Civics

Sample Lesson - Introduction

Lesson 1.05: Adam Smith on the Scene

Adam Smith—either he looked exactly like every single European man in 1776, or this artist needs some practice.
(Source)

We wish we could tell you the best way to handle your money, but there are as many theories about it as there are Land Before Time movies.

Stick it under your mattress in a tin can. Find yourself a nice piece of real estate to invest in. Play the stock market game. Who knows which of these is best?

Well, Adam Smith claimed to know exactly what was best for the economy of a nation, way back in 1776. The last thing he favored was Britain's mercantilist system. In this system, England benefitted wildly off of a positive trade balance with its colonies and limited the trade its colonies could have with other nations. In fact, one of the primary reasons England and other nations went around establishing colonies everywhere was to capitalize on the goods of those areas. Basically, it was a lot of government holding all of the puppet strings.

Smith thought this tactic was counterproductive to a healthy economy, and Americans could not have agreed more. They'd read their Locke, their Rousseau, and their Montesquieu, and they were pretty ticked at the British government already. Then Adam Smith came along and applied Enlightenment thinking to economics, and Americans went wild. One of the major sources of colonial hard feelings against England was what colonists viewed as unfair economic practices imposed by the British government. High taxes, tariffs, and the constant meddling of British officials in colonial trade all added up to desire to throw off the shackles of this oppressive government.

Would it surprise you to learn that Adam Smith's ideas still have an impact on the way Americans think about the relationship between the government and the economy? Nah, we didn't think so.

Sample Lesson - Reading

Reading 1.1.05: The Invisible Hand

The Founding Fathers had their heads full of Enlightenment ideas, but that alone wasn't enough to push them over the edge into starting a revolution. Like most revolutions, ours started with a heap of complaints about money. If we're gonna study the ideological origins of the American Way (which is what we've been doing this whole time, hello), we've gotta study the man who combined colonists' passion for natural rights with their profound hatred of taxes: Adam Smith.

Happiness = Property (?)

Independence wasn't just an abstract concept taken from Enlightenment-era philosophers and their theories about the nature of humans. One of the strongest arguments for it came the same year as the Declaration itself, when the Scottish "Father of Modern Economics," Adam Smith, published An Inquiry into the Nature and Causes of the Wealth of Nations.

It was a smash hit.

The book—known since as The Wealth of Nations—blended economic theory with real-world examples that were all too familiar to our colonist buddies. In other words, the American Revolution was as much about the right to trade freely and buy goods like sugar, tea, and paper without government meddling as it was about Locke's ideas of the natural rights of man.

It was almost like Adam Smith knew that the colonists were looking for some more fuel for their anti-England fire. The book attacked the British policy of mercantilism as a "manifest violation of the most sacred rights of mankind." These rights he was referring to echoed Locke's ideas about the right of every man to "property."

To give an example of how these rights had been violated, he used the example of the Navigation Acts which had been passed in the 1660s. The law stated that certain goods, such as sugar, tobacco, and rice could only be shipped from the colonies where they were produced straight to England and Ireland. On the flip side, any European goods the colonists desired could only be shipped through England on English ships. Long story short, this seriously limited the trade of these colonies. In many cases, these were the money-maker items that could have produced a lot of wealth for the colonies if they had been allowed to trade with other nations.

Let's put it plainly so you can see just how much this would've ticked off the colonists: Smith was saying that because of England's restrictive laws, the colonies couldn't maximize their production, efficiency, and profits by trading with other nations—i.e. because of dumb, stupid England, the colonies weren't making as much money as they could be making.

Smith's solution? The free market—maybe you've heard of it in every American political conversation ever. He said that the free market is the only way for nations to maximize their wealth and their personal liberties. By free market, Smith meant free trade untouched by the government regulations.

Smith believed that the market would regulate itself, without the meddling influence of government. If people wanted a product it would be in demand and the price would rise; if they didn't want it, it would lose its trade value. Pretty soon merchants would figure out what the hot products were and there would be more people selling or trading it, which would introduce competition. Competition would force the price to settle at a reasonable level and everyone would win.

He argued that economies function most efficiently and fairly when individuals are allowed to pursue their own interests. One person may decide to be a baker, another a merchant. One person may choose to sell his land, another to farm it. But all of these private decisions, made by rational, self-interested individuals, Smith argued, combine to produce a healthy, growing economy. How convenient!

The great threat to economic growth was government intervention—the government telling people what to do with their money would only screw up the economy. This idea that it's best to just let things work themselves out in the economy was known as the "invisible hand." This creepy, disembodied hand pushes things along without any help from anyone else, thank you very much.

Colonial Love

Well, colonists just loved, loved, loved this idea. They'd been suffering from currency shortages because of the unfair trade balance (in which England was the one making all the money). Printing more money didn't work because the more they printed, the less the money was worth—the mighty principle of inflation. Which is why we don't all have printing presses in our garages (oh, and the legality thing).

Pretty soon, Parliament forbade paper money in the colonies, because of this inflation issue. Again, the colonists felt that they were getting the shaft from Britain, not to mention they felt that Britain was just a giant control freak.

Adam Smith's philosophies were widely embraced by most Americans. Smith's emphasis on free, unrestricted economic action echoed Americans' political and social commitments to liberty. Locke, Rousseau, and Montesquieu provided the Founders the ideas they needed to form a rockin' political system. From Adam Smith's ideas, America's economic system was founded.

The economy that the Founders embraced is known as capitalism. Simply put, this means that the government does not control trade or industry. Rather, goods and industry are owned by private citizens (or companies) with the goal of producing profit. In other words, it supports Locke's and Smith's beliefs that property ownership is an individual right.

But wait, you might be thinking, doesn't the government have some influence on the economy? Bingo. From the get-go, the government has had a role in regulating the economy, which means we don't have a 100% capitalistic nation—like almost every other country at this point, we have what's known as a mixed economy: mostly capitalist, with a smattering of government intervention. But exactly what ration our "mix" should be is hardly a settled issue. In fact, there is a lot of debate to this day on how much government should be involved in regulating the economy. Think about it, because we're going to want you to weigh in on it later.

Sample Lesson - Activity

Activity 1.05a: The Wealth of Shmoopers

Smith's ideas really seemed to jive with those Enlightenment philosophers that were so popular in colonial America. In fact, you might even say he was one enlightened philosopher (okay, we'll stop).

Colonists sure thought so, and his economic ideas played a significant role in the Founding Fathers' ideas of liberty and how the economy should work.

But do you agree? Should the right to free trade be included up on the top shelf of the natural rights shrine, along with the rights to life and liberty? Is there such a thing as a natural economic right? If so, what is it?

To answer these questions, write a 200 – 300 word "book review" for Smith's book, The Wealth of Nations. Write from the perspective of an American colonist and focus on these things:

• What is Adam's Smith's economic philosophy?
• Why do you agree or disagree with it, considering the colonies' relationship with England?
• What, if anything, do you think the Founding Fathers should incorporate from Smith's work as they form the new American government?

We know you're not an economist, so don't get too wrapped up in the technicalities of Smith's theory. Imagine you're Joe Colonist (he's not an economist either), and write from your gut—do you believe in the power of the invisible hand, or are you on team visible hand?

Sample Lesson - Activity