Guidebook to the Wealth of Nations: CH 12: Legacy
Abstract:
The Wealth of Nations can be seen as a “living” book. It is a book that asks questions we are still asking today. How do we decrease poverty? How do we decrease the disruptive powers of special interest groups? How do we get a just and productive economy and thus society?
Chapter 12: Legacy
The Wealth of Nations is an old book. It was published in 1776. One of the most famous editors of the book, Edwin Cannan, described it in the following terms during the celebrations of the 150th year of its publication:
Very little of Adam Smith's scheme of economics has been left standing by subsequent inquirers. No-one now holds his theory of value, his account of capital is seen to be hopelessly confused, and his theory of distribution is explained as an ill-assorted union between his own theory of prices and the physiocrats' fanciful Economic Table. His classification of incomes is found to involve a misguided attempt to alter the ordinary useful and well-recognised meaning of words, and a mixing up of classification according to source with classification according to method or manner of receipt. His opinions about taxation and its incidence are extremely crude, and his history is based on insufficient information and disfigured by bias. (Cannan, 1926, p. 123)
Cannan was right. The book is not just old. It is dated. Yet, with Karl Marx’s Das Capital, it is to this day the most important and famous book in economics. It is also a book that draws to itself scholars from different disciplines. Why? Why is the Wealth of Nations still read and important even today?
I do not have a specific answer, but I shall suggest some possible reasons for why the Wealth of Nations is considered a classic and part of the great books that shaped Western thought.
First, Adam Smith is a philosopher, in his own meaning of the term. He is someone who specialized in observing, making connections, and systematizing the observations he collected. He follows an implicit yet rigorous method, the same scientific method we use today in scientific analysis. He may have borrowed this method from the natural sciences and applied it to the moral sciences, or social sciences as we would say today. His contemporary, compatriot, and friend David Hume more explicitly called for the development of a “science of man”. Adam Smith may have picked up on Hume’s challenge and actually developed this science.
As we saw in the introduction of this Guidebook, in an essay on metaphysics, published posthumously, Smith claims that the object of science must be what is permanent. And while human beings are always changing, human nature is not. In the Wealth of Nations, he seems to have applied this idea to study how we achieve prosperity. With the strict assumption of constant and unchangeable human nature, he endeavors to find out exactly what changes, examining how different customs, institutions, and levels of wealth emerge. His scientific method is what we recognize today, despite all the “crudeness” that Cannan identifies.
As we saw in the introduction of this Guidebook, in an essay on metaphysics, published posthumously, Smith claims that the object of science must be what is permanent. And while human beings are always changing, human nature is not. In the Wealth of Nations, he seems to have applied this idea to study how we achieve prosperity. With the strict assumption of constant and unchangeable human nature, he endeavors to find out exactly what changes, examining how different customs, institutions, and levels of wealth emerge. His scientific method is what we recognize today, despite all the “crudeness” that Cannan identifies.
It may not be an accident that Adam Smith is looked at with interest and awe by contemporary economists who do experimental economics. Experimental economics is a relatively new branch of economics which uses laboratory and field experiments with human subjects. The 2002 Nobel Prize winner in economics, Vernon Smith, is a pioneer not only in experimental economics, but also of incorporating the work of Adam Smith into this field. Today’s experimental results, in part, forced economists to question the validity of the assumption of self-interest as the sole motivation of Homo Economicus and the relevance of his behavior. As a close reading of the Wealth of Nations demonstrates, Homo Economicus cannot be found in it.
Instead, there is a human being with a variety of instincts, passions, emotions, including of course self-interest, but also vanity, envy, and resentment, just to mention some.
Adam Smith, like Vernon Smith today, prefers to describe human actions as “conduct” rather than “behavior”. Behavior implies a sort of mechanical response to specific incentives. Conduct implies more of an understanding of the different circumstances and motivations in which an action takes place, so the same set of incentives may generate different responses depending on the understanding of the context. Conduct also implies judgment, and judgment implies the perception of context and intentions. Our systematic perception biases may tilt judgment as both Smith and experimenters observe.
Adam Smith himself judged the policies in place in Britain at his time. His judgment was based not only on efficiency, as we would expect from an economist of today. Smith was quite comfortable, and quite explicit too, in expressing moral judgments. His loud condemnations of the mercantile system is based on efficiency, yes, but also, and particularly, on justice.
Another Nobel Prize winner in economics (1986), James Buchanan goes so far as to claim that:
Adam Smith considered the Wealth of Nations to be a demonstration that the “system of natural liberty”, which emerged from fundamentally normative criteria of justice, could also meet efficiency criteria. [We tend to] overlook the noneconomic, or more generally, the nonutilitarian, foundations of the “natural system of perfect liberty and justice. […] Smith may well have conceived his masterpiece to be an argument to the effect that the system which was acknowledged to embody justice could also be efficient.” (Buchanan, 1978, p. 70-77)
Buchanan may have put his finger on another reason for the long lasting interest in the Wealth of Nations. The Wealth of Nations is not just a book about specific policy prescriptions or specific economic concepts. The Wealth of Nations is also a book about big ideas and big questions, ideas and questions with which we still grapple today.
We too often forget that the book is actually titled An Inquiry into the Nature and Causes of the Wealth of Nations: an inquiry! And in a sense what we care about today are these inquiries, these questions, not necessarily the answers given. This is why even if we think the answers are wrong, we still want to hear them, because we are asking the same questions.
Adam Smith asks: what would a just system which also promotes the well-being of humankind look like, given the imperfect and non-perfectible nature of humankind? How do we get there? How can we preserve it?
When we look at The Wealth of Nations in this way, we can start to see its long lasting appeal. The questions Smith asks are questions that are of interest to us too, and will be of interest in the future as well. His policy prescriptions may be particular to his time and may or may not be appropriate for ours, but by being hooked by his questions, we can and do overlook the specificity of his answers and we look for answers that are appropriate to our time. The curiosity that Smith still generates today can be witnessed in the extremely large body of literature on him and his work, as testified by my own (2015) survey and by the multitude of edited volumes on his works (eg. Haakonssen, 2006; Young, 2009; Berry, Paganelli& Smith, 2013, Hanley 201?).
Smith links the understanding of the nature and causes of the wealth of nations to understanding a “system of natural liberty”, which for him may be what allows nations to grow wealthier. But Smith’s questions are so big and so appealing because they are not just technical questions. They are moral questions as well. They have a technical as well as a moral dimension. After all, Smith writes in a time in which the strict disciplinary distinctions are still not present. He is a professor of Moral Philosophy. He writes The Theory of Moral Sentiments before the Wealth of Nations, and keeps editing both until his death, as he sees both as part of a bigger project which should have also included a part on jurisprudence that was not completed. The answers can be positive, but the choice of questions is a normative choice in the Wealth of Nations. Or, maybe, especially in the Wealth of Nations (Bittermann, 1940).
For Smith wealth and justice are to grow hand in hand. A nation can grow wealthy only if its growth is accompanied by justice. This is why James Buchanan claimed that the Wealth of Nations can be read as a book about justice, about a just system which could also be an efficient system.
Smith is concerned about understanding how countries grow wealthy, but one of the reasons, if not the main reason, for his concern is that in poor countries people unjustly die, while in rich countries people have more chances to live, to live longer, and to live better.
This is how Smith himself explains the motivation of his work, in the Introduction of the Wealth of Nations:
Some countries are so miserably poor, that, from mere want, they are frequently reduced, or, at least, think themselves reduced, to the necessity sometimes of directly destroying, and sometimes of abandoning their infants, their old people, and those afflicted with lingering diseases, to perish with hunger, or to be devoured by wild beasts. (WN Intro, 4, p. 10).
Some countries can be so poor that people “dispose of children in the streets at night,” or have them “drowned like puppies” (WN I.viii.24, p. 90). A woman in the poor parts of the Scottish Highlands usually bears twenty children, but she is lucky if only a couple survive (WN I.viii.23, p. 88). Poverty is the unjust cause of suffering of the weakest of society; it is the weakest of society who suffer the most unjustly, it is the weakest of society who unjustly die. Poverty kills infants, the old, the sick. Smith wants to investigate the nature and causes of wealth because for him a poor worker in a wealthy nation could live better than “an African king, the absolute master of the lives and liberties of ten thousand naked savages” (WN I.i.11, p. 24). We should care and understand wealth because wealth is what gives us the means to live, and to live relatively longer, better, and freer lives.
The combination of our natural propensity to truck, barter, and exchange, our natural desire to better our condition, the division of labor, capital accumulation, and some luck, allow for “the silent and insensible operations of foreign commerce” to break the chains of poverty and dependency. In Smith’s view commerce brings wealth, liberty, and justice.
Smith wants to understand a “system of natural liberty”, which for him may be what allows nations to grow wealthier, and therefore with more “order and good government, and with them, the liberty and security of individuals” (WN III.iv.4, p. 412).
The dichotomy of the state versus the economy, or polity versus the economy, despite what Joseph Spengler may claim (Spengler, 1978), is therefore an alien imposition on Smith. A sharp division between the state and the economy is not going to help us understand the nature and the causes of wealth. For Smith, as a nation grows wealthier, its institutions grow more complex, and the protection of justice also grows more complex. A society of hunter-gatherers has a very limited government. But also a very limited wealth. As wealth grows, the demand for government grows too. As Benjamin Constant, a good reader of Adam Smith, tells us, in antiquity it was easier to have more people directly involved in political decisions because few people worked. Today, in commercial society, we are interested in our businesses and are more than happy to delegate many political decisions to others. So we rely more and more on government, and the government therefore grows with the growth of the economy. Again, we may or may not agree with Smith’s answers, but questions of the relationships between the state and the economy are still ones we ask today.
But the same propensity to truck, barter, and exchange and the same presence of government can also create both conflicts between masters and workers as well as mercantile empires, both of which enrich a few at the expense of many. Smith does not pull his punches against the commercial privileges bought for a few big merchants and manufacturers with the “blood and treasure” of a country’s citizens (WN IV.vii.c.63, p. 613). The Wealth of Nations can be read therefore as a great anti-colonialist and anti-imperialist tract. Smith himself sees his work as a “violent attack against the whole commercial system of Great Britain.” His question is relevant for us too: if we manage to achieve a wealthy society, how do we preserve it? His solution against what today we would call lobbyists and crony capitalism, whether we agree with it or not, is competition.
The singing of the sirens in Homer’s Odyssey seduces and kills sailors. Despite knowing it, some sailors still go too close to them to resist their allurements. Similarly David Hume writes “And though men are commonly more governed by what they have seen, than by what they foresee, with whatever certainty; yet promises, protestations, fair appearances, with the allurement of present interests, have such powerful influence as few are able to resist. Mankind are, in all ages, caught by the same baits: the same tricks, played over and over again, still trepan them.” (363)
The mercantile baits are indeed played over and over again over the centuries, including in our days. Adam Smith’s “violent attacks against the mercantile system” in the Wealth of Nations may offer us, today and tomorrow as well as it did in the past, that rope that tied Ulysses to the mast of his ship. It is a rope that enabled his survival as he sailed through the siren -infested seas, protecting him from his human tendencies. As long as mercantile interests allure people into restricting the size of the market, the Wealth of Nations will have something to teach us. As long as we are interested in big questions about the human condition the Wealth of Nations will have something that makes us think.
Further readings:
Berry, Christopher J., Maria Pia Paganelli, and Craig Smith, eds. 2013. The Oxford Handbook of Adam Smith. Oxford and New York: Oxford University Press.
Bittermann, Henry J. 1940. "Adam Smith's Empiricism and the Law of Nature: I." Journal of Political Economy 48 (4): 487-520.
Buchanan, James. 1978. "The Justice of Natural Liberty." In Adam Smith and The Wealth of Nations: bicentennial essays 1776-1976, by Fred Glahe, 61-82. Boulden, Colorado: Colorado Associated University Press.
Cannan, Edwin. 1926. "Adam Smith as an Economist." Economica 123-134.
Haakonssen, Knud, ed. 2006. The Cambridge Companion to Adam Smith. Cambridge: Cambridge University Press.
Paganelli, Maria Pia. 2017. “240 Years of Adam Smith’s Wealth of Nations” Nova Economia. 27.2: 7-19
Smith, Vernon and Wilson, Bart. 2018. Humanomics. New York: Cambridge University Press.
Spengler, Joseph. 1978. "Smith versus Hobbes: Economy versus Polity." In Adam Smith and the Wealth of Nations: Bicentiennail Essays 1776-1976, by Fred R. Glahe, 35-60. Boulder, CO: Colorado University Press.
Young, Jeffrey T., ed. 2009. Elgar Companion to Adam Smith. Cheltenham, UK: Edward Elgar Publishing.