At least, we think it is. We know when his birth was registered at the local church in 1723, and the presumption is that he was born a couple of days earlier. Then you have to add on a few days for the calendar change that happened in 1750, and you get 16 June.
After a mostly uneventful childhood in Kirkcaldy, on Scotland’s east coast (although he was briefly kidnapped by vagrants) Smith entered the University of Glasgow, then went to Bailliol College, Oxford—where he found that the professors had “given up even the pretence of teaching” because they got paid whether they taught or not.
Returning to Scotland, he joined the staff at the University of Glasgow, where he wrote a book on ethics, The Theory Of Moral Sentiments (1759). It brought him instant fame. Enlightenment thinkers sought a firmer foundation for ethics than the dogma of clerics and commands of kings. Some sought ‘rational’ alternatives. Smith, however, identified morality as a feature of human social psychology. We have a natural sympathy for others. Their pleasure or pain affects us; and we like to act in ways that please them. As the book begins:
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
This natural sympathy binds and benefits the whole human species.
The book’s success prompted the Duke of Buccleuch’s stepfather to hire Smith, on a pension for life, to tutor the young Duke. Taking him on the Grand Tour of Europe, Smith picked up endless facts about different systems of commerce and regulation. He started writing The Wealth of Nations, weaving current and original ideas into a new, systematic, modern approach to economics.
The book debunked mercantilism, the prevailing system by which countries tried to boost their cash resources by selling as much as possible to others, but buying as little as possible from them. So they subsidised exports and raised resisted imports.
Smith, however, showed that both sides benefit from trade, not just sellers. The sellers get cash, but the buyers get goods that they value more than the price. What makes a country rich is not its gold reserves, but vibrant trade and commerce. Wealth came from liberating commerce, not restricting it.
The huge productivity gains made possible by the division of labour boost that wealth even more. Specialist producers may be thousands of times more productive than amateurs. They can produce surpluses that they can sell, giving them funds to invest in capital equipment—raising their productivity even more. This they do to benefit themselves, but their actions actually benefit everyone:
Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... 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.
Another unplanned benefit of commerce is that it automatically steers resources to where they are needed. Where things are scarce, consumers will pay more, so suppliers produce more. When there is a glut, prices fall and producers switch their effort into more profitable lines. So, without any regulation and planning:
[T]he obvious and simple system of natural liberty establishes itself of its own accord. Every man...is left perfectly free to pursue his own interest in his own way.... The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.
This liberal system benefits the poor most. Smith railed against merchants using their political influence to win monopolies, tax preferences, controls and other privileges that distort markets in their favour—what today we call crony capitalism. He concluded that government must be limited to its core functions of providing the defence, justice and infrastructure that is needed for commerce to succeed. Leave people free, end cronyism, and the results will amaze you.
Smith’s ideas were highly influential. The great free-trade era they ushered in, and the enormous rise in wealth it created—particularly for the poor—did indeed amaze the world.
Happy birthday, Adam Smith!