Adam Smith

The concept of “the invisible hand” is often used to support arguments for free-market economies. According to Smith, “the invisible hand” is a natural phenomenon that guides free-market economies towards success even though no one is intentionally directing it. In a competitive market, individuals will naturally pursue their own self-interest by maximizing their own profits; however, Smith argues that profit seeking isn’t necessarily bad for society. By profit seeking, individuals unintentionally benefit society by contributing to the efficient allocation of resources and producing goods and services that satisfy the needs of the people. For instance, say in a market for phones there are many sellers that are competing for a limited number of consumers. If one seller, say Apple, dramatically raises their prices, people will turn to other phone sellers for a cheaper deal. If one seller, say Samsung, produces a product that is of low-quality, people will choose to buy from other phone sellers with higher-quality phones. Essentially, even though all the phone sellers are guided by their own self-interest, through this process of free-market competition the economy functions efficiently and independently, which benefits society as a whole.

In Smith’s book, “An Inquiry into the Nature and Causes of the Wealth of Nations” (1776), Smith argues that the division of labor and specialization leads to increased productivity. Smith utilizes the example of a pin factory for this point - by breaking down the production process into smaller, specialized tasks, workers become more efficient and skilled at performing their specific jobs, resulting in an overall increase in the output of pins. Ultimately, the specialization of work not only leads to the lightening of the workload but also increases output, which leads to greater profits and economic growth. However, Smith acknowledges some flaws in the division of labor. For one, division of labor could lead to workers becoming overspecialized and less well-rounded. This could eventually limit career advancement opportunities as there would be an overall decrease in skillsets. Today, this certainly rings true as many people have such niche careers and skills that make it difficult to find jobs in any other field. Furthermore, Smith recognized that division of labor could lead to a lack of creativity in the production process, as workers become focused solely on their specific individual tasks. This could potentially lead to a decrease in innovation and overall quality of goods. Karl Marx further expanded upon this idea of “lack of creativity” inherent in the division of labor when he presented the argument that capitalism leads to an “alienation from labor.” Despite these costs, Smith argued that the benefits of the division of labor are substantial and that it is an essential component of a high-functioning economy.

Smith additionally explored the psychological factors that influence moral behavior. In his book “The Theory of Moral Sentiments” (1759), Smith argues that sympathy and the desire for praise and blame all play integral roles in influencing our actions. According to Smith, individuals have a natural desire to share the emotions of others, which he calls sympathy. Smith suggests that this desire is the foundation of moral behavior and allows us to evaluate the morality of others. Smith uses the concept of the impartial spectator to show how we judge the morality of our actions. Smith believed that by imagining how an impartial spectator would view our actions, we could better understand the moral implications of our behavior. With this in mind, Smith argues that our actions are not just shaped by our own desires, but also by our desire for the approval of others. If we believe our actions would be viewed negatively upon by an impartial spectator, we are less likely to perform such action, and vice versa. 

Smith’s emphasis on morality may seem odd considering he is primarily considered an economist; though, Smith believed that economics and morality are closely intertwined. In order to have a successful economy, Smith believed that individuals must act in a moral and ethical manner. Over time, the market would reflect these moral values. This challenged many pre-existing economic theories and suggested that economics isn’t just about numbers and statistics but also about the moral compass of society. Smith believed self-interest is an important trait that drives economic activity, but he also realized that unchecked self-interest could be detrimental. In that regard, Smith argued that the government has the responsibility to provide some infrastructure and regulate certain industries to prevent monopolies from forming.

Adam Smith lived in the 18th century where climate change wasn’t even on the radar of scientists; thus, none of his ideas directly address the pressing issue of climate change as we understand it today. Nowadays, climate change is used as an argument that the government should have more control over businesses; it’s interesting to ponder what Smith would have thought of environmental concerns. Based on Smith’s economic principles, I believe Smith would have supported a carbon tax or cap-and trade-system. Smith, of course, argued that free markets were the most efficient and that government intervention should be limited. A carbon tax or cap-and-trade system wouldn’t be ideal for Smith, but it would still align with Smith’s principles by using market mechanisms that create incentives for individuals and businesses to reduce their carbon emissions. That way, the integrity of the free market wouldn’t be compromised and carbon emissions would be effectively reduced.

Adam Smith believed in the power of the free market and specialization of labor to increase productivity and improve the standard of living. Smith supported the use of machines to help make work more efficient; he believed this would lead to higher wages and an overall higher standard of living. With this in mind, Adam Smith may have seen the potential benefits of AI technologies in terms of its increase in efficiency and productivity. There's no doubt that an automated society would be more efficient at producing goods as machinese don't need to be paid. As a result, profits would increase. Though, Smith may have also recognized that the benefits of these technologies are not equally distributed. One concern with AI is that it would lead to job displacement for workers in certain industries. Indeed, in a future where AI is far smarter than humans, much human work would be lost. To address this concern, Smith might argue that policymakers should consider policies like retraining programs, basic income, and job guarantees to help workers transition to other ways of life. Overall, Smith's economic and social ideas suggest that he would be concerned about the impact of AI on workers and would advocate for policies to support those who are negatively affected. Smith would likely see the potential for AI to increase overall economic prosperity and would support its further development; though, he would also recognize the need to ensure that the benefits of AI are shared fairly across society.

Adam Smith is a multifaceted thinker with significant contributions to both economics and philosophy. His idea of “the invisible hand” is an essential argument in support of free markets, specialization, and the division of labor. Many disagree with Adam Smith’s ideas, but nearly all agree that Adam Smith is an influential thinker who challenged and contributed to our economic understanding. As society grapples with issues like climate change and income inequality, I believe society should consider Smith’s ideas on the complex relationship between human behavior, markets, and society to find the optimal governmental interventions while maintaining a free market economy.