Sunday, 6 September 2009

The Relevance of Adam Smith

Primary version of this post, with visual content, at Barry Stocker's Weblog

I’m retuning to the issue of interpreting Adam Smith, which I referred to when posting in the Manchester Metropolitan University Workshops in Political Theory two days ago, I had hoped to post on Adam Smith yesterday. As I indicated two days ago, there was a paper on Adam Smith I found very unsatisfying. I made some comments on the paper but was only able to mention a few of the problems I found with the paper, and as far as I can see it other people in the workshop made the same criticisms after I spoke, but in less direct ways. I found the paper disappointing, but useful, in making a standard series of errors about Adam Smith which are typical of one kind of left-inclined commentators. I am going to summarise this as briefly as possible, and referring as much as possible to the very obvious mistakes, rather than the more subtle problems that will arise in any interpretative work. At the bottom I refer to what I think was good in that paper.

Mistake One

Adam Smith was not an original thinker, because a lot of what he said had been said by other people before.


All great thinkers are preceded by various people who express parts of what appear’s in that thinker’s work. The achievement of major original thinkers, like Smith, is to integrate a wide range of previous work on the topic, adding some new thoughts along with grasping links and contradictions which appear when integrating everything. Just about everyone agrees that Smith produced a great original classic: An Inquiry into the Nature and Causes of the Wealth of Nations.

Mistake Two

Adam Smith is not relevant to current economics, and we know this because Mil refers to Smith’s work as partly obsolete and imperfect everywhere (in The Principles of Political Economy). Another supporting argument was that An Inquiry into the Nature and Causes of the Wealth of Nations covers a wider range of material than current economics and is therefore irrelevant to current economics.


Most economists continue to refer to Smith as the founder of the discipline and refer to his ideas.

Miill’s comments are a statement of the obvious: any book on economics becomes increasingly obsolete over time because of new developments in the discipline and changing economic circumstances. However, economists continue to use use ideas from Smith and his earlier successors, particularly David Ricardo and Karl Marx. Smith’s relevance compared with Marx has clearly increased in most people’s minds since the 1970s.

Recent economists, most notably the Nobel Prize winner, Gary Beck, have been very interested in taking economics into the territory of psychology, anthropology and sociology. This means that recent economists have written about things like the history of religion, and the development of social ethics, discussed by Smith in Wealth of Nations.

Mistake Three

Adam Smith regards value and wealth as essentially the produce of agricultural labour, and regards industrial production and trade as less valuable.


As others pointed out in the workshop, Smith thought that agriculture was more productive only in the sense that it requires less capital (though of course this has changed over time).

There is a confusion in what the speaker said between Smith and the Physiocrats the French economic school which included Turgot, Quesnay, and Mirabeau the Elder. The Physiocrats opposed Mercantilist restrictions on trade and thought all economic value comes from land. Smith clearly rejects their emphasis on land, even if by later standards, he exaggerates the role of agriculture. The slightly more subtle mistake the speaker was making here, was to confuse Smith’s emphasis on natural stages of development with a critique of wealth from industrial production and trade. As I suggested in a post on August 16th, Smith was tied to a teleological way of thinking in which nature and society unfold in necessary steps, a way of thinking which was not throughly challenged until the late 19th Century. The result of this is that he is disturbed when agricultural wealth is stimulated by towns, though even this is ambiguous since in some passages he refers approvingly to the ways in which urban wealth increases agricultural wealth.

Mistake Four

Smith was a left-wing, therefore anti-free market thinker because he opposed Mercantilism.


Im extrapolating a bit here, but that seems to be the only way of understanding the way the speaker framed criticisms of Mercantilism. Mercantilism refers to the belief that the world contains a finite amount of wealth, particularly in god, and that trade between states is a way in which one country takes wealth from another. Imports are to be discouraged because paying for them causes wealth to leave the country, and exports are to be discouraged where it means that objects of value are leaving the country. Mercantilist policies were tied to the aristocratic and monarchic states of the time, and Smith criticises those states. The speaker used a slippage between criticising those states and criticising capitalism.

Mistake Five.

Smith did not approve of capitalism because there was less of it in his time and the word did not exist.


The fact he word ‘capitalism’ did not exist is irrelevant and it is a feeble rhetorical trick to suggest it is relevant. Clearly Smith wanted to see more and more of what we now call capitalism.

Mistake six

Smith did not opposed socialism because the word did not exist.


Again a feeble rhetorical manipulation. Smith opposed what we now call socialism, when he supported the sanctity of private property and opposed most forms of intervention in the economy.

Mistake Seven

Smith was like left-wingers now because his ideas were taken up by late 18th and early 19th century radicals and labour movements, including many French revolutionaries, so by people opposed to monarchical and aristocratic privilege.


Left used to refer to people who though allocation of resources was better done by markets than by the state, this has nothing to do with the current socialist left, or even social democrats. Labour representative were concerned with forms of state intervention which held down wages, prevent labour from organising, and pushed up the price of basic items in the budget of labourers. Again these are different from the major aims of the current left. Left wing people in power, or even conservative states trying to accommodate working class demands, moved the issue away from cutting down that state to expanding the state as a means of regulating the economy and redistributing wealth.

Mistake Eight

Free marketers now support state interventionism and therefore contradict Smith’s demands for a less statism.


This contradicts other comments the speaker made. It is simply not true that current free marketeers accept existing state interventionism. I drew the attention of the speaker to libertarian thinkers who oppose the privileged relations between corporations and the state. The speaker started stonewalling and trying to change the subject to how libertarianism used to refer to left wing positions, an obvious sign that he could not back up his argument. I insisted on pointing out that free market thinkers like Hayek, Mises and Friedman, and organisations using their views, are extremely critical of links between corporations and the state, including the use of war in promoting sectional economic interests.

Mistake Nine

The speaker clearly though the Thatcher and Reagan governments, and other ‘free market’ governments since represent the most radical forms of free market thinking.


Reagan and Thatcher get some support from free market thinkers for some of their economic policies. They are also strongly criticised for leaving the essence of the interventionist state in place, and for continuing state support for favoured economic enterprises.

Mistake Ten

The speaker claimed that books IV and V of An Inquiry into the Nature and Causes of the Wealth of Nations justify levels of state interventionism and social welfarism in contradiction with current free marketeers.


This is true in reference to anarcho-capitalists like Murray Rothbard and Hans-Hermann Hoppe, or minarchists (night watchman state) like Ludwig von Mises and Robert Nozick. It is not true with reference to Friedrich Hayek or Milton Friedman who are considerably more influential than the minarchists and anarcho-capitalists. The speaker clearly thought Friedman was less interventionist and welfarist than Smith. So what is the interventionism that the speaker alluded to in Smith. Books IV and V of The Wealth of Nations are concerned with: reducing ways in which states have limited trade and taken private property from subjects; expanding education, which should be mostly provided privately with the state supporting the poorest; raising revenue from taxes on consumption; protecting trade outposts fro violence through state military support. This is definitely a very limited role for the state, and certainly goes no further in that direction than Hayek or Friedman.

Mistake Eleven

The speaker said that Smith would be against free markets now because he takes the side of labourers.


Smith takes the side of labourers in preferring low taxes on necessary goods, and in allowing labourers to seek the highest possible wages by removing barriers to competition between labourers and between companies when they are hiring labourers. Clearly this has nothing to do with being against free markets and capitalism.

Mistake Twelve

The speaker appeared to think that the discussion of negative and positive liberty comes from Isaiah Berlin, in his 1969 essay, ‘Two Concepts of Liberty’. That is the distinction between liberty from state compulsion and the liberty that arises from state action to expand human capacities.


I believe Isaiah Berlin’s essay to be highly overrated, its greatest virtue is to draw readers back to important late 18th and early 19th century discussions of liberty. At this time, Kant referred to negative and positive freedom in ethics; Wilhelm von Humboldt referred to negative and positive welfare; Benjamin Constant referred to the liberty of the moderns and the ancients. These all refer to the negative/positive liberty type distinction, though in Kant it’s a distinction about the relation of reason to action. These discussions are anticipated by what Hobbes and then Montesquieu have to say about the kinds of liberty which exist in different ancient and modern states.

Mistake Thirteen

Takes us back to mistake two. The speaker seemed to think that Smith’ status as a Professor of Moral Philosophy and the broad range of topics he lectured and wrote on undermines his place as an economist and free marketeer.


The speaker seems to assume that economics is only about prices, when it is about more general questions of ranking choices in individual and social action, which connect with questions of law, ethics etc that Smith was also concerned with. The speaker claimed that An Inquiry into the Nature and Causes of the Wealth of Nations was a wok of moral inquiry. In some ways it is, which in no way contradicts its status as a work of economics. The speaker appears to be making the absurd assumption that one cannot be simultaneously concerned with ethics and with issues of choice, and preference, which are often expressed in terms of prices within a monetised economy.

Mistake Fourteen

The speaker assumed some contradiction between: Aristotelian elements in Smith like a concern with standards of value, and teleology (the end towards something is moving); and free market capitalist thinking.


The speaker exaggerates the Aristotelian elements in Smith. Unlike Aristotle, Smith was not concerned with determining a real value and excluding price variations, and he was certainly not supporting the limits in economic inequality (between citizens) proposed by Aristotle. Smith cannot both be strongly teleological in thinking, therefore seeing natural inevitability in the movement from land to city to trade, and believe that movement away from agricultural wealth is bad. Smith sometimes seems inclined to weak versions of those propositions, making it possible to refer to a tension perhaps, but the speaker referred to both propositions in a very strong way without noting the problem.

Generally Badly Formed Argument

Some of this is covered above, as when the speaker implies that Smith is left wing in the current sense by referring to the links between Smith and non-socialist radicals of the original left.

A really obvious problem is that the speaker claimed that Smith would be against capitalism as it is now and that he is irrelevant.

If Smith is irrelevant, his supposed arguments against capitalism must be irrelevant.

The speaker condemned current free markets while saying there are no free markets.


As I have already noted, the speaker drew attention to the way early radicals like Mary Wollstonecraft, William Godwin and Jeremy Bentham, used Smith’s ideas. I have already stated what I think is wrong with taking this as a reason for thinking Smith can be connected with socialist though. When they do lean towards a redistribution of wealth they are going beyond Smith.

The speaker referred to liberty in Smith as independence rather than as the ‘negative liberty’ or freedom from external compulsion. We might wander how much difference there is between the two and the speaker did not express this potentially useful thought clearly. If we clarify the thought, the point is that Smith was concerned with more than just leaving people alone but also with promoting the virtue that will enable the best possible use of that liberty in a spirt of general independence of mind. As I suggested in a post of 22nd August, this does bring Smith close to classical republican thinking which values political participation, rather than the more anti-political individualism of a lot of current libertarian thinking. On the other hand, individualistic liberalism and republicanism are widely recognised to have been combined in a variety of thinkers from Locke to Mill. I agree that it is unfortunate that current libertarians tend to ignore this. Gerald Gaus provides an interesting and valuable exception.

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