He is, to many, the father of modern economics, and his ideas have proved to be a foundation for much of the modern global economy.
In this episode, we're going to be talking about Adam Smith, his most famous papers, and his influence on the modern world.
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about a man called Adam Smith.
[00:00:27] He is, by many people’s standards, the father of modern economics, and his thoughts and ideas have proved to be a foundation for much of the modern global economy.
[00:00:39] So, in this episode we’ll explore Smith himself, his most famous ideas and papers, and look how he has influenced the world we live in today.
[00:00:50] Let’s not waste a minute, and get right into it.
[00:00:54] In the cult American TV Series, The Wire, there is a drug kingpin called Stringer Bell.
[00:01:03] He has been investigated by a detective called McNulty, who presumes that Stringer Bell is like every other drug dealer.
[00:01:12] At the end of Season 3, McNulty manages to get into Stringer Bell’s Baltimore apartment. He opens the door, and is surprised to find an immaculately kept and very tasteful apartment: expensive furniture, a set of ornamental Japanese swords, and a well-stocked bookshelf.
[00:01:37] He wanders over to the bookshelf, and pulls out a leather-bound book.
[00:01:43] He turns to his colleague, confused, and utters the immortal line, “who the fuck was I chasing?
[00:01:53] The camera pans down and the name of the book is revealed: “The Wealth of Nations”, by Adam Smith.
[00:02:03] This book was published in 1776 by a Scottish philosopher and academic, so what was it doing in the house of a drug dealer in inner Baltimore?
[00:02:16] Well, the inclusion of the book is to show us, the viewer, that Stringer Bell was far from your run of the mill, average, drug dealer. He was interested in learning everything he could about business and economics, and there was no better manual about how to do this than the dense and unforgiving 18th-century book written in a coastal Scottish town.
[00:02:45] Indeed, Stringer Bell saw that the world around him, not just the illegal world of drug dealing and crime but the entire economy, it was all based on the ideas in The Wealth of Nations.
[00:02:59] So let us channel our inner Stringer, at least the legal parts, and dive into the story of this book and its author, Adam Smith.
[00:03:10] Adam Smith was born in 1723 in the town of Kirkcaldy, in Scotland.
[00:03:17] He was clearly a gifted young man, and won a scholarship to the University of Glasgow at the age of 14 to study moral philosophy, before transferring to Oxford University at the age of 17.
[00:03:31] You might have thought that this move from Glasgow to Oxford would have ignited the young man, as he studied at one of the oldest and most prestigious universities in the entire world.
[00:03:43] But it didn’t.
[00:03:45] Smith found the teaching at Oxford to be uninspiring and dull, and instead of engaging in intense debate with his professors and fellow students, he spent most of the time devouring the books in Oxford’s Bodleian Library.
[00:04:02] Smith had in fact found Glasgow University to be a much more stimulating place.
[00:04:08] At Glasgow, Smith had been taught by wonderful teachers, people who would go on to have an influence on him for the rest of his life, and he found his teachers at Oxford dull and lazy in comparison.
[00:04:23] This might seem strange to hear, but remember that Scotland was, at the time, perhaps even more of a centre of scholarship and Enlightenment thought than England, and it produced many brilliant Enlightenment minds in addition to Adam Smith.
[00:04:40] Smith returned to his home country in 1746, at the age of 23, after suffering what some people think must have been some kind of mental breakdown at Oxford University.
[00:04:53] On his return, his academic career went from strength to strength. He gave well-received lectures, won a position at his alma mater, Glasgow University, in 1751, and became the Head of Moral Philosophy a couple of years later.
[00:05:10] Importantly, moral philosophy, not economics. Economics as a standalone discipline didn’t exist.
[00:05:19] And let’s also remember, he was only born in 1723, so all of this happened before his 30th birthday.
[00:05:28] He published his first book, The Theory of Moral Sentiments, in 1759. We aren’t going to focus on this one today, but it was very well-received, and cemented his reputation as one of the most brilliant moral philosophers of his day.
[00:05:45] His reputation grew to such an extent that students would enrol at the University of Glasgow just to be taught by him, so he was an early sort of celebrity professor.
[00:05:59] Surprisingly, perhaps, he packed it all in 1764 to become a private tutor, he quit university teaching to become a private teacher.
[00:06:11] Now, you might think it somewhat strange for a wildly popular university professor to change career and become a private tutor, but he would not become any old private tutor; the offer he had was to be the private tutor of a man called Henry Scott, a young Scottish nobleman and the stepson of the British Chancellor of the Exchequer, the Minister of Finance essentially.
[00:06:40] The idea was that Scott was being groomed for a major political role, and Smith was the best person in the country to educate him on politics and philosophy.
[00:06:53] Smith accepted this offer, not only because it would double his pay, but also because it would offer him opportunities that he might not have as a university professor.
[00:07:05] Given the political and international ambitions that people clearly had for the young Scott, one of the first things that Adam Smith and Henry Scott did was go on a large European tour, where the pair met Enlightenment thinkers such as Voltaire and Jean-Jacques Rousseau.
[00:07:24] They also met François Quesnay and Anne-Robert-Jacques Turgot, who were the most prominent voices behind an economic theory called The Physiocrat movement, a theory that resonated strongly with Smith and would go on to influence his later work.
[00:07:40] The trip was two years in, but it was cut short after Henry Scott’s brother fell ill and died, and all the travellers had to return to Britain.
[00:07:52] Fortunately for Adam Smith, part of the tutoring deal was that he would get a generous lifelong pension after it was complete, so he had no need to work again.
[00:08:04] But, being a Scottish intellectual and moral philosopher, Smith didn’t do the 18th century equivalent of sipping margaritas on a Mexican beach; he retreated to his hometown of Kirkcaldy in Scotland to start writing his magnum opus, the book that Detective McNulty would find on Stringer Bell’s bookshelf a couple of hundred years later, The Wealth of Nations.
[00:08:30] It took him 9 years, but it would go on to be, by many standards, the most influential book on economics in history.
[00:08:41] In it, Smith brought together his decades of experience studying and teaching moral philosophy and ethics, as well as discussions and exchange of letters with intellectuals and thinkers from all over Europe all about the nature of where a country’s wealth comes from.
[00:09:00] Now, a lot of what Smith writes about in the book might seem obvious to me and you, because we live in a world that comes from the ideas in his book. But it certainly wasn’t at the time.
[00:09:15] Before Smith, the dominant view of how economies worked was something called the Mercantilist system. In this system, the “value” of an economy could be measured by how much gold and silver a country had to buy the goods that it needed. It didn’t really address how the goods were produced or the human motivation behind the process; the only important thing was the value of the money inside the economy.
[00:09:46] Smith’s innovation, or divergence from this path, was to link wealth more closely to living standards.
[00:09:54] In The Wealth of Nations, Smith suggested that the traditional view of wealth in the Mercantilist system was not appropriate for the rapidly industrialising world in which he lived.
[00:10:07] Mercantilism, the dominant economic theory before Smith, posited that a country's wealth was measured by its stock of gold and silver, which was often accumulated through trade surpluses.
[00:10:20] In other words, economic policy was geared towards exporting more than importing, therefore hoarding precious metals or “wealth”.
[00:10:30] As such, global trade was a zero-sum game: one country’s gain was another’s loss, so it was all about collecting and hoarding as much gold and silver as possible; this was how wealth was created.
[00:10:47] Smith, on the other hand, introduced a new understanding of wealth creation.
[00:10:53] He argued that wealth wasn't just about accumulating gold and silver, but about increasing production efficiency and, consequently, the total output of goods and services.
[00:11:06] In other words, wealth creation didn’t need to come at the expense of another country; it could come directly from productivity increases.
[00:11:16] The most prominent example of this in his book was the theory of the division of labour, that if work is divided into separate parts, productivity increases.
[00:11:29] Smith used the example of the process of making a pin to demonstrate this. A pin is the thin piece of metal with a sharp point at one end and a round head at the other, which is particularly useful for attaching pieces of cloth together, so it was a small but vital component of the huge British garment industry.
[00:11:52] Smith wrote that one person who was tasked with making an entire pin might be able to make one pin per day if they really tried.
[00:12:02] But if each step of making a pin was given to a different person, they could focus on that particular part of the process, and the entire pin-making process would be much more efficient.
[00:12:19] By Smith’s estimate, at its most efficient, a worker would go from being able to make one single pin in a day if doing it on their own to being able to make 4,800 pins a day if doing it as part of a divided, industrialised process.
[00:12:37] Now, this might seem blindingly obvious to us now, and it’s certainly not the case that people before Smith hadn’t figured out that splitting processes into smaller parts was often a more efficient way of doing it.
[00:12:50] The important thing about this theory of the division of labour was that it proved that value could be created by productivity increases, not just by running a trade surplus, by a country exporting more than it imported.
[00:13:08] Another key idea in The Wealth of Nations was that government regulation and intervention in the economy should be limited.
[00:13:16] In other words, trade should be free.
[00:13:19] Again, this might seem like an obvious concept to us, but it certainly wasn’t at the time. At the time, British trade was dominated by The East India Company, which was essentially a state-sponsored and regulated quasi-governmental private company. It was responsible for a staggering 50% of global trade at the time, and enjoyed substantial protections and favourable treatment from the British state.
[00:13:50] Smith argued that this type of state intervention in a market was in fact damaging to an economy.
[00:13:58] Instead, he introduced the concept of an “invisible hand”, and that markets were self-regulating; they didn’t need government intervention.
[00:14:09] This “invisible hand” is the idea that humans are self-interested; they take actions because those actions will result in positive outcomes for them, and, in a functioning free market economy, these actions will also be good for other people.
[00:14:28] In other words, there is an invisible force that naturally pushes people in the right direction; the government doesn’t need to intervene.
[00:14:38] This probably all sounds very theoretical, so let’s take a practical example. In a village without a bakery, someone might think, “I’m going to start a bakery”.
[00:14:52] They aren’t doing this because they are passionate about baking bread; they do it because they see that there is demand for it and they can make money from it. They open a bakery, people start going to it because they want to buy bread, and the baker earns money to make a good living.
[00:15:10] If the baker charges too much for the bread, or the bread is bad quality, people won’t buy it, or perhaps someone will start another bakery and charge less for the same bread or make better-tasting bread for the same price.
[00:15:26] The point is that there is no value in the government saying “someone must start a bakery here” or “the price of bread cannot exceed x or go below y” or “bread must taste like this”. There are invisible market forces, this “invisible hand”, that serves this purpose.
[00:15:45] And again, this might sound obvious to us now, but it certainly wasn’t in an era when the government intervened in everything from the price of goods to the types of industries that could operate.
[00:15:58] Smith's invisible hand theory was revolutionary because it suggested that government interventions were not only unnecessary but could also be counterproductive. By allowing the free market to operate, resources would be allocated more efficiently and effectively than any government could manage through regulation.
[00:16:21] Now, there were some areas which Smith said still required government intervention: primarily producing and protecting public goods that the free market would have limited incentive to produce on its own, such as public parks and libraries, and so on.
[00:16:37] And the government still should enforce the laws of private property and personal freedom, as well as protect the country through having a standing army, but it shouldn’t really get involved with much else; the free market would take care of it.
[00:16:54] Now, The Wealth of Nations is over 1,000 pages long and packed with lots of different ideas and nuance, so I hope you’ll forgive the brevity of this summary, but we need to move on to talk about its legacy.
[00:17:09] The fact that so many of the ideas in the book seem obvious to us now is an indication of quite how important it is. We live in a globalised world of free trade based largely on the ideas in The Wealth of Nations.
[00:17:25] Smith practically invented the discipline of the study of economics and The Wealth of Nations is required reading for any good economics student.
[00:17:35] And his pro free trade stance became increasingly popular in the years after the publication of The Wealth of Nations. It was highly influential when it came to the founding of the United States, and throughout the 19th and 20th centuries countries adopted a more market-driven approach to economic planning, allowing the invisible hand and the self-interest of individual actors to lead economic growth with less and less government interference.
[00:18:06] Of course, this has not always led to positive outcomes, and critics of Smith’s economic theory point to this increasing economic inequality as the rich accumulate more capital and power while the poor and working classes often struggle to keep pace.
[00:18:25] And modern critics would certainly argue that, while free markets can drive innovation and growth, they also require careful regulation to prevent monopolies, exploitation, and systemic imbalance that can lead to social and economic injustice.
[00:18:41] Moreover, there's still a clear political divide over the extent to which government intervention is necessary, but everyone apart from the most devout libertarians agree that some government intervention is necessary.
[00:18:55] In other words, the market should be free but not completely free.
[00:19:01] Adam Smith died in 1790, at the age of 67.
[00:19:06] On his deathbed, it is remembered that he only wished he could have achieved more.
[00:19:11] Well, at the time of his death, the output of the global economy was less than $1 trillion.
[00:19:18] In 2023, it is projected to be over $100 trillion, a 100 times increase, while the population has increased by only 10 times.
[00:19:29] Of course, this wealth of nations is far from equally distributed, with some countries having experienced spectacular economic growth and prosperity while others have not.
[00:19:40] But if Smith were alive to see it, he would no doubt be impressed, in the literal sense, by the interconnectedness of the global marketplace, the invisible hands pushing and pulling, from Beijing to Beirut, Cairo to Chicago.
[00:19:57] And if he went to the site of his old house, in High Street Kirkcaldy in Scotland, he might be interested to see the impact of globalisation, and of the free market.
[00:20:09] When he was writing The Wealth of Nations, back in the 18th century, he might have been lucky to have a pub within walking distance from his house. Now, opposite he would find an Indian restaurant, a Turkish barber and a kebab shop. Under his window he would find a nail salon, and next door he’d find a deserted shop, lying empty because clearly there isn’t enough demand for it.
[00:20:37] I like to think that, if he saw this he might smile, and think “beautiful, my beloved free market in action”.
[00:20:46] OK then, that is it for today's episode on Adam Smith, the father of modern economics and a man whose thoughts and ideas affect each and every one of us.
[00:20:56] I hope it's been an interesting one, and that you've learnt something new.
[00:21:00] As always, I would love to know what you thought about this episode.
[00:21:03] What do you think are some of the limitations of free market economics?
[00:21:07] Where do you think the government needs to intervene, and what are some examples of how the government has and hasn’t done this in your country? I would love to know, so let’s get this discussion started.
[00:21:18] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:26] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:31] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about a man called Adam Smith.
[00:00:27] He is, by many people’s standards, the father of modern economics, and his thoughts and ideas have proved to be a foundation for much of the modern global economy.
[00:00:39] So, in this episode we’ll explore Smith himself, his most famous ideas and papers, and look how he has influenced the world we live in today.
[00:00:50] Let’s not waste a minute, and get right into it.
[00:00:54] In the cult American TV Series, The Wire, there is a drug kingpin called Stringer Bell.
[00:01:03] He has been investigated by a detective called McNulty, who presumes that Stringer Bell is like every other drug dealer.
[00:01:12] At the end of Season 3, McNulty manages to get into Stringer Bell’s Baltimore apartment. He opens the door, and is surprised to find an immaculately kept and very tasteful apartment: expensive furniture, a set of ornamental Japanese swords, and a well-stocked bookshelf.
[00:01:37] He wanders over to the bookshelf, and pulls out a leather-bound book.
[00:01:43] He turns to his colleague, confused, and utters the immortal line, “who the fuck was I chasing?
[00:01:53] The camera pans down and the name of the book is revealed: “The Wealth of Nations”, by Adam Smith.
[00:02:03] This book was published in 1776 by a Scottish philosopher and academic, so what was it doing in the house of a drug dealer in inner Baltimore?
[00:02:16] Well, the inclusion of the book is to show us, the viewer, that Stringer Bell was far from your run of the mill, average, drug dealer. He was interested in learning everything he could about business and economics, and there was no better manual about how to do this than the dense and unforgiving 18th-century book written in a coastal Scottish town.
[00:02:45] Indeed, Stringer Bell saw that the world around him, not just the illegal world of drug dealing and crime but the entire economy, it was all based on the ideas in The Wealth of Nations.
[00:02:59] So let us channel our inner Stringer, at least the legal parts, and dive into the story of this book and its author, Adam Smith.
[00:03:10] Adam Smith was born in 1723 in the town of Kirkcaldy, in Scotland.
[00:03:17] He was clearly a gifted young man, and won a scholarship to the University of Glasgow at the age of 14 to study moral philosophy, before transferring to Oxford University at the age of 17.
[00:03:31] You might have thought that this move from Glasgow to Oxford would have ignited the young man, as he studied at one of the oldest and most prestigious universities in the entire world.
[00:03:43] But it didn’t.
[00:03:45] Smith found the teaching at Oxford to be uninspiring and dull, and instead of engaging in intense debate with his professors and fellow students, he spent most of the time devouring the books in Oxford’s Bodleian Library.
[00:04:02] Smith had in fact found Glasgow University to be a much more stimulating place.
[00:04:08] At Glasgow, Smith had been taught by wonderful teachers, people who would go on to have an influence on him for the rest of his life, and he found his teachers at Oxford dull and lazy in comparison.
[00:04:23] This might seem strange to hear, but remember that Scotland was, at the time, perhaps even more of a centre of scholarship and Enlightenment thought than England, and it produced many brilliant Enlightenment minds in addition to Adam Smith.
[00:04:40] Smith returned to his home country in 1746, at the age of 23, after suffering what some people think must have been some kind of mental breakdown at Oxford University.
[00:04:53] On his return, his academic career went from strength to strength. He gave well-received lectures, won a position at his alma mater, Glasgow University, in 1751, and became the Head of Moral Philosophy a couple of years later.
[00:05:10] Importantly, moral philosophy, not economics. Economics as a standalone discipline didn’t exist.
[00:05:19] And let’s also remember, he was only born in 1723, so all of this happened before his 30th birthday.
[00:05:28] He published his first book, The Theory of Moral Sentiments, in 1759. We aren’t going to focus on this one today, but it was very well-received, and cemented his reputation as one of the most brilliant moral philosophers of his day.
[00:05:45] His reputation grew to such an extent that students would enrol at the University of Glasgow just to be taught by him, so he was an early sort of celebrity professor.
[00:05:59] Surprisingly, perhaps, he packed it all in 1764 to become a private tutor, he quit university teaching to become a private teacher.
[00:06:11] Now, you might think it somewhat strange for a wildly popular university professor to change career and become a private tutor, but he would not become any old private tutor; the offer he had was to be the private tutor of a man called Henry Scott, a young Scottish nobleman and the stepson of the British Chancellor of the Exchequer, the Minister of Finance essentially.
[00:06:40] The idea was that Scott was being groomed for a major political role, and Smith was the best person in the country to educate him on politics and philosophy.
[00:06:53] Smith accepted this offer, not only because it would double his pay, but also because it would offer him opportunities that he might not have as a university professor.
[00:07:05] Given the political and international ambitions that people clearly had for the young Scott, one of the first things that Adam Smith and Henry Scott did was go on a large European tour, where the pair met Enlightenment thinkers such as Voltaire and Jean-Jacques Rousseau.
[00:07:24] They also met François Quesnay and Anne-Robert-Jacques Turgot, who were the most prominent voices behind an economic theory called The Physiocrat movement, a theory that resonated strongly with Smith and would go on to influence his later work.
[00:07:40] The trip was two years in, but it was cut short after Henry Scott’s brother fell ill and died, and all the travellers had to return to Britain.
[00:07:52] Fortunately for Adam Smith, part of the tutoring deal was that he would get a generous lifelong pension after it was complete, so he had no need to work again.
[00:08:04] But, being a Scottish intellectual and moral philosopher, Smith didn’t do the 18th century equivalent of sipping margaritas on a Mexican beach; he retreated to his hometown of Kirkcaldy in Scotland to start writing his magnum opus, the book that Detective McNulty would find on Stringer Bell’s bookshelf a couple of hundred years later, The Wealth of Nations.
[00:08:30] It took him 9 years, but it would go on to be, by many standards, the most influential book on economics in history.
[00:08:41] In it, Smith brought together his decades of experience studying and teaching moral philosophy and ethics, as well as discussions and exchange of letters with intellectuals and thinkers from all over Europe all about the nature of where a country’s wealth comes from.
[00:09:00] Now, a lot of what Smith writes about in the book might seem obvious to me and you, because we live in a world that comes from the ideas in his book. But it certainly wasn’t at the time.
[00:09:15] Before Smith, the dominant view of how economies worked was something called the Mercantilist system. In this system, the “value” of an economy could be measured by how much gold and silver a country had to buy the goods that it needed. It didn’t really address how the goods were produced or the human motivation behind the process; the only important thing was the value of the money inside the economy.
[00:09:46] Smith’s innovation, or divergence from this path, was to link wealth more closely to living standards.
[00:09:54] In The Wealth of Nations, Smith suggested that the traditional view of wealth in the Mercantilist system was not appropriate for the rapidly industrialising world in which he lived.
[00:10:07] Mercantilism, the dominant economic theory before Smith, posited that a country's wealth was measured by its stock of gold and silver, which was often accumulated through trade surpluses.
[00:10:20] In other words, economic policy was geared towards exporting more than importing, therefore hoarding precious metals or “wealth”.
[00:10:30] As such, global trade was a zero-sum game: one country’s gain was another’s loss, so it was all about collecting and hoarding as much gold and silver as possible; this was how wealth was created.
[00:10:47] Smith, on the other hand, introduced a new understanding of wealth creation.
[00:10:53] He argued that wealth wasn't just about accumulating gold and silver, but about increasing production efficiency and, consequently, the total output of goods and services.
[00:11:06] In other words, wealth creation didn’t need to come at the expense of another country; it could come directly from productivity increases.
[00:11:16] The most prominent example of this in his book was the theory of the division of labour, that if work is divided into separate parts, productivity increases.
[00:11:29] Smith used the example of the process of making a pin to demonstrate this. A pin is the thin piece of metal with a sharp point at one end and a round head at the other, which is particularly useful for attaching pieces of cloth together, so it was a small but vital component of the huge British garment industry.
[00:11:52] Smith wrote that one person who was tasked with making an entire pin might be able to make one pin per day if they really tried.
[00:12:02] But if each step of making a pin was given to a different person, they could focus on that particular part of the process, and the entire pin-making process would be much more efficient.
[00:12:19] By Smith’s estimate, at its most efficient, a worker would go from being able to make one single pin in a day if doing it on their own to being able to make 4,800 pins a day if doing it as part of a divided, industrialised process.
[00:12:37] Now, this might seem blindingly obvious to us now, and it’s certainly not the case that people before Smith hadn’t figured out that splitting processes into smaller parts was often a more efficient way of doing it.
[00:12:50] The important thing about this theory of the division of labour was that it proved that value could be created by productivity increases, not just by running a trade surplus, by a country exporting more than it imported.
[00:13:08] Another key idea in The Wealth of Nations was that government regulation and intervention in the economy should be limited.
[00:13:16] In other words, trade should be free.
[00:13:19] Again, this might seem like an obvious concept to us, but it certainly wasn’t at the time. At the time, British trade was dominated by The East India Company, which was essentially a state-sponsored and regulated quasi-governmental private company. It was responsible for a staggering 50% of global trade at the time, and enjoyed substantial protections and favourable treatment from the British state.
[00:13:50] Smith argued that this type of state intervention in a market was in fact damaging to an economy.
[00:13:58] Instead, he introduced the concept of an “invisible hand”, and that markets were self-regulating; they didn’t need government intervention.
[00:14:09] This “invisible hand” is the idea that humans are self-interested; they take actions because those actions will result in positive outcomes for them, and, in a functioning free market economy, these actions will also be good for other people.
[00:14:28] In other words, there is an invisible force that naturally pushes people in the right direction; the government doesn’t need to intervene.
[00:14:38] This probably all sounds very theoretical, so let’s take a practical example. In a village without a bakery, someone might think, “I’m going to start a bakery”.
[00:14:52] They aren’t doing this because they are passionate about baking bread; they do it because they see that there is demand for it and they can make money from it. They open a bakery, people start going to it because they want to buy bread, and the baker earns money to make a good living.
[00:15:10] If the baker charges too much for the bread, or the bread is bad quality, people won’t buy it, or perhaps someone will start another bakery and charge less for the same bread or make better-tasting bread for the same price.
[00:15:26] The point is that there is no value in the government saying “someone must start a bakery here” or “the price of bread cannot exceed x or go below y” or “bread must taste like this”. There are invisible market forces, this “invisible hand”, that serves this purpose.
[00:15:45] And again, this might sound obvious to us now, but it certainly wasn’t in an era when the government intervened in everything from the price of goods to the types of industries that could operate.
[00:15:58] Smith's invisible hand theory was revolutionary because it suggested that government interventions were not only unnecessary but could also be counterproductive. By allowing the free market to operate, resources would be allocated more efficiently and effectively than any government could manage through regulation.
[00:16:21] Now, there were some areas which Smith said still required government intervention: primarily producing and protecting public goods that the free market would have limited incentive to produce on its own, such as public parks and libraries, and so on.
[00:16:37] And the government still should enforce the laws of private property and personal freedom, as well as protect the country through having a standing army, but it shouldn’t really get involved with much else; the free market would take care of it.
[00:16:54] Now, The Wealth of Nations is over 1,000 pages long and packed with lots of different ideas and nuance, so I hope you’ll forgive the brevity of this summary, but we need to move on to talk about its legacy.
[00:17:09] The fact that so many of the ideas in the book seem obvious to us now is an indication of quite how important it is. We live in a globalised world of free trade based largely on the ideas in The Wealth of Nations.
[00:17:25] Smith practically invented the discipline of the study of economics and The Wealth of Nations is required reading for any good economics student.
[00:17:35] And his pro free trade stance became increasingly popular in the years after the publication of The Wealth of Nations. It was highly influential when it came to the founding of the United States, and throughout the 19th and 20th centuries countries adopted a more market-driven approach to economic planning, allowing the invisible hand and the self-interest of individual actors to lead economic growth with less and less government interference.
[00:18:06] Of course, this has not always led to positive outcomes, and critics of Smith’s economic theory point to this increasing economic inequality as the rich accumulate more capital and power while the poor and working classes often struggle to keep pace.
[00:18:25] And modern critics would certainly argue that, while free markets can drive innovation and growth, they also require careful regulation to prevent monopolies, exploitation, and systemic imbalance that can lead to social and economic injustice.
[00:18:41] Moreover, there's still a clear political divide over the extent to which government intervention is necessary, but everyone apart from the most devout libertarians agree that some government intervention is necessary.
[00:18:55] In other words, the market should be free but not completely free.
[00:19:01] Adam Smith died in 1790, at the age of 67.
[00:19:06] On his deathbed, it is remembered that he only wished he could have achieved more.
[00:19:11] Well, at the time of his death, the output of the global economy was less than $1 trillion.
[00:19:18] In 2023, it is projected to be over $100 trillion, a 100 times increase, while the population has increased by only 10 times.
[00:19:29] Of course, this wealth of nations is far from equally distributed, with some countries having experienced spectacular economic growth and prosperity while others have not.
[00:19:40] But if Smith were alive to see it, he would no doubt be impressed, in the literal sense, by the interconnectedness of the global marketplace, the invisible hands pushing and pulling, from Beijing to Beirut, Cairo to Chicago.
[00:19:57] And if he went to the site of his old house, in High Street Kirkcaldy in Scotland, he might be interested to see the impact of globalisation, and of the free market.
[00:20:09] When he was writing The Wealth of Nations, back in the 18th century, he might have been lucky to have a pub within walking distance from his house. Now, opposite he would find an Indian restaurant, a Turkish barber and a kebab shop. Under his window he would find a nail salon, and next door he’d find a deserted shop, lying empty because clearly there isn’t enough demand for it.
[00:20:37] I like to think that, if he saw this he might smile, and think “beautiful, my beloved free market in action”.
[00:20:46] OK then, that is it for today's episode on Adam Smith, the father of modern economics and a man whose thoughts and ideas affect each and every one of us.
[00:20:56] I hope it's been an interesting one, and that you've learnt something new.
[00:21:00] As always, I would love to know what you thought about this episode.
[00:21:03] What do you think are some of the limitations of free market economics?
[00:21:07] Where do you think the government needs to intervene, and what are some examples of how the government has and hasn’t done this in your country? I would love to know, so let’s get this discussion started.
[00:21:18] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:26] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:31] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
[00:00:05] Hello, hello hello, and welcome to English Learning for Curious Minds, by Leonardo English.
[00:00:11] The show where you can listen to fascinating stories, and learn weird and wonderful things about the world at the same time as improving your English.
[00:00:20] I'm Alastair Budge, and today we are going to be talking about a man called Adam Smith.
[00:00:27] He is, by many people’s standards, the father of modern economics, and his thoughts and ideas have proved to be a foundation for much of the modern global economy.
[00:00:39] So, in this episode we’ll explore Smith himself, his most famous ideas and papers, and look how he has influenced the world we live in today.
[00:00:50] Let’s not waste a minute, and get right into it.
[00:00:54] In the cult American TV Series, The Wire, there is a drug kingpin called Stringer Bell.
[00:01:03] He has been investigated by a detective called McNulty, who presumes that Stringer Bell is like every other drug dealer.
[00:01:12] At the end of Season 3, McNulty manages to get into Stringer Bell’s Baltimore apartment. He opens the door, and is surprised to find an immaculately kept and very tasteful apartment: expensive furniture, a set of ornamental Japanese swords, and a well-stocked bookshelf.
[00:01:37] He wanders over to the bookshelf, and pulls out a leather-bound book.
[00:01:43] He turns to his colleague, confused, and utters the immortal line, “who the fuck was I chasing?
[00:01:53] The camera pans down and the name of the book is revealed: “The Wealth of Nations”, by Adam Smith.
[00:02:03] This book was published in 1776 by a Scottish philosopher and academic, so what was it doing in the house of a drug dealer in inner Baltimore?
[00:02:16] Well, the inclusion of the book is to show us, the viewer, that Stringer Bell was far from your run of the mill, average, drug dealer. He was interested in learning everything he could about business and economics, and there was no better manual about how to do this than the dense and unforgiving 18th-century book written in a coastal Scottish town.
[00:02:45] Indeed, Stringer Bell saw that the world around him, not just the illegal world of drug dealing and crime but the entire economy, it was all based on the ideas in The Wealth of Nations.
[00:02:59] So let us channel our inner Stringer, at least the legal parts, and dive into the story of this book and its author, Adam Smith.
[00:03:10] Adam Smith was born in 1723 in the town of Kirkcaldy, in Scotland.
[00:03:17] He was clearly a gifted young man, and won a scholarship to the University of Glasgow at the age of 14 to study moral philosophy, before transferring to Oxford University at the age of 17.
[00:03:31] You might have thought that this move from Glasgow to Oxford would have ignited the young man, as he studied at one of the oldest and most prestigious universities in the entire world.
[00:03:43] But it didn’t.
[00:03:45] Smith found the teaching at Oxford to be uninspiring and dull, and instead of engaging in intense debate with his professors and fellow students, he spent most of the time devouring the books in Oxford’s Bodleian Library.
[00:04:02] Smith had in fact found Glasgow University to be a much more stimulating place.
[00:04:08] At Glasgow, Smith had been taught by wonderful teachers, people who would go on to have an influence on him for the rest of his life, and he found his teachers at Oxford dull and lazy in comparison.
[00:04:23] This might seem strange to hear, but remember that Scotland was, at the time, perhaps even more of a centre of scholarship and Enlightenment thought than England, and it produced many brilliant Enlightenment minds in addition to Adam Smith.
[00:04:40] Smith returned to his home country in 1746, at the age of 23, after suffering what some people think must have been some kind of mental breakdown at Oxford University.
[00:04:53] On his return, his academic career went from strength to strength. He gave well-received lectures, won a position at his alma mater, Glasgow University, in 1751, and became the Head of Moral Philosophy a couple of years later.
[00:05:10] Importantly, moral philosophy, not economics. Economics as a standalone discipline didn’t exist.
[00:05:19] And let’s also remember, he was only born in 1723, so all of this happened before his 30th birthday.
[00:05:28] He published his first book, The Theory of Moral Sentiments, in 1759. We aren’t going to focus on this one today, but it was very well-received, and cemented his reputation as one of the most brilliant moral philosophers of his day.
[00:05:45] His reputation grew to such an extent that students would enrol at the University of Glasgow just to be taught by him, so he was an early sort of celebrity professor.
[00:05:59] Surprisingly, perhaps, he packed it all in 1764 to become a private tutor, he quit university teaching to become a private teacher.
[00:06:11] Now, you might think it somewhat strange for a wildly popular university professor to change career and become a private tutor, but he would not become any old private tutor; the offer he had was to be the private tutor of a man called Henry Scott, a young Scottish nobleman and the stepson of the British Chancellor of the Exchequer, the Minister of Finance essentially.
[00:06:40] The idea was that Scott was being groomed for a major political role, and Smith was the best person in the country to educate him on politics and philosophy.
[00:06:53] Smith accepted this offer, not only because it would double his pay, but also because it would offer him opportunities that he might not have as a university professor.
[00:07:05] Given the political and international ambitions that people clearly had for the young Scott, one of the first things that Adam Smith and Henry Scott did was go on a large European tour, where the pair met Enlightenment thinkers such as Voltaire and Jean-Jacques Rousseau.
[00:07:24] They also met François Quesnay and Anne-Robert-Jacques Turgot, who were the most prominent voices behind an economic theory called The Physiocrat movement, a theory that resonated strongly with Smith and would go on to influence his later work.
[00:07:40] The trip was two years in, but it was cut short after Henry Scott’s brother fell ill and died, and all the travellers had to return to Britain.
[00:07:52] Fortunately for Adam Smith, part of the tutoring deal was that he would get a generous lifelong pension after it was complete, so he had no need to work again.
[00:08:04] But, being a Scottish intellectual and moral philosopher, Smith didn’t do the 18th century equivalent of sipping margaritas on a Mexican beach; he retreated to his hometown of Kirkcaldy in Scotland to start writing his magnum opus, the book that Detective McNulty would find on Stringer Bell’s bookshelf a couple of hundred years later, The Wealth of Nations.
[00:08:30] It took him 9 years, but it would go on to be, by many standards, the most influential book on economics in history.
[00:08:41] In it, Smith brought together his decades of experience studying and teaching moral philosophy and ethics, as well as discussions and exchange of letters with intellectuals and thinkers from all over Europe all about the nature of where a country’s wealth comes from.
[00:09:00] Now, a lot of what Smith writes about in the book might seem obvious to me and you, because we live in a world that comes from the ideas in his book. But it certainly wasn’t at the time.
[00:09:15] Before Smith, the dominant view of how economies worked was something called the Mercantilist system. In this system, the “value” of an economy could be measured by how much gold and silver a country had to buy the goods that it needed. It didn’t really address how the goods were produced or the human motivation behind the process; the only important thing was the value of the money inside the economy.
[00:09:46] Smith’s innovation, or divergence from this path, was to link wealth more closely to living standards.
[00:09:54] In The Wealth of Nations, Smith suggested that the traditional view of wealth in the Mercantilist system was not appropriate for the rapidly industrialising world in which he lived.
[00:10:07] Mercantilism, the dominant economic theory before Smith, posited that a country's wealth was measured by its stock of gold and silver, which was often accumulated through trade surpluses.
[00:10:20] In other words, economic policy was geared towards exporting more than importing, therefore hoarding precious metals or “wealth”.
[00:10:30] As such, global trade was a zero-sum game: one country’s gain was another’s loss, so it was all about collecting and hoarding as much gold and silver as possible; this was how wealth was created.
[00:10:47] Smith, on the other hand, introduced a new understanding of wealth creation.
[00:10:53] He argued that wealth wasn't just about accumulating gold and silver, but about increasing production efficiency and, consequently, the total output of goods and services.
[00:11:06] In other words, wealth creation didn’t need to come at the expense of another country; it could come directly from productivity increases.
[00:11:16] The most prominent example of this in his book was the theory of the division of labour, that if work is divided into separate parts, productivity increases.
[00:11:29] Smith used the example of the process of making a pin to demonstrate this. A pin is the thin piece of metal with a sharp point at one end and a round head at the other, which is particularly useful for attaching pieces of cloth together, so it was a small but vital component of the huge British garment industry.
[00:11:52] Smith wrote that one person who was tasked with making an entire pin might be able to make one pin per day if they really tried.
[00:12:02] But if each step of making a pin was given to a different person, they could focus on that particular part of the process, and the entire pin-making process would be much more efficient.
[00:12:19] By Smith’s estimate, at its most efficient, a worker would go from being able to make one single pin in a day if doing it on their own to being able to make 4,800 pins a day if doing it as part of a divided, industrialised process.
[00:12:37] Now, this might seem blindingly obvious to us now, and it’s certainly not the case that people before Smith hadn’t figured out that splitting processes into smaller parts was often a more efficient way of doing it.
[00:12:50] The important thing about this theory of the division of labour was that it proved that value could be created by productivity increases, not just by running a trade surplus, by a country exporting more than it imported.
[00:13:08] Another key idea in The Wealth of Nations was that government regulation and intervention in the economy should be limited.
[00:13:16] In other words, trade should be free.
[00:13:19] Again, this might seem like an obvious concept to us, but it certainly wasn’t at the time. At the time, British trade was dominated by The East India Company, which was essentially a state-sponsored and regulated quasi-governmental private company. It was responsible for a staggering 50% of global trade at the time, and enjoyed substantial protections and favourable treatment from the British state.
[00:13:50] Smith argued that this type of state intervention in a market was in fact damaging to an economy.
[00:13:58] Instead, he introduced the concept of an “invisible hand”, and that markets were self-regulating; they didn’t need government intervention.
[00:14:09] This “invisible hand” is the idea that humans are self-interested; they take actions because those actions will result in positive outcomes for them, and, in a functioning free market economy, these actions will also be good for other people.
[00:14:28] In other words, there is an invisible force that naturally pushes people in the right direction; the government doesn’t need to intervene.
[00:14:38] This probably all sounds very theoretical, so let’s take a practical example. In a village without a bakery, someone might think, “I’m going to start a bakery”.
[00:14:52] They aren’t doing this because they are passionate about baking bread; they do it because they see that there is demand for it and they can make money from it. They open a bakery, people start going to it because they want to buy bread, and the baker earns money to make a good living.
[00:15:10] If the baker charges too much for the bread, or the bread is bad quality, people won’t buy it, or perhaps someone will start another bakery and charge less for the same bread or make better-tasting bread for the same price.
[00:15:26] The point is that there is no value in the government saying “someone must start a bakery here” or “the price of bread cannot exceed x or go below y” or “bread must taste like this”. There are invisible market forces, this “invisible hand”, that serves this purpose.
[00:15:45] And again, this might sound obvious to us now, but it certainly wasn’t in an era when the government intervened in everything from the price of goods to the types of industries that could operate.
[00:15:58] Smith's invisible hand theory was revolutionary because it suggested that government interventions were not only unnecessary but could also be counterproductive. By allowing the free market to operate, resources would be allocated more efficiently and effectively than any government could manage through regulation.
[00:16:21] Now, there were some areas which Smith said still required government intervention: primarily producing and protecting public goods that the free market would have limited incentive to produce on its own, such as public parks and libraries, and so on.
[00:16:37] And the government still should enforce the laws of private property and personal freedom, as well as protect the country through having a standing army, but it shouldn’t really get involved with much else; the free market would take care of it.
[00:16:54] Now, The Wealth of Nations is over 1,000 pages long and packed with lots of different ideas and nuance, so I hope you’ll forgive the brevity of this summary, but we need to move on to talk about its legacy.
[00:17:09] The fact that so many of the ideas in the book seem obvious to us now is an indication of quite how important it is. We live in a globalised world of free trade based largely on the ideas in The Wealth of Nations.
[00:17:25] Smith practically invented the discipline of the study of economics and The Wealth of Nations is required reading for any good economics student.
[00:17:35] And his pro free trade stance became increasingly popular in the years after the publication of The Wealth of Nations. It was highly influential when it came to the founding of the United States, and throughout the 19th and 20th centuries countries adopted a more market-driven approach to economic planning, allowing the invisible hand and the self-interest of individual actors to lead economic growth with less and less government interference.
[00:18:06] Of course, this has not always led to positive outcomes, and critics of Smith’s economic theory point to this increasing economic inequality as the rich accumulate more capital and power while the poor and working classes often struggle to keep pace.
[00:18:25] And modern critics would certainly argue that, while free markets can drive innovation and growth, they also require careful regulation to prevent monopolies, exploitation, and systemic imbalance that can lead to social and economic injustice.
[00:18:41] Moreover, there's still a clear political divide over the extent to which government intervention is necessary, but everyone apart from the most devout libertarians agree that some government intervention is necessary.
[00:18:55] In other words, the market should be free but not completely free.
[00:19:01] Adam Smith died in 1790, at the age of 67.
[00:19:06] On his deathbed, it is remembered that he only wished he could have achieved more.
[00:19:11] Well, at the time of his death, the output of the global economy was less than $1 trillion.
[00:19:18] In 2023, it is projected to be over $100 trillion, a 100 times increase, while the population has increased by only 10 times.
[00:19:29] Of course, this wealth of nations is far from equally distributed, with some countries having experienced spectacular economic growth and prosperity while others have not.
[00:19:40] But if Smith were alive to see it, he would no doubt be impressed, in the literal sense, by the interconnectedness of the global marketplace, the invisible hands pushing and pulling, from Beijing to Beirut, Cairo to Chicago.
[00:19:57] And if he went to the site of his old house, in High Street Kirkcaldy in Scotland, he might be interested to see the impact of globalisation, and of the free market.
[00:20:09] When he was writing The Wealth of Nations, back in the 18th century, he might have been lucky to have a pub within walking distance from his house. Now, opposite he would find an Indian restaurant, a Turkish barber and a kebab shop. Under his window he would find a nail salon, and next door he’d find a deserted shop, lying empty because clearly there isn’t enough demand for it.
[00:20:37] I like to think that, if he saw this he might smile, and think “beautiful, my beloved free market in action”.
[00:20:46] OK then, that is it for today's episode on Adam Smith, the father of modern economics and a man whose thoughts and ideas affect each and every one of us.
[00:20:56] I hope it's been an interesting one, and that you've learnt something new.
[00:21:00] As always, I would love to know what you thought about this episode.
[00:21:03] What do you think are some of the limitations of free market economics?
[00:21:07] Where do you think the government needs to intervene, and what are some examples of how the government has and hasn’t done this in your country? I would love to know, so let’s get this discussion started.
[00:21:18] You can head right into our community forum, which is at community.leonardoenglish.com and get chatting away to other curious minds.
[00:21:26] You've been listening to English Learning for Curious Minds, by Leonardo English.
[00:21:31] I'm Alastair Budge, you stay safe, and I'll catch you in the next episode.
[END OF EPISODE]
