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No. 1185:
Adam Smith

Today, a bright Scot looks to natural law for an economic model. The University of Houston's College of Engineering presents this series about the machines that make our civilization run, and the people whose ingenuity created them.

Much more than the signing of our Declaration of Independence took place in 1776. Europe was being turned upside down by revolutionary forces as surely as America was. And 1776 was the year Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations -- the book that defined modern capitalism.

Smith was born in 1723. In 1764, while he was lecturing at the University of Glasgow and writing on economics, a wealthy patron offered him a journey that changed his life: he took Smith to France as his son's tutor. There Smith met the would-be creators of a new economic system.

One important school of French thinking was focused on agriculture and called physiocracy. Physiocrats said that economics is ruled by natural law. French thinkers had also bandied the words laissez faire, which can be read, "Let nature have her lead."

Physiocracy echoed ideas of philosopher David Hume, who had mentored Smith. The French experience energized Smith, and he began work on the Wealth of Nations. Up to now, each country had tried to specify its own economy in terms of an inflow of gold and raw materials, and the outflow of manufactured goods. Now Smith wrote about the "invisible hand" of natural processes that guides the flow of goods and sets prices. Economics is a feedback process among nations. Try to override that hand and you're in trouble, because nations' economies are interwoven. Smith had given laissez faire its full modern meaning.

When Smith's book came out, he faced some bad reactions. He'd denied the rationalists' linear logic of cause and effect. Smith saw that a single cause could have multiple effects. An effect might be born of many causes. Smith had violated something very near the core of rationalist thinking. They called him an atheist.

But luck was with Smith. England's industrial revolution let her leap ahead of the old trade balances. His heretical notions about free trade were suddenly useful. If goods and services flow as nature would have them flow, Britannia would come out on top. Within a generation, Smith's theory was official English policy.

So his ideas about enlightened self-interest thundered into the 19th century like a great steamroller. Self-interest didn't stay enlightened, of course. The engines of greed bent laissez faire until forces of socialism rose to oppose it.

But today we see a great extension of Smith's ideas in the economics of nature itself. For Earth is a great feedback system. Not only are nations bound to one another by the commerce of their goods. All living species are also bound to one another by feedback processes in the natural commerce of Earth's resources.

When Adam Smith died in 1790, people discovered something that wonderfully underscored his beliefs. Smith, it seems, had been giving away his own wealth -- in completely secret acts of charity.

I'm John Lienhard, at the University of Houston, where we're interested in the way inventive minds work.

(Theme music)

Bronowski, J., Mazlish, B., The Western Intellectual Tradition: from Leonardo to Hegel. New York: Barnes & Noble Books, 1960, Chapter 19.

I am grateful to Tom DeGregori, UH Economics Department, for his very helpful counsel on this episode.


The University of Glasgow
Photo by John Lienhard