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Often called the founder of modern economics, Adam Smith, b. Kirkcaldy, Scotland, June 5, 1723, d. July 17, 1790, was a wide-ranging social philosopher and economist whose masterwork, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), is one of the most influential studies of Western civilization.

Smith's intellectual interests were extensive. He wrote an important philosophical treatise, The Theory of Moral Sentiments (1759), was well versed in science and history, and counted philosopher David Hume and inventor James Watt among his friends. He studied at Glasgow and Oxford universities, lectured at the University of Edinburgh, and in 1751 became a professor at Glasgow University. In 1764-66 he made a grand tour of the Continent as tutor to the young duke of Buccleuch.

Smith's major thesis in The Wealth of Nations was that, except for limited functions (defense, justice, certain public works), the state should refrain from interfering with the economic life of a nation (see laissez-faire). Smith did not view favorably the motives of merchants and businessmen. "People of the same trade," he wrote, "seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." He suggested, however, that businessmen seeking their own interest are led "as if by an invisible hand" to promote the well-being of society.

This position is supported in The Wealth of Nations by an elaborate analysis of how economic systems function and develop over time. Smith sought to show how competition in the marketplace would lead businessmen to supply the goods consumers want, to produce these goods efficiently, and to charge only what they are worth. He saw monopoly, whether private or state-imposed, as the evil to be combated, and competition (see monopoly and competition) as promoting the best interests of society. He further argued that economic growth, which depends upon capital accumulation [see capital (economics)] and an increased division of labor, would be promoted best by private rather than public efforts. People would save and invest for the future because of the inherent desire of individuals to better their own condition. Finally, he sharply criticized the mercantilist writers of his day who advocated state intervention in international trade to achieve an inflow of foreign treasure. Smith claimed, perhaps somewhat unfairly, that mercantilism confused money and wealth, ignoring the fact that the only real purpose of money is to purchase goods. He maintained that free trade increased the wealth of nations, while restrictions on trade diminished wealth.