Adam Smith - Philosophy and Business
Adam Smith (1723-90)
Scottish philosopher (pictured right), who was:
- the founder of economics.
- a strong supporter of competitive capitalism.
- a lifelong friend of the philosopher, David
Hume (pictured right).
- born in Kirkcaldy (like the ex-British prime minister,Gordon Brown, pictured right below).
His most famous books
are...
The Wealth of Nations (1776), supporting:
- business and competition - see point 1 below.
- the pursuit of self-interest - see point 4.
The Theory of Moral Sentiments (1759) which says that people must be moral and good - see
points 2 and 3.
What did he say about business?
1. Competition and self-help
Two things make everybody better off:
a) self-improvement
Improve yourself through hard work and making money.
b) competition between businesses
Smith famously called this the “invisible hand”
2. Morality
Goodness is achieved by being:
- public spirited (helping in the local community).
The main cause of immorality is favouring the rich at the expense of the
poor.
3. Business ethics
Smith strongly opposed dishonest and unethical businesses.
But he said businesses can be ethical (i.e. do good), and still make big profits, if the people
in them do what’s right (see point 2).
4. Markets and self-interest
Individuals and businesses should make as much money as possible
Free markets should rule in which prices are determined by:
- demand (how much people want).
A modern example is:
- a pop band becomes very popular. So….
- more people want tickets for their concerts (i.e. demand goes up).
So….
- people are prepared to pay a higher price for the tickets (because demand
goes up with the same supply of tickets). So….
- the band gives more concerts (supply or production goes up).
Therefore, “Consumption is the sole end and purpose of production”, Smith said,
Businesses produce more of things that people want
So what’s good for business (production and profit) is good for people
(products to satisfy their wants).
5. Less government, low taxes and freedom
To encourage people and businesses to make money, these should be kept to a minimum:
- government (which should only do what people can’t do for themselves e.g. military
defence and law and order).
6. Trade unions are bad
Why?
They increase people’s wages higher than businesses can afford, so forcing them out of business.
People should look after themselves and not rely on trade unions for help.
7. Division of labour (or specialization)
People work better, if they specialize in a particular job and do it again and again.
So Smith said the making of something should be split up into smaller jobs (he used the example of making
pins).
This division of labour led to:
- mass production and lower costs.
8. Free trade
Countries should trade freely with each other without any taxes (or
tariffs) on imports from abroad.
So countries can:
- export what they produce best.
- avoid propping up inefficient industries.
There’s no point, he said, banning all foreign wines, so that Scotland can make claret and burgundy!
Key quote on corporate social
responsibility (from The Wealth of Nations)
It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their
regard to their own interest.
Key quote on production (from The Wealth of
Nations)
Consumption is the sole end and purpose of production
Key quote on society
(from The Wealth of Nations)
All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim
of the masters of mankind.
Key quotes on economics
(from The Wealth of Nations)
No society can surely be flourishing and happy of which the far greater part of
the members are poor and miserable.
What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.
Key quote on
management (from The Wealth
of Nations)
Monopoly...is a great enemy to good management.
Key quote on pricing
(from The Wealth of Nations)
The real price of everything...is the toil and trouble of acquiring it.
Key quote on
customers (from The
Wealth of Nations)
The real and effective discipline which is exercised over a workman is not that of his corporation, but that of
his customers.
Key quote on globalization
(from The Wealth of Nations)
The proprietor of stock is properly a citizen of the world and is not necessarily attached to any particular
country
Key quote on ethics
(from The Theory of
Moral Sentiments)
Humanity, justice, generosity and public spirit are the qualities most useful to others.
Key quote on economics and business
ethics
No patriot or man of
feeling could therefore oppose it [growth]. But the nature of this growth... is at once undirected and infinitely
self-generating in the endless demand for all the useless things in the world.
(quoted by Charles Handy, in Beyond
Certainty, 1995)
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