Adam Smith's influence

In this mis-titled piece, Melvyn Bragg names Smith’s Wealth of Nations as one of the 12 most influential books of all time.

Which raises the question: what exactly is Smith’s influence? The Times’ lead story suggests his belief in limited government hasn’t won over even his own countrymen.

Nor was Smith the first political economist. William Petty and several Frenchmen have a better claim to that title.

Most people, I guess, would argue that Smith’s influence lies in the concept of the invisible hand, the mechanism whereby we all benefit from each other’s self interest:

Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. 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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. (Chapter 2 here)

Four things are important about this passage.

1. This principle represents only a tiny fraction even of book one (of five) of the Wealth of Nations.

2. Smith thought self-love was circumscribed by conscience. This is one reason why men trade, rather than just rob each other; his Theory of Moral Sentiments – a more popular book in his own lifetime – was devoted to this.

3. This idea was not a new one. Fifty years earlier, Bernard Mandeville wrote that private vices were public virtues. His Fable of the Bees was written, he said:

to shew the Vileness of the Ingredients that all together compose the wholesome Mixture of a well-order’d Society; in order to extol the wonderful Power of Political Wisdom, by the help of which so beautiful a Machine is rais’d from the most contemptible Branches. For the main Design of the Fable, (as it is briefly explain’d in the Moral) is to shew the Impossibility of enjoying all the most elegant Comforts of Life that are to be met with in an industrious, wealthy and powerful Nation, and at the same time be bless’d with all the Virtue and Innocence that can be wish’d for in a Golden Age.

4. The context of Smith’s passage is often forgotten. Self-love doesn’t (just?) make us better off because there are gains from mutual trade; the principle of comparative advantage comes from Ricardo or Torrens, not Smith. Instead, Smith says, self-love creates wealth by encouraging the division of labour, which raises productivity:

In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business.

However, although Smith lauded the division for its impact upon productivity, he also condemned it for its impact upon human development. This passage could be – but isn’t - Marx’s:

The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. 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. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging…It is otherwise in the barbarous societies. (Book V ch1 part II)

This suggests Smith saw a fundamental conflict between a thriving market economy on the one hand, and human development on the other. The division of labour, on which the former is founded, necessarily retards the latter. Few of Smith's admirers, I suspect, realize this.

Sadly, then, I don’t think Wealth of Nations is as influential as Melvyn Bragg believes.

But it should be.

Comments

[ivan]

Bragg's list is incredibly chauvinistic. As if only British books change the world.

[Matthew]

It's not, it's designed to be 12 British books that have changed the world (Chris has inadvertently put a 'the' before 12). Bragg's quite clear on this:

By omitting the definite article — these are not the 12 books — I believed a case could be made for 12 books from these islands and that is what I try to do.

[rjw]

Yes, comparative advantage was later. In fact, Harry Braverman took Smith to task for missing out comparative advantage as a prime driver behind the division of labour, in the first part of his classic "Labour and Monopoly Capital".

Braverman's argument was of course quite specific with a very Marxist flavour - - it was not gains from increasing specialisation that underpinned the division of labour, but the fact that breaking a complex job up into its simplest components meant that you could get it done more cheaply.

So far from a wider division of labour being the source of increased specialisation and "up skilling", it meant breaking down of jobs into component functions and "deskilling". The debate still goes on.....

[Innocent Abroad]

The full title of Smith's work is salutary, too: An Inquiry into the Nature and Causes of the Wealth of Nations - note that plural. Was he the last economist not to try to grind a political axe?