Pursuit of Truthiness

my gut tells me I know economics

Remembering Adam Smith Efficiently

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Adam Smith is usually remembered as the father of economics and laissez-faire, for the metaphor of the invisible hand, and for its meaning that people acting in their self-interest promote the public good.  A vocal minority likes to point out that Adam Smith was much more complex than this, and in particular that his thoughts on businessmen and the role of government are very different from those of many people who claim to love Smith.  However, I believe that the naive picture of Smith that most people have is in fact efficient, in the same way that peoples’ ignorance of politics is efficient.

Smith was in fact quite complex.  He is thought of as a champion of capitalists and businessmen, but he said they are “an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it” and that “People of the same trade 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 is thought to have said that people are only motivated by rational self-interest, but he was no Gary Becker.  He recognized that people want to do good, saying: “We are pleased, not only with praise, but with having done what is praise-worthy” and ” To prevent, therefore, this paltry misfortune to himself, would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them? Human nature startles with horror at the thought, and the world, in its greatest depravity and corruption, never produced such a villain as could be capable of entertaining it”.  He also recognized that people are far from rational, saying “self-deceit, this fatal weakness of mankind, is the source of half the disorders of human life” and “The chance of gain is by every man more or less over-valued”.

Smith is thought to have called for laissez-faire small government, but in fact he suggested several large roles for government, such as putting a ceiling on interest rates to curtail risky investments, progressive taxation, and public education to counter the bad effect of the division of labor: “He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become…. in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.”

For a supposed apologist for propertied classes, he sometimes sounds a lot like an anarcho-communist, saying: “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed” (of course, all the classical economists hated landlords, even if they loved capitalists), and “The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security.”

Smith takes his message to the streets

Given all this, how can I say that Smith is remembered efficiently as promoting self-interest, capitalism, and small government?  There are two main reasons.  One is simply that Smith said a lot of things, and it is easy to distort his main message with selective quotes.  As Jacob Viner said, “Traces of every conceivable sort of doctrine are to be found in that most catholic book, and an economist must have peculiar theories indeed who cannot quote from the Wealth of Nations to support his special purposes”.    Smith made no strong effort at self-consistency; again as Viner said, “The one personal characteristic which all of his biographers agree in attributing to him is absent-mindedness, and his general principle of natural liberty seems to have been one of the things he was most absent-minded about.”

In the main, Adam Smith’s message was that markets worked well and that mercantilist calls for government to restrict trade should be opposed.  The usual quotes used to show Smith’s support of self-interest and laissez-faire are in fact more representative of his work as a whole than the quotes I used above to show his nuance.  The most popular such quotes are probably: “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest” and “he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.”  He can’t have believed much in the power of altruism as he said “The late resolution of the Quakers in Pennsylvania to set at liberty all their negro slaves,  may satisfy us that their number cannot be very great. Had they made any considerable part of their property, such a resolution could never have been agreed to.”  The list of government policies supported by Smith is very small compared to what modern governments do, though it would not make all libertarians happy.

The main reason I say Adam Smith has been remembered efficiently is that his ideas about self-interest and the invisible hand were what set him apart at the time and what inspired later economists.  People like me who are interested in history and Adam Smith for their own sake should know about the complexities.  But many people before Smith had criticized the conspiracies of business, advocated for government regulations, and recognized that people have many motivations.  What made Smith different, and what later economists built on, was his focus on self-interest and how to maximize happiness.  Adam Smith was not Gary Becker, but his works had the seeds of modern economics in a way that previous thinkers did not, and it makes sense to focus on the parts of his work that would later bear so much fruit.


Written by James Bailey

June 15, 2011 at 6:07 pm

One Response

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