To the French Physiocrats' idea that some labor is productive and other labor unproductive, Smith added the idea that trade broadens the market, thereby allowing more division of labor, which makes labor more productive.
Smith entered the University of Glasgow in 1737, at the age of 14, and studied moral philosophy under Francis Hutcheson, a professorial star of the time, who taught philosophy with the vigor of a preacher.
From Glasgow, Smith went to Balliol College, Oxford on an Exhibition/Scholarship endowed by his fellow Scot, John Snell. Of his Oxford career, we may note two basic facts:
- Smith was not impressed by Oxford. The teaching quality at Oxford, he later wrote (in Book V, Chapter II of The Wealth of Nations), was poor because the dons were given excessive and secure incomes - making it unnecessary for them to attract students. For Smith, orthodox Church-of-England Oxford was a comedown from the buzz of Glasgow, where the Scottish Enlightenment was shaking up the intellectual landscape. When Smith was caught reading fellow Scotsman David Hume's A Treatise of Human Nature (1738)–an exposition of Hume's Utilitarian Philosophy–his copy of the book was confiscated and he was severely punished. Smith spent his happiest time on the other side of Trinity College, reading at the Bodleian Library. Smith left Oxford in 1746, before his scholarship ended.
- Balliol College, on the other hand, was impressed by Smith. The College still glories in the fact that the founder of the economics profession once resided there, however unhappily. Smith is described as the college's most famous alumnus. Balliol was selected to receive the Snell Scholarship not because of any special distinction at the time in the college's scholarship, but rather because of its Scottish connections. The college was founded (in principle) by a Scotsman, John I de Balliol, at the urging of the Bishop of Durham. However, the establishment of the college did not occur until after his death - when his widow, Dervorguilla of Galloway, confirmed a significant transfer of funds. Their son John became King of Scotland but was challenged and left Britain to seek the protection of the Pope. Every November, Balliol has a Snell Dinner that includes representatives from the University of Glasgow and Balliol's sister college at Cambridge, St. John's.
Smith's first book, The Theory of Moral Sentiments (1759) was a well-received analysis of the essence of human morality. It depends on sympathy between the person who is acting and a spectator, i.e., sympathy between the individual and other members of society. Smith argued that the basis of "moral sentiments" is "mutual sympathy", which we would today be more likely to call "empathy".
His second book, The Wealth of Nations (1776) had greater influence because it had clearer policy implications. Smith shows that the marketplace is not moral itself, but produces a moral outcome because the pursuit of individual self-interest leads, as if by an "invisible hand," to the Holy Grail of the Utilitarians - the greatest good of the greatest number.
Based on Utilitarian principles, Smith opposed monopolies and government efforts to create or preserve them, preferring competition to maximize consumer welfare. His opposition to monopoly was hugely influential in providing theoretical support to public grievances against the British Crown (and later in France against the French Crown).
Smith was against most government regulation of business but he was not anti-tax. He favored progressive taxes - not just taxation "in proportion to their respective abilities," but something more:
The rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.However, his anti-mercantilist ideas - built on those of the Physiocrats - were easily be spun into anti-imperial and therefore anti-imperial-tax rhetoric.
Although The Wealth of Nations did not appear until the American Revolution was under way, Smith's ideas were already percolating among the Founding Fathers. Starting in 1763, Smith travelled as a tutor to Toulouse, France, where he stayed for a year and a half. He then moved on to Geneva, where he met with the philosopher Voltaire, and Paris, where Smith came to know Benjamin Franklin, as well as economists like François Quesnay, leader of the Physiocrats, and his followers, including Anne-Robert-Jacques Turgot, Baron de Laune. Franklin could not have better tutelage for making an economic case against new British laws directed at the colonies.
Quesnay and the Physiocrats provided the anti-mercantilist motif of the Wealth of Nations. Their motto favoring marketplace freedom was "Laissez faire et laissez passer, le monde va de lui même!" (Let it be and let it pass, the world goes on by itself!). Smith, following the Physiocrats, argued that the cause of increase in national wealth is labor, rather than the nation's quantity of gold or silver, which was the mercantilist focus. This argument was used by the American Revolutionaries to argue against oversight and taxation from London. It was also later used by French Revolutionaries, with specific additions from Jean-Baptiste Say, to argue against the necessity of the French aristocracy, with unfortunate consequences for the aristocracy and, in due course, France.
The aristocracy and the church - and even the standing army - were viewed by Adam Smith as unproductive. The distinction between productive and unproductive labour (the "class steril" of the Physiocrats) was a rallying cry of both the American and the French Revolution. To the Physiocrat idea that unproductive labour should be pushed back, Smith added the idea that productive labor is made more productive by deeper division of labor, which is "limited by the extent of the market." Every country should try to broaden its market to deepen the division of labor.
Smith never married. On his death bed, he said he was disappointed he had not achieved more.