Leave Adam Smith Alone!

My recently completed economic history course in Geezer College (aka Senior University) has sensitized me to six great economists: Adam Smith, David Ricardo, Joseph Schumpeter, John Maynard Keynes, John Kenneth Galbraith, and Milton Friedman. I am always on the lookout for some good ol' revisionism. If this is (fair & balanced) contrarianism, so be it.

[x The Scotsman]
Let's re-examine what Adam Smith really said
by Gavin Kennedy

Will the real Adam Smith stand up, please? There certainly are plenty of phoney versions on parade whenever his name is mentioned.

Some on the Right brazenly saw in Smith’s name an authority against much of what he opposed on moral grounds. He was cited to oppose shorter working hours, to continue employing women and children in coal mines and dark satanic mills, even in defence of slavery. Smith allegedly advised against interference in the business of business.

The cries went up - Laissez faire! Leave the mine and mill owners alone! They know best. The invisible hand will come right in the end. It’s all in Smith’s Wealth of Nations. Interfere at your peril.

Some on the Left naively saw Smith as a compelling authority in favour of state intervention. Wilberforce quoted him against slavery, a practice Smith opposed on moral and economic grounds. Others quoted his support for the government to fund a school in every village so that each child would become literate and numerate. But they did not like his moral sentiments or his political economy.

The distortions of Smith’s views have conquered popular discourse. Libertarians on the Right vie with voices on the Left and sling quotations out of context - they long since gave up reading his books.

The distortions began shortly after Smith died in 1790. The bloody excesses of French Terror in 1793 rocked the British establishment. Ten years earlier, the Americans had forced Britain out of its 13 colonies. While the American Republic was far away, the French version was only a few miles from Dover.

A panicky state investigated Smith’s friends, searching for evidence that his books were likely to incite British mobs to follow the French example. For his friends it was too close for comfort. Leaders of mobs got 14 years’ transportation and there was no assurance Smith’s supporters would fair better, for social ostracism in their world was as serious as a voyage to Botany Bay.

Adam Smith was a moral philosopher who also wrote about political economy. Over the years economics has become a branch of applied mathematics. Smithian moral sentiments were dumped, along with his political economy. His Wealth of Nations adorns the shelves of academe, safely unread by those who should know better. Like his grave just off the High Street in Edinburgh, his legacy is neglected. Worse, it has been purloined.

Smith never wrote a word about "capitalism", yet he is hailed as the "high priest of capitalism". He is the "father of modern economics" though he would find much in today’s economics unrecognisable as his progeny . He is alleged to be an advocate of "Laissez Faire" though he never used these words and claims that he used English equivalents are tenuous. He did not believe it advisable to leave merchants and manufacturers alone, because they were likely to form monopolies, restrict supply and raise prices.

Smith took the long view of society’s development. He was never in favour of quick fixes. He considered stability in society more important than correcting even serious deficiencies too quickly. He took a historical view and his books are full of references to classical Greece and Rome and what they taught about government, moral conduct and economic growth, and the need for natural liberty and justice.

The "new" economy he discussed in Wealth of Nations was not new to him. He saw a growing commercial society as a revival of the commerce of western Europe that had been overrun by barbarian hordes. His inquiry into the wealth of nations was like a one-man Royal commission, a tour de force, drawing on evidence over the millennia since the fall of Rome and from contemporary evidence he analysed in painstaking detail.

Commerce was a revival, not a new revolution. From commerce, established on a prosperous and improved agricultural base, opulence would spread deep into society, itself poverty-stricken to a degree we cannot imagine today. Scotland was a backward, ignorant and fractious country; England was slightly better. But both would rise out of their stagnation if commerce was unburdened from the mercantile politics lasting since the Middle Ages.

Smith disapproved of colonies as expensive ways to buy what could be bought in markets. Unnecessary wars to revenge slights on the King’s ministers rather than matters of substance were on a scale of prodigality he railed against. He preferred investment and jobs in productive activity that increased wealth. Not that he was a pacifist. Defence was the "first duty of the government" to protect society from barbaric neighbours.

He saw society as becoming naturally harmonious through the intense dependence of each person on the labour of every other person and taught that the propensity to "truck, barter and exchange" led to people serving their own interests best by serving the interests of others from whom they needed daily necessities.

That is his true legacy, the melding of his moral sentiments with liberty, justice and his economics. It is time his legacy was claimed back.

Gavin Kennedy is a professor at Edinburgh Business School and author of Adam Smith’s Lost Legacy, published today by Palgrave Macmillan.

Copyright © 2005 The Scotsman