Adam Smith was one of the principals of an
astonishing period of human learning, called the Scottish Enlightenment, during the 18th
century. Heís the author of two books. In 1759, The Theory of Moral Sentiments was his
first book. In 1776, the one heís more famous for now, An Inquiry into the Nature and Causes
of the Wealth of Nations. Those two books together almost singlehandedly began the discipline
of political economy. Adam Smith called himself a moral philosopher.
For him, moral philosophy encompassed all of the investigation that had to do with human
behavior. So heís now principally known as the father of economics, and thatís because
of the book, The Wealth of Nations. If youíve heard anything about The Wealth of Nations,
the one phrase you may have heard of is ìinvisible hand.î Itís about halfway through the book. Itís 1,000 pages long, chock full of information.
About halfway through the book, he uses this phrase, ìinvisible hand.î And that phrase
is very important, because what Smith thought he had discovered was that commercial societiesómarketsócould
enable human beings who are seeking to satisfy their own self-interest to actually benefit
other people, even if unintentionally. Thatís really an amazing insight and one of the key
pieces of our understanding today of markets and commercial society. But what might be even more interesting, at
least to me, about that Wealth of Nations is at the beginning of it. Remember that the
title of the book was An Inquiry into the Nature and Causes of the Wealth of Nations.
So, what Smith was interested to know was, why are some places wealthy and other places
are not? Well, what Smith didnít say is almost as
important as what he did say. Itís not because of natural resources. Itís not because some
races are superior to others. Both of those are explanations that were available and heard
at that time. That wasnít it for him. What he thought the key to the difference between
wealthy and nonwealthy places was whether they allowed division of labor. Could a person
focus on something? Why would that matter? Because if you were
allowed to focus on a fairly narrow range of activities, this could unleash your human
ingenuity. For Smith, this was really the key to explaining why some places were wealthy
and other places were not. It was not those other factors. It was whether the society,
whether the community, whether the nation, allowed peopleís individual ingenuityóscopeóto
investigate, entrepreneurially figure out new ways to do things to satisfy their interests
better. Those societies that allowed individuals scope for their ingenuity, they succeeded;
they flourished. That was really the key to human prosperity.