The view from England: Mining and the wealth of nations

It is disconcerting for one’s hero to be described as “comically absent-minded,” with “peculiar habits of speech” (including talking to himself) and a smile of “inexpressible benignity.” Nevertheless, a hero he is, and we are celebrating, on this side of the pond, the birth 300 years ago of the ‘father’ of capitalist thinking and modern economics.  

Adam Smith wrote perhaps the most important book on economics. In ‘An Inquiry into the Nature and Causes of the Wealth of Nations,’ he explained how rational self-interest in a free-market economy leads to economic well-being.  

Smith, who never married and died in July 1790, aged 67, proposed three basic laws of economics. First, he argued that humans were self-serving by nature but that this benefitted the whole of society. Second, he suggested that competition results in a better product for a lower price (with profits flowing from capital investments, and that capital gets directed to where profit can be maximized). Third, in his law of supply and demand, Smith explained that market forces normally ensure sufficient goods are produced, at the lowest price, to meet demand.  

In the 18th century, a nation’s wealth was generally seen in terms of its stock of gold and silver. Importing goods from abroad was considered damaging because it meant that wealth was surrendered, and exports were good because precious metals were received in payment.  

As a result, Great Britain maintained an array of controls to protect its metal wealth, with taxes on imports, subsidies to exporters and protection for domestic industries. Smith showed that this behaviour was folly, and that both sides became better off from an unrestricted exchange. A nation’s wealth, he argued, is not the quantity of gold and silver in its vaults, but the total of its production and commerce (what today we call gross national product). 

The Wealth of Nations deeply influenced the politicians of the time, and provided the intellectual foundation for an era of free trade and economic expansion.  

Born in June 1723, Smith was raised by his widowed mother in Kirkcaldy, Scotland. He entered the University of Glasgow at 14 on a scholarship, and went on to attend Balliol College in Oxford. Smith graduated with an extensive knowledge of European literature and an enduring contempt for English schools. Smith considered the teaching at Glasgow to be far superior to that at Oxford, which he found intellectually stifling (he attributed this to the wealth of Oxford and the professors there being financially independent of their ability to attract students).  

He returned to Scotland, and in 1752 became chair of moral philosophy at Glasgow University. The date is particularly noteworthy because this was the year that England (and its colonies) changed from the Julian Calendar (adopted by Julius Caesar in 45 BC) to the Gregorian Calendar (fully 170 years after this new calendar had been adopted in most of Europe). The change included the dropping of 11 days from September 1752 and altering the start of the year from March to January.  

Smith left academia in 1764 to tutor the young Duke of Buccleuch, and for two years they travelled through France and Switzerland. With the life pension he had earned from the Duke, Smith retired to write ‘The Wealth of Nations,’ which was published in 1776 (the same year as the American Declaration of Independence was signed).  

One of Smith’s best known dictums was: “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.” In other words, it is the self-interest of mining companies (and politicians) that will ultimately deliver the metals and minerals that society requires.  

In a lesson for us all, Smith famously disliked whatever went beyond plain common sense, and he never moved above the heads of even the dullest readers. A particular message, perhaps, for our advisers on governmental and public relations.