Adam Smith was the Scottish Economist best known for his book the Wealth of Nations (1776) and his belief in free market societies. His teachings changed the way we view economics today and has been the basis for lectures and reform for the past 235 years. Noted as one of the most influential Economists of all time, and rightly so – he changed everything.
Adam taught us about the Invisible Hand:
“Every individual...generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. 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.” Adam Smith
Basically he was saying that because people naturally want to profit they will do what serves them without knowing the effect on the future. And that profit will naturally dry up when they’ve made enough.
He also taught us Laissez-faire or Let things alone:
“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men.” Adam Smith
This was the quote that started it all. It became the basis for modern capitalism and the catalyst for the free-market society we all enjoy today. It started the break-down of regulation and paved the way for companies to grow without limit.
Then there was Charles Dickens, English Author best known for Oliver Twist and Ebenezer Scrooge; known as one of the most influential authors of all time. His 1843 novel A Christmas Carol highlighted the poor working conditions allowed without proper regulation. Oliver Twist, 1837 followed the life of a little boy born in a poorhouse and raised under horrible living conditions, later forced to the street.
If Adam Smith paved the way for Capitalism, Dickens paved the way for social reform, work unions, proper healthcare and modern-day welfare.
“If there were no bad people, there would be no good lawyers. “ Charles Dickens
So who was right?
Adam certainly made us all rich; today most common people live in beautiful houses not possible without a free society. But Dickens made sure you didn’t have to die of the plague trying to afford that house.
I think they were both right, we need to be free to make profit without too much regulation otherwise the poor will never have the opportunity to rise above. And we need to have proper working conditions for our own health and well-being.
The problem is we always take things too far. All of Harvard’s best business students graduate with a degree in Adam Smith ideals. They know we must comply with proper environmental and safety laws but they also know, less regulation means less restriction on profit. And less restriction on profit means a better chance of becoming incredibly wealthy.
Bill Gates and Steve Jobs never have to worry about where their next meal is coming from because they were free to make as much money as they could. And we gladly pay them because we want what they have to sell us.
On the flipside; let’s think about the Northern Alberta Oilsands. Suncor and Syncrude are free to make as much money as they want to, so is BP. Now remember Adam’s invisible hand; these companies have no intention on hurting society. Their intention is to create profit and the invisible hand is leading them to do so. We in society love our cars and plastic gadgets, we can say what we want about the environmental impacts of their actions but we would be helpless without their products and the invisible hand leads us to buy them.
Leman Brothers, AIG and Goldman Sachs didn’t want to hurt society either, but an invisible hand leads the way and nobody asks questions when the money flows. Suddenly it dries up and everyone is screaming.
The invisible hand is a wonderful thing and has led to great technological advancements and great profits; unfortunately it only works if growth is endless and we know that it’s not. There isn’t an endless supply of oil in Alberta; one day it will run out. And there wasn’t an endless supply of insurance companies to purchase derivatives – that did run out. Did Adam Smith know that would happen back in 1776? Or did he think resources were endless? Definitely there were economic bubbles back then, but the globe wasn’t all connected the way it is today.
Most of North America wasn’t even inhabited until the 1800’s so maybe it’s time society revisits how Economics textbooks are written. Adam still has a lot to teach young students but there is more we need to learn.
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