Tag Archives: Adam Smith

Revisiting Adam Smith

From time to time, a number of my friends have remarked on the GOP’s emphasis on Adam Smith’s The Wealth of Nations and  its corresponding neglect of his Theory of Moral Sentiments–a work that casts considerable doubt over the simplified message for which people cite Wealth of Nations .

Like most Americans, I was familiar with the citation and Smith’s celebration of “the hidden hand,” and unfamiliar with the work itself, so it was interesting and enlightening to read an essay/book review in the New Republic titled “The Betrayal of Adam Smith.”

I had always thought that Wealth was a single volume making a coherent argument about economics; apparently, I was very wrong.

To call it wide-ranging is an understatement; the opposite of a tightly focused, logical argument, its five volumes and 1,000-plus pages range over everything from the problems with apprenticeship to the origins of money to the “discouragement of agriculture in the ancient state of Europe after the fall of the Roman Empire.”

According to the author of the essay, the massive work was “replete with contradictory ideas.”

and The full complexity of his thinking was reduced to the catchphrase “the invisible hand,” even though (as intellectual historian Emma Rothschild has noted) the words appeared just a few times in his entire corpus of work, and only once in The Wealth of Nations.

The book that prompted this essay was “Adam Smith’s America,” by Glory M. Liu, what the reviewer calls an “intriguing account of Smith’s reception in the United States.”

The Wealth of Nations was published in 1776, the same year the Colonies declared their independence, and many of those who sought to break from Britain were familiar with Smith’s work—both Wealth and his earlier writing. As Liu shows, the first thinkers to make use of Smith in America were more inclined toward his musings about politics and psychology than any of his economic prescriptions. Nor did they interpret Smith in a way that narrowly aligned him with a particular political perspective

John Adams, most notably, drew on Smith to meditate on the political power of the rich. In an argument that echoes Smith’s in The Theory of Moral Sentiments (his first major book), Adams suggested that there was a deep tendency in human psychology to defer to the wealthy and powerful and to treat them with an esteem that was unseemly for democratic citizens. Smith had warned that the poor man was “ashamed of his poverty,” while the rich man gloried in the “attention of the world” that his wealth conferred. This genuflection, Adams insisted, was still present in the new republic. Wealth had a way (as Liu puts it) of transmuting itself into power even in a constitutional order that lacked an aristocracy.

One of the lessons Americans took from Smith was that countries don’t become rich or poor due to geographic luck, climate and resources (or God smiling on the inhabitants), but rather on how it organized labor—on human will, ingenuity, and effort.

In earlier works, Smith wrote that “sympathy”—or the ability to identify with the pain and joy of others—was among the “original passions of human nature,” and that “the greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.”

How could this be congruent with his argument in Wealth that “self-love”—the “propensity to truck, barter and exchange one thing for another”—was what set humanity apart from other animals? …Self-interest was the defining principle of human nature, and the source for the immense division of labor that produced “general opulence” without anyone quite planning that it would do so. But how to reconcile self-interest with sympathy?

An early Chicago School economist wrote that Smith saw a “wide and elastic range of activity for government,” believing that “self-interest and competition were sometimes treacherous to the public interest they were supposed to serve”—and that collective action is sometimes necessary.

It was later economists–especially Milton Friedman, Friedrich von Hayek, and George Stigler– who are responsible for our current understanding of Smith.

They were drawn to Smith for his commitment to the idea of individual self-interest as the principle that underwrote the entire theory of the price mechanism. For them, as Stigler wrote, The Wealth of Nations was “a stupendous palace erected upon the granite of self-interest.”

That current, truncated understanding of Smith is the “betrayal” of the title.

The essay/review is lengthy, but it’s well worth reading in its entirety. Today’s misunderstanding of Smith is an example of what happens when readers approach a work through an ideological lens. “Captains of industry” emphasize the “hidden hand” in much the same way contemporary theocrats cherry-pick passages from the Bible.

Both  are betrayals.