Adam Smith: Father of Economics
By Jesse Norman
Basic Books, 432 pages
Adam Smith was a distinguished man in his native Scotland, especially in Edinburgh, where he taught not economics, since the subject did not exist yet, but moral philosophy. But as a friend and guest at dinner parties, he could be trying. When he spoke, which was rarely, he spoke at interminable length, which was embarrassing to guests and hosts alike. One remembered him as “the most absent man in company that I ever saw, Moving his Lips and talking to himself, and Smiling, in the midst of large Company’s.” One time at table he suddenly began excoriating a leading Scottish politician; someone pointed out that the man’s closest relative was sitting within earshot. “Deil care, deil care,” Smith grumbled, “it’s all true.”
Today Smith’s reputation as the prophet of free market economics, and of the “invisible hand” of self-interest guiding the wealth creation those markets produce, has swollen almost to the point of caricature. Jesse Norman, a prominent Member of Parliament for the Conservative Party in Britain and the author of Edmund Burke: The First Conservative, now offers us a biography of “the father of economics,” as Adam Smith’s subtitle dubs Scotland’s most famous thinker.
Norman’s goal is to smooth away some of that caricature of Adam Smith as the apostle of laissez-faire (a term which never appears in any of Smith’s works) capitalism to arrive at a more nuanced portrait of the true historical Smith, and the profound genius, underneath. In the process, Norman has produced a finely written and complex biography with two enormous virtues and one serious, but not fatal, flaw. Fortunately, the flaw does nothing to mar the rest of the discussion, since it mostly comes toward the end. In fact, one could read the book while skipping the conclusion, ominously titled “Why It Matters,” and still come away with a rich grasp of Adam Smith’s real contribution to understanding humanity, not just economics, and of why Smith found it necessary to say what he did, the way he did.
First, Norman correctly puts Smith into the context of his Scottish background and the Scottish Enlightenment of the eighteenth century, the “burst of genius” that produced not only Smith but the philosophers Francis Hutcheson and David Hume, the historian William Robertson, the biographer James Boswell, the chemist Joseph Black, the master of the steam engine James Watt, and the novelist Sir Walter Scott. It was these Scots, Smith included, who inspired my own contribution to this subject in How the Scots Invented the Modern World, because as a group (with the exception of Scott, they all knew each other and frequently met) they were engaged in trying to understand how their native land was going to be transformed by its 1713 union with their more affluent and more evolved neighbor to the south, England. In doing so, they defined the main characteristics of what it means to become a modern society, which includes the bad with the good.
Adam Smith would be at the center of that effort. He was born in Kirkcaldy, near Edinburgh, in 1723. His father was a customs inspector who had to deal with the daily frustration of enforcing onerous new regulations imposed by the Act of Union, which turned otherwise law-abiding citizens and merchants into law-breakers in order to evade the imposed duties that threatened their livelihoods. It was an early lesson for Smith in how human ingenuity will work to overcome rules and regulations that fly in the face of what motivates us all: the desire to defend our own interests.
Smith’s later studies at the University of Glasgow and then Oxford, and his encounters with Scotland’s budding business entrepreneurs in Glasgow and Edinburgh, only confirmed his belief, as stated in a famous passage in his An Inquiry into the Origin of the Wealth of Nations:
bq(blockquote). The natural effort of every individual to better his own condition . . . is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations.
The world of business and trade, which became the primary focus of Smith’s analysis, was only one expression of this impulse for self-betterment, which he found to be universal among humanity.
Second and equally correctly, Norman treats Smith as more of a moralist and philosopher than an economist in the modern sense. Indeed, throughout the book Norman draws a contrast between Smith and the kinds of economists who head up the American Economic Association or end up running the Federal Reserve or the Council of Economic Advisors—much to the latter’s disadvantage. Further, Norman emphasizes a point I have stressed for years: that reading Wealth of Nations without first reading Smith’s earlier works, The Theory of Moral Sentiments and Lectures on Jurisprudence, is like reading Goethe’s Faust Part II while skipping Part I; or to use a more modern comparison, watching Godfather Part II without first watching Godfather Part I.
This is because Wealth of Nations was the culmination of Smith’s life’s work to understand what the eighteenth-century Scots termed the science of man—“how humans become human,” as Norman puts it—and in particular what makes us effective moral actors. From his great teacher at the University of Glasgow, Francis Hutcheson, Smith learned one angle of approach to that question; from his lifelong friend David Hume, another. Smith’s great achievement was to meld the two into a new understanding of human action, including our actions in the world of exchange and markets—a better understanding, perhaps, than any before or since.
Francis Hutcheson taught that, contrary to the orthodoxy of the reigning Scottish Presbyterian Church (of which Hutcheson was, ironically enough, an endowed minister), human beings are far from innately sinful; they are, in fact, naturally inclined to virtue. The proof is rooted in our own experience: all around us the people we interact with are, by and large, more inclined to do the right thing by others than otherwise, as we are to them. Were this not the case, life in society would be unbearable. Why does this happen? Hutcheson’s answer was that as human creatures God has given us all an inborn moral sense that expresses itself in our natural relations with others, especially in the emotion of love. “There is no mortal,” Hutcheson once wrote, “without some love toward others, and a desire of the happiness of some other persons as well as his own.”
Happiness is in fact the goal of all humanity (a thought not lost on a later Hutcheson admirer and the author of the Declaration of Independence, Thomas Jefferson), while the highest form of happiness for Hutcheson comes from making others happy and preventing others from suffering. Hutcheson was the first European philosopher to speak out against slavery, stating that “nothing can change a rational creature into a piece of goods void of all rights.” His student Adam Smith would also be a sharp critic of slavery, but on more practical as well as moral grounds, thanks to the influence of the Scottish philosopher he befriended in the 1750s, David Hume.
Hume’s writings, including his path-breaking Treatise of Human Nature, offered Smith a more skeptical, even cynical, perspective on the problem of human happiness, and what makes human beings good rather than bad. Hume concluded that what makes us human is not an innate moral sense or even our reason—“reason is, and ought to be, the slave of the passions,” Hume wrote—but the most powerful passion of all, the passion for self-gratification, which is universal and unquenchable. Left to itself, the result would be utter chaos. Instead, society’s need for order to advance and prosper teaches us to treat others with regard and respect, in the expectation that they then will treat us with the same respect—or else have our own self-interest penalized, by fine or even by prison. This secular version of the Golden Rule, then, allows us all to advance our self-interest without undue interference—especially the desire to possess that which we deem belongs to us and us alone, namely our private property.
Two views of man; two different goals for human happiness—one through serving others and the other through serving ourselves. What Smith did in his Theory of Moral Sentiments, published seventeen years before Wealth of Nations, was first to revise Hutcheson’s innate moral sense in the harsher light of Hume’s insight that society can’t just rely on an inborn moral goodness to maintain a peaceable kingdom; second, he tempered Hume’s relentless passion for self-interest with something higher and more noble: what Smith called “fellow feeling” and a natural identification with other human beings. When we see others suffer, we suffer—in our imaginations. When we see them happy and content, our imaginations make us feel the same contentment and inspire us to look for ways to extend that contentment both for them and ourselves; or, alternately, to relieve the suffering of those who suffer.
Morality, then, for Smith, is more than just an exercise in self-restraint or obeying society’s rules. It involves a leap in imagination that enables us to put ourselves in another’s place and then spurs us to do what’s right, either to alleviate suffering or enhance well-being, since then we feel the same well-being: just as the best laws of government, Smith concluded, work to prevent us from “hurting or disturbing the happiness of one another”—and ultimately nothing more.
Likewise, when we see a person who is richer and more affluent than ourselves, it spurs us (or some of us at any rate) to want to be rich, too. “The pleasures of wealth and greatness,” Smith wrote, “strike the imagination as something grand, and beautiful, and noble, of which the attainment is well worth all the toil and anxiety which we are so apt to bestow upon it.”
That crucial passage comes not in Wealth of Nations, but in Theory of Moral Sentiments. But the insight holds true for both. In the end, Smith concludes, what makes nations rich is not natural resources, geography, or superior technology (Jared Diamond’s bestselling Guns, Germs, and Steel would inspire gales of laughter from Edinburgh’s Professor of Moral Philosophy), but the power of imagination: the society that is best able to harness the energies of people with the imagination to see themselves as rich, and to apply themselves assiduously to getting there, will create riches that other societies can hardly dream of. “It is this deception,” Smith writes, meaning the trick our minds play to inspire our pursuit of wealth, “which rouses and keeps in continual motion the industry of mankind,” a view otherwise known as capitalism.
This doesn’t happen all at once. It takes a long process of social and political evolution, known to Smith and his contemporaries as the advance of “commercial society,” of which the Renaissance had been the awakening for Europe. That advance, however, still depends on those few who are willing to focus themselves tirelessly on the tasks that will enable them to gratify their desire for personal advancement by producing the goods and services that others will buy and that they can best supply. This self-selective process comes to be known as the division of labor (David Hume had identified the process even earlier as “the partition of employments”), which ultimately results in “so great a quantity of everything . . . that there is enough both to gratify the slothful and oppressive profusion of the great, and at the same time abundantly to supply the wants of the artisan and peasant”—or even, Smith was willing to admit, a professor of moral philosophy. Far better to be a poor man in a rich country than a rich one in a poor country, Smith was saying, as every Guatemalan trying to escape into the United States—or every son or daughter of a Bangladeshi government bureaucrat struggling to get a student visa to Harvard or Columbia—knows.
As Norman also points out, Smith didn’t see capitalism with rose-tinted glasses. Our author delineates five myths about Smith and Wealth of Nations he wants to dispel (to Norman’s credit, in my How the Scots Invented the Modern World, I was only able to identify three). One myth is that Smith believed in an invisible hand guiding the creation of the wealth of capitalism; in fact, when the term appears in both Theory of Moral Sentiments and Wealth of Nations, it is meant ironically. Nor did Smith admire or worship businessmen. He often speaks of their “mean rapacity” and “monopolizing spirit” and warned that “the government of an exclusive company of merchants is, perhaps, the worst of all governments for any country whatsoever.”
Nor did Smith believe that a market-based order was perfect or even perfectible. In the end it’s simply better, and more rational, than the one put together by the wishes of politicians or bureaucrats. And it’s here, in fact, that Norman starts to run into trouble. Smith certainly recognized a vital role for law and the state in maintaining and sustaining a market-based social and economic order, such as building bridges and providing a constant level of education that can counteract the lowering of cultural standards that the endless pursuit of wealth, and the relentless division of labor, can sometimes entail. One worry Smith had, for example, was that a purely commercial society would “sink the courage of mankind and extinguish the martial spirit,” so establishing a national militia, with the right of citizens to keep and bear arms, would be one way to make up for that loss.
All the same, none of this permits turning Smith into an advocate for the modern interventionist state, or into some kind of “compassionate conservative,” as Norman tries to do in the later chapters. Here Norman’s interpretation of Smith’s criticism of capitalism, including what we would call today crony capitalism, reads more like Norman’s own. Norman claims that “Far from being intrinsically opposed, states and markets rely and benefit from each other.”
This reads more like Georg Friedrich Hegel than Adam Smith. For Smith, belief in the free market wasn’t an intellectual dogma, but a basic lesson of history and human experience. As Smith himself took pains to point out, monopolies and crony capitalism are products of the interventionist state, and often disguised by the highest motivations (nothing about the case of Solyndra would surprise him). Smith knew all too well that the actions of politicians and bureaucrats are as much motivated by self-interest as those of the most grasping businessman; it’s just that the workings of the market can act as an effective check on private greed and dishonesty. None exists to check those who control the levers of political power, except the rule of law and the occasional election. And in the modern administrative state, as we’ve learned recently, even those can be ignored with impunity.
Indeed, there is a further danger. That is that the liberal conscience built on “fellow feeling,” which Smith identified, can be manipulated to betray its own principles by those who have a very different agenda. Call it the Popular Front Syndrome: the last century is littered with the destruction and chaos caused by liberals who fall for the humanitarian lines peddled by the totalitarian Left.
Smith was very clear: soft-hearts should not mean soft-heads. When Smith tempered the moral altruism of Francis Hutcheson with the skeptical chilliness of David Hume, he was doing so against a backdrop of historical truth: relying on others, including government, to respect and protect our rights is a mistake. And relying on government to save ourselves from ourselves, including from the workings of the free market that we find unfair, usually produces more harm than good.
Adam Smith saw clearly the shortcomings of a society organized around the principles of self-interest and the calculation of profit and loss. But he also believed the benefits were worth the price of admission: a society that can feed itself, not just a privileged elite; a society that can relieve the poverty of even its most unproductive members; a society that recognizes the importance of the individual and agrees to leave him alone to pursue his own ends; and a society that sees more benefit in doing business with its neighbors than in robbing or conquering them deserves our respect and gratitude, not our scorn.
It’s those who think they have a better way than capitalism to organize modern society who need to stand in the dock. That may be offensive to some; but deil care, as Smith might say, it’s all true.