The relevance of Adam Smith on society
by Atul Matthew ( Aug, 2020)
Amartya Sen compares Adam Smith with Shakespeare “in their reaching over to people across the barriers of time” (Sen 2013). Adam Smith, the father of modern Economics has made pioneering contributions to the emergence of the discipline of Economics. Though written over 200 years ago, his most influential works, The Theory of Moral Sentiments (TMS) and The Wealth of Nations (WN) are often at the centre of ideological battle. In this essay, I discuss the impact Adam Smith had on society from three perspectives– first, the structural changes in the economy, second, the sociological changes that emerged and finally, the changes in society that emerged due to the misinterpretation of his work.
Ideas contained in WN immensely altered structural dimensions of the economy. Significant impacts of his work include, but are not restricted to, the formation of a capitalist economy, method of calculating the wealth of a nation by total commercial production, and ‘free-trade’ where nations open their trade to one another. It is this theory of free-trade that gave rise to Globalization as we know it today. Specialization, Smith’s unique conception where an individual is delegated a specialized job in the production chain instead of the production of the entire good, led to the creation of new jobs and a steep rise in economic productivity and prosperity ( Butler, 2011).
Secondly, unforeseen sociological changes followed increasing employment and wealth. This led to a social divide between capitalists and laborers due to unequal distribution of wealth and resources as well as social stratification based on income that is still prevalent. However, in India, it brought an interesting change. Smith’s idea of ‘natural liberty’ where every individual is ‘left perfectly free to pursue his own interest his own way’ (J. Berry, 2013) challenged the caste system in India which kept Dalits from pursuing any interest other than those dictated by Manu Smriti. As remarked by Milind Kamble, “economic reforms unleashed Adam Smith to chase Manu away from this planet”. Though Dalit mainstreaming is far from being achieved, entrepreneurial Dalits believe that Adam Smith has had a great role in the pursuit of this end.
Further, widespread misrepresentation of Smith’s work gave rise to serious consequences. A prominent example is him being dubbed ‘the Father of Capitalism’, whereas he was not ‘laissez faire’ or a ‘free market capitalism apologist’ (Thomas, 2019) and in fact, Smith never used the expression capitalism (Sen 2013). Another often-quoted idea of Smith is market self-sufficiency, whereas in WN, he states that markets require the support of external institutions. He highlighted the need for restraint and correction of markets supplemented by external institutions to prevent instability, inequity, and poverty in society (Sen 2010). Inadequacy of this institutional support has led to rising inequality today.
“Economic ideas carry immense power. They have changed the world as much as armies and navies” (Liu 2019). Smith’s work did exactly the same, as it dealt with a subject that colossally impacts and ties all components of society together. Smith’s ideas have been adopted by Governments and influenced academia and markets. However, Smith’s ideas have been “unduly neglected in the world of knowledge and understanding, particularly in moral, political and legal philosophy” (Sen, 2013). Therefore, if we look at his work holistically his insights can help shape a more egalitarian society.
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