Origins of Classical School: Adam Smith

Origins of the Classical School: Adam Smith

The question of what constituted wealth and how nations might acquire it continued to be the most important economic problem of the time during which Adam Smith (1725-1790) lived and wrote in England and Scotland. One needs no further proof of this than the title of his world-famous book, An Inquiry into the Nature and the Causes of the Wealth of Nations, which was published in 1776. Smith realized that goods had both value in use and value in exchange, but he was convinced that the only objective and measurable value, and hence the only reasonable basis for a systematic analysis of economic principles was exchange value. With this in mind, wealth could have one meaning only for Smith; it was the sum total of all exchange values which an individual or a nation possessed. The central theme running through The Wealth of Nations is the importance of the division of labor as a means of adding to the store of wealth. This does not mean, as some writers maintain, that Smith was the formulator of the theory of industrialism. It does mean, however, that many of Smith's economic theories were rooted in his contention that the division of labor was the chief means of increasing wealth. It is labor of all types which produces wealth; not nature nor the labor of agriculturalists only, as the Physiocrats contended. From this premise Adam Smith derived his labor theory of value; this is, that the value of an object is equal to the quantity of labor it can demand in exchange for itself. From it also arose his emphasis upon exchange as the focus of economic activity, for obviously if there is division of labor and no one makes for himself all he needs, exchange becomes the only way whereby everyone can acquire what he needs to sustain life.

There has always been lively controversy as to the sources of Smith's ideas. The passing of time has shown that he must be considered as the founder of Economics as a social discipline in its own right; but that there were important forerunners to Smith who made contributions to his thinking is to be expected. First, there was Francis Hutcheson (1694-1746) who was Adam Smith's teacher and his predecessor as Professor of Moral Philosophy at the University of Glasgow. Hutcheson intimated the importance of the division of labor, and the possible use of labor as a basis of value. Moreover, the general outline of The Wealth of Nations seems to have been drawn from Hutcheson's System of Moral Philosophy, published after his death. Although better known as a philosopher than as an economist, David Hume also contributed much to Smith. His essays on economic subjects laid the basis for Smith's appraisal of Mercantilism and the opposing justification of free trade. Lastly, while Smith takes some pains to dispute many of the theories of the Physiocrats, he unquestionably owes much to his acquaintance with Quesnay and Turgot, especially in the development of his ideas on the distribution of income. There is such a close resemblance between some of the ideas expressed in The Wealth of Nations and those of the Physiocrats that one might justifiably raise the question as to whether Smith was not himself in part a Physiocrat. Smith's treatment of the ideas of the French school, however, surpass even their best presentations in clarity and practicality.