith’s concept of minimal government regulation. A quote from The Wealth of Nations that summarizes this idea is “No regulation of commerce can increase the quantity of industry in any society beyond what its capital can maintain. It can only divert a part of it into a direction it might not otherwise had gone; and it is by no ways certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord” (Smith 348). This statement expresses the basis of Smith’s philosophical beliefs about economics, which is that regulation of commerce causes a negative impact on society. Many philosophers and economists argue that regulation leads to fair trade between partners and without it, people will be taken advantage of, which can lead to negative outcomes for a society. Although Smith does not agree with this, he believes that regulation just limits the potential of capital in a society and that regulation on its own has no capital building ability, instead, that it only has the ability to use capital. Smith believed that the capital that is being used to delegate regulation should instead be used in the production of goods in order to be as financially efficient as possible.
Perhaps the most apparent view that stems from Smith’s economic theory is how it relates to political structure, more specifically what the role of a domestic nation’s political structure is. Smith believes in the importance of building a nation with a strong domestic economy and that his economic theory is an ideal way to achieve this goal. Smith did not support government involvement in trade and rather that people’s own financial endeavors would lead to societal benefit. One piece of evidence from Smith to support this claim is “By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention (Smith 349). According to Smith, people naturally choose to support domestic industry due to its financial security and that if people are allowed to do so freely, then they will act in benefit to each other, even without the intention of doing so. Over time, Smith argues that this will lead to a strong and steady economy, but only if a nation’s political structure is not too involved in commerce.
I find the most interesting aspect of Smith’s view to be in respect to the moral implications that he suggests and this is where I find the concept of the “invisible hand” to be the most relevant. In regards to the “invisible hand”, Smith states “By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it” (Smith 350). Essentially what Smith is suggesting is that through the “invisible hand”, as a person seeks financial gain through industry, that they in turn benefit society by providing them with more capital and products. While only seeking your own financial gain seems nothing short of immoral, Smith is stating that it is perhaps the most moral decision you can make economically because you likely may help society even more than when you make benefiting society your main intention. A very basic example of how this relates to morality is if someone decides to sell ice cream on a hot day with the goal of making money. Despite their efforts being to seek financial gain, they in turn provide people in their society with something that makes their day better, which most people would consider to be in good moral standing. Smith believes that if this very simple concept is put in place on a larger scale in a nation, that it will prosper economically, without simply taking advantage of the members of society. Contrary to this idea, many would argue that you are not acting in good moral faith if your soul intentions are for personal gain, but Smith refutes this and rather argues that as long as you are acting in a way that provides for others, that you are in good moral standing.
Overall, Smith’s view on this topic was both groundbreaking and is certainly standing the test of time. Much of the modern economic philosophy of today is based on his claims, both in strong agreement and in disagreement. While it certainly seems to be an unusual opinion, especially with regards to the moral implications of it, Smith provides skeptics with a plethora of evidence and arguments as for why his economic philosophy should at the very least be considered when it comes to political structures, as well as the moral judgement of humans.
Glossary
- Invisible Hand- The idea that when one acts for their own financial benefit, that an “invisible hand” helps create good for society as well
The Wealth of Nations– A famous book written by Adam Smith in 1776 about how nations should acquire wealth.
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