A Literal versus Historical Reading of Adam Smith

January 19, 2023

This is the second in a series of writings between Muller and Soll. You can read the previous and following pieces at the below links.

Jerry Z. Muller's “Muller on Soll's Free Market: The History of an Idea” (previous)

Jerry Z. Muller’s “An Accurate versus Inaccurate Reading of Adam Smith” (following)

Jacob Soll's “Adam Smith’s Misunderstanding of Wealth Creation and His Abhorrence of Greed” (following)

Jerry Muller’s review of the Adam Smith chapter of my book, Free Market: The History of An Idea, is a good opportunity to revise some essential myths about Smith and to show that Muller and others read Smith in a limited and literal way that ignores the historical world in which Smith wrote. Muller offers a series of quibbles with my footnotes, paraphrases, and interpretations, which he is free to do. However, it seems to me that approach is literalist in the extreme. Having too narrow a sense of context keeps us from being able to accept divergent and complex interpretations, and simplifies Smith into a one-dimensional modern caricature, and this is exactly what my chapter is trying to counter.

First, Muller takes issue with my characterizations of Friedrich Hayek as wanting “no government.” To be sure, Hayek never literally says “no government,” but to hold Hayek up as someone committed to the state’s proper role in providing social welfare (The Road to Serfdom, pp. 148-150) is to distort his essential argument about economics: that the state should have no role at all in central economic planning, such as in maintaining price stability or maximizing employment. Hayek cites Smith on the pages I cite, backing up this claim, which is inaccurate. Smith supported the Navigation Act of 1651 (in his words, “perhaps the wisest of all commercial regulations in England”) which included foreign tariffs, some subsidies to infant industries, and national controls on shipping. By Hayek’s measure, all of the above state economic actions could be considered dangerous. By associating Smith with his critique of what he calls “collective planning”—but which, again, could also be called national economic strategy—Hayek simplifies and reduces Smith to a sort of precursor to his modern form of anti-statist economics, which did not exist yet. Indeed, Smith simply did not have a concept of modern totalitarian government. Whether one agrees with Hayek or not, Hayek’s understanding of Smith is historically inaccurate.

Muller further claims that two passages quoted from TMS (TMS I, ch. 1,para1; III.ch.2, para 9) have “nothing to do” with the claim in my text that Smith believed educated, landowning elites who had studied moral philosophy were most likely to have the “pity” and “compassion” necessary to lead in a benevolent society. In this chapter of my book, I give the reader a summary of the moral world sketched out in TMS. There is no question that I move quickly through the text, jumping from passage to passage, providing an historical reading to reconstruct Smith’s new idea of how to build a better society through pity and compassion. Perhaps I could have explained this reconstruction in greater detail to the reader. But in the end, I don’t believe there is any problem or “disconnect” between the passages cited in my footnotes and my argument.

But let me walk the reader through my quotes. From the first paragraph of TMS, Smith has set a standard for the moral leaders of society. In paragraph 1, Smith says, “Of this kind is pity or compassion, the emotion which we feel for the misery of others when we see it or are made to conceive it in a very lively manner.” For Smith “we” always means the person who is closest to high moral understanding. Knowing the context in which Smith wrote TMS, his “we” refers to those of his world, ideally the people best trained in moral philosophy (which was his business as a professor, author, and tutor of the landed elite): Smith’s colleagues, students, and patrons. In any case, Smith’s aristocratic patrons saw themselves as Smith’s virtuous and humane “we” and embraced TMS and promoted it.

Smith is clear that it is not only the most virtuous members of society who can best feel compassion: “For this sentiment […] is no means confined to the virtuous and humane, though they perhaps may feel it with the most exquisite sensibility.” As he says in the same paragraph, even “the greatest ruffian […] is not altogether without it.” In other words: those of the lowest station have the potential to be part of a benevolent society, but they don’t yet have enough virtue and “compassion” to lead. Indeed, there are miserable people who fall out of virtue and end up in a total state of “despair.” The most exquisite “virtuous” and “humane” “we” does not include everyone.

In my second quote, section 3, chapter 2, paragraph 9, Smith says “the man who has broken through all these measures of conduct” in spite of his natural conscience, will “suffer despair and distraction, from which no assurance of secrecy can protect them, from which no principles of irreligion can entirely deliver them, and from which nothing can free them but the most abject and vile of all states, a complete insensibility to honor and infamy, to vice and virtue.” Some of these “detestable characters, who in the execution of the most dreadful crimes” can atone themselves by “thus becoming the objects rather of compassion than of horror, if possible to die in peace with the forgiveness of all their fellow creatures.” These men, who are able to remember and take back their moral selves, will escape some of this “despair” of their own immorality.

With regard to my quote on how the consoling emotion of “sympathy” can help heal “grief and resentment” (TMS Part 1, sec 1, ch.2 para 5) and create a better society to avoid war, Muller objects that the context of the Smith quote “has nothing to do with war.” But again, in a holistic reconstruction of Smith’s view of economic and social functioning, the Seven Years War (1756-1763), and the “jealousy of trade” were the great challenges facing Britain at the moment he was writing. The context is not incidental to Smith’s concern with sympathy, benevolence, and, as David Hume had put it before him, free trade. One could venture to say that it has everything to do with war.

Muller is, however, fair when he correctly shows that I should have footnoted my passage: “Evoking Aristotle and Cicero, he described the ideal legislator as finely educated, polite, and benevolent, partial only to the law itself. Only such men could practice the necessary self-restraint and ‘science’ of the civil law,” The proper reference note includes his Lectures on Jurisprudence in general, The Theory of Moral Sentiments, and Donald Winch’s “The Science and the Legislator: Adam Smith and After,” The Economic Journal (London), 1983, Vol.93 (371), p.501-520. To doubt that Smith’s legislator is supposed to be educated and high born ignores this important passage:

The leader of the successful party, however, if he has authority enough to prevail upon his own friends to act with proper temper and moderation (which he frequently has not), may sometimes render to his country a service much more essential and important than the greatest victories and the most extensive conquests. He may re-establish and improve the constitution, and from the very doubtful and ambiguous character of the leader of a party, he may assume the greatest and noblest of all characters, that of the reformer and legislator of a great state; and, by the wisdom of his institutions, secure the internal tranquility and happiness of his fellow-citizens for many succeeding generations (TMS, VI, ii, 2, 14).

While Smith recognizes that aristocracy alone does not suffice to make good people or virtuous legislators, the truth remains that Smith understood those who headed eighteenth-century parties and sat in Parliament were his patrons: the rich landowners and the agrarian elite. For Smith, the good leader had to be someone of great moral self-discipline and benevolence associated with Cicero, and, in this case Plato, who could push back against the “prejudices of the people.”

“The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniences which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the best system of laws, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear (TMS VI, ii, 2, 15).

Muller’s most important critique of my Smith chapter is what he sees as my “main contention, namely that Smith believed that land and agriculture were the only source of a nation’s wealth.” Smith believed that all wealth came from agriculture and was then augmented by commerce and manufactures. Smith was very clear: wealth could not be created by manufactures alone and industry could never surpass agriculture. These statements go against the fundaments of modern capitalism, which was emerging at the time Smith was writing. Importantly, I don’t make clear enough that I believe that although Smith claims to be against the physiocratic idea that merchants are sterile in value, he comes up with an economic theory that, at its core, differs only in emphasis from physiocracy. Just because Smith says at one point that he is against physiocracy doesn’t make it totally true. Indeed, Smith says that physiocracy “with all its imperfections is, perhaps, the nearest approximation to the truth that has yet been published upon the subject of political economy (WN, IV, ix, 38).” He still agreed with the doctrine’s central vision of the process of wealth creation. While Smith claims that merchants and manufacturers augment wealth and without them, there cannot be opulence, they rely on farming due to their productive superiority. Indeed, commercial production was, for Smith, based on agricultural production. In spite of his critiques of the physiocrats, Smith still claims that manufactures can never produce as much wealth as farmers and that the towns depend on the country. While this is not exactly sterility, and maybe I should not have clumsily used the word, I would argue that its logic is very close:

No equal capital puts into motion a greater quantity of productive labour than that of the farmer. […]It is the work of Nature which remains, after deducting or compensating everything which can be regarded as the work of man. It is seldom less than a fourth, and frequently more than a third, of the whole produce. No equal quantity of productive labour employed in manufactures, can ever occasion so great reproduction. In them Nature does nothing; man does all; and the reproduction must always be in proportion to the strength of the agents that occasion it. The capital employed in agriculture, therefore, not only puts into motion a greater quantity of productive labour than any equal capital employed in manufactures; but in proportion, too, to the quantity of productive labour which it employs, it adds a much greater value to the annual produce of the land and labour of the country, to the real wealth and revenue of its inhabitants. Of all the ways in which a capital can be employed, it is by far the most advantageous to society.

Yes, Smith correctly questioned the physiocrats claim that “the labor of artificers, manufacturers and merchants, does not increase the real revenue of society WN, IV, ix, 32).” Smith further notes that to be a wealthy commercial nation, one needs commerce and manufactures. Yet physiocrats believed that commerce was important, even when sterile, which doesn’t make a lot of sense.

We ought not miss the massive implications of the idea that manufacturing could never produce as much as agriculture, an idea against which leading political economists had argued throughout the seventeenth century. Smith’s was an extreme statement to make when large scale mechanized spinning mills were emerging in the Midlands. All this was happening before Smith’s eyes and he could have mentioned it in his revisions of The Wealth of Nations. Smith was visionary, but he also missed a lot of basic and essential things, which is why his labor theory of value—that the value of a commodity is determined and measured objectively by the average number of labor hours necessary to produce it—was embraced by Marx, but was dropped by most economists after industrial, mechanized production showed its fallacies.

Indeed, Smith saw wealth creation as limited and nations as having an end-point in productive capacity (WN, I, ix, 14). The idea of a wealth limit as a relation to agricultural stock and subsequent production was the old agrarian vision which both David Ricardo and Thomas Malthus took from Smith. Smith believed that only labor, production, and exchange created value. Indeed, as Smith says, the division of labor’s wealth creation is neither based on creativity, innovation, nor industry, but rather “arises from the human propensity of human nature to truck, barter, and exchange one thing for another (WN, I, ii, 1).” Exchange grounded in agriculture is limited, while technological innovation is not. Smith, like his later pessimistic follower Malthus, did not see that innovation and mechanics could take wealth creation on a quantum leap. One can’t blame Smith for missing this, nor should one give him credit for modern capitalist thought that he did not have.

While Smith saw manufacturing as essential, he also saw it in medieval terms. Smith’s pin factory was a small fraction of the scale than Italian factories, such as Venice’s massive boat-building complex, the Arsenale, which was opened in 1104 and expanded into its larger complex in 1320. By the sixteenth century, more than 15,000 people worked there. The medieval managers of the Arsenale and all such big factories understood the division of labor, but they never described it as a system. This was Smith’s genius. Smith was right that the division of labor and a commercial society could produce wealth from human cooperation. Medieval merchants already had a clear view of this in early cost accounting in which they marked the value of the various divisions of labor into ledgers, but until Smith, no one had ever described it so clearly and brilliantly.

Finally, I acknowledge the objection to my saying that Smith supported slavery. It might not have been absolutely necessary for my argument, but I see Smith’s discussions of slavery as part of his authorial pattern of hedging and ambiguity—something to which we must always attend when reading him, and that makes literalist readings problematic. What is so interesting about Smith are his contradictions, and his secrets. When he burned his papers before his death, it was not to make his philosophical intentions clearer.

Smith’s many critiques of slavery contrasted with his lack of any call for abolition, along with his claims that it would be impossible to abolish slavery. This claim is quite particular given the context of growing and vociferous British abolitionism. While Smith condemns slavery by underlining its cruelty, lack of virtue and productivity, he is also very careful to point out that he did not think it was possible to abolish slavery because it was an ancient tradition, it was too lucrative, and it happened in the colonies: ”Slavery therefore has been universall in the beginnings of society, and the love of dominion and authority over others will probably make it perpetuall (Lectures on Jurisprudence on February 15th and 16th, 1763).” He also notes, “It is indeed almost impossible that it should ever be totally or generally abolished. In a republican government it will scarcely ever happen that it should be abolished. The persons who make the laws in that country are persons who have slaves themselves.” Of course, Smith got this wrong. Slavery was abolished in the British Empire in 1807, only 17 years after his death.

I think Smith’s claims that slavery was “perpetuall” was part of a very prudent game which allowed him to at the same time criticize and support it as inevitable and to never come into full conflict with the powers that be. Again, just because Smith says something, doesn’t mean that there is no nuance or deeper context to it. Glasgow was a center of the slave trade. Smith’s patrons, city, and university all directly and indirectly benefitted from it. It was very easy to make it clear that one was against slavery: one simply called for its abolition. Yet to do this would have made it very hard for Smith to be the chosen scholar and employee of powerful men such as the duke of Buccleuch, and to work as a customs tax collector.

The Smith scholar Emma Rothschild thinks that Smith’s invocation of the invisible hand was in some ways sarcastic. I think Smith’s hedge on slavery was part of his strategy as an author and canny professor, by which he was able to use nuance to his own advantage as the recipient of largesse from the Scottish establishment and as a popular author. Indeed, I think Smith’s success as an author was because he was a brilliant and often ambiguous hedger. He was vague on many topics and this vagueness has made him appealing for centuries to many people of different ideologies.

Therefore, I hypothesize that Smith might have been for slavery, and I should have nuanced my own statement. This is not some dishonest stance as some have claimed. Perhaps my reading is too subversive, and this is too impassioned an issue and it would have been better to leave it out of the book because it is a topic unto itself. That said, I think it’s interesting and worth more consideration and discussion. At the very least, it shows how modern caricatures of Smith miss the deep nuances in his thought and its context.

There have long been disagreements among those who dare interpret Smith, and these sometimes become critiques of individuals and scholarly methodology. It provides a terrific opportunity for debate and clarification. I find it interesting that my book on free market thought, whose thesis is that few market thinkers believed in general equilibrium before the 20th century, and that the tradition relied heavily on Ciceronian morals as well as on Colbert’s market-building approach, should become a lightning rod for agenda-driven journalists and commentators. The vociferousness of the attacks against my book by those attached to a very modern vision of Smith, or to the idea that he and other free market thinkers can always make sense in modern terms, reflect the current crisis of free market thought which is the very topic of my book. My work is, no doubt, imperfect, and some of its writing unclear, and even this response risks inflaming more argument. However, I stand by my statements and my evidence as a whole, and by my heterodox, though not wholly original readings of Smith. Every author seeks to provoke a response with their work, but I did not expect such a strong and passionate one. It makes me think that we could all do with reading Smith to understand compassion, benevolence, and polite and decorous argument.

Related Links
Steven Horwitz, Adam Smith on the Labor Theory of Value
Eric Schliesser, Smith's Labor Theory Thought Experiment
Ross Emmett, Adam Smith and T. Robert Malthus

Jacob Soll is professor of history and accounting at the University of Southern California. His many additional publications include The Reckoning: Financial Accountability and the Rise and Fall of Nations(2014) and The Information Master: Jean-Baptiste Colbert's Secret State Intelligence System(2010.)