We have changed our privacy policy. In addition, we use cookies on our website for various purposes. By continuing on our website, you consent to our use of cookies. You can learn about our practices by reading our privacy policy.
© 2016 Shmoop University, Inc. All rights reserved.

Adam Smith

Two hundred and thirty years ago, America’s economy was far closer to a pure market economy than it is today. In fact, the nation’s birth coincided exactly with the publication of the ultimate philosophical handbook for free market economies—An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith. Smith, a Scottish economist, argued that economies function most efficiently and fairly when individuals are allowed to pursue their own interests.

One person may decide to be a baker, another a merchant. One person may choose to sell his land, another to farm it. But all of these private decisions, made by rational, self-interested individuals, Smith argued, combine to produce a healthy, growing economy.

The great threat to economic growth, Smith argued, was government intervention—the government telling people what to do would only muck up the works. Government intervention distorted the natural and rational exercise of free, prudent choice. When left to their own natural operation, the private decisions made by thousands of rational economic players were tied into prosperous harmony by the “invisible hand” of the market.

Adam Smith has been gone for a long time now, obviously, but he remains a powerfully influential economic thinker even today. His writings still represent the foundation of the study of economics, and his sharp insights still make a great deal of sense.

If you haven't read his famous book, it's absolutely worth checking out, whether or not you consider yourself a disciple of the free market. The Wealth of Nations is, without a doubt, one of the most important books of all time. And the ideas it contained played a powerful role in shaping the development of American economic thought.

Why It Matters Today

Adam Smith's metaphor of the invisible hand remains one of the most important and influential ideas in economics, even today. As Americans have recently grappled with questions about how government should and should not intervene in the economy, many have turned to Smith for guidance.

What would Adam Smith think about the stimulus bill? About universal government-organized health insurance? About bailouts for companies judged "too big to fail"?

Sometimes, a Song Says it Better: Billionaire, by Travis McCoy

Travis wants to be a billionaire. Adam Smith would be proud.

People who Shmooped this also Shmooped...