Adam Smith's Wealth of Nations

Adam Smith (1723-90) was not the first to try to understand the market economy, but he may have been the most influential and eloquent observer of economic life. His observation that a person may be "led by an invisible hand to promote an end that was no part of his intention" became the guiding star of an investigation of the beneficial unintended consequences of voluntary exchange, an investigation that still continues strong after more than two hundred years. (Others had reached that insight earlier, as the excerpt from the Tao Te Ching of Lao-tzu in the readings indicates; interestingly, the writings of Lao-tzu were distributed by the anti-Nazi "White Rose" group in Germany to undercut the National Socialist regime.)

In addition to seeking to explain how markets work and how order emerges spontaneously from the voluntary interactions of countless market participants, Smith was very concerned with understanding how virtue fares in commercial society. He saw how commercial relations tend to encourage probity, punctuality, and honesty in dealings. As he observed, "Of all the nations in Europe, the Dutch, the most commercial, are the most faithful to their word." He argued that this was not due to some unique Dutch national characteristic or racial distinction but was "far more reduceable to self interest, that general principle which regulates the action of every man, and which leads men to act in a certain manner from views of advantage, and is as deeply planted in an Englishman as a Dutchman. A dealer is afraid of losing his character, and is scrupulous in observing every engagement. When a person makes perhaps twenty contracts in a day, he cannot gain so much by endeavouring to impose on his neighbors, as the very appearance of a cheat would make him lose. Where people seldom deal with one another, we find that they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does their character."...