How Many Economists Can Say They Read Adam Smith?

I have always wondered about this. Adam Smith is by far one of the most popular economists in history. But who has actually read Smith?

We are told that Smith was the first, or at least the one that popularized, the view that self interest, sometimes interpreted as selfishness leads to benefiting the common good. This is shown usually by referring to this passage:

…every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.

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.

This, of course, has some truth… Entrepreneurs seeking for profit, and does this by producing goods and employment does indeed benefit society, but should we really take what Smith states about self interest as absolute? Gavin Kennedy, a person who takes great interest in understanding Smith, thinks not, and he is right to take such a claim. Smith, for example, thought that some merchants shouted for protectionist polices only to benefit themselves, this is to say, they wanted to reduce competition and also increase their prices . Kennedy goes on in another post to defend what self interest actually means to Smith. Unlike the standard interpretation that self interest = greed or selfishness, Kennedy points out that Smith’s notion of self interest has a very moral substance to it. Self interest is obviously important, and quite obvious to see in everyday life, but if we wish to cooperate in society, we must also keep in mind the interests of others. Or as Kennedy states, ” [T]he nature of each bargain is summed by the expression “Give me this that I want and you shall have that which you want”. (In modern negotiating, I express this as “IF you do this for me, THEN I shall do that for you”).” This is quite a radical view. We are given the invisible hand metaphor and self interest examples of Smith as proof that Smith was this liberal fighting for hands free government markets! Kennedy blames the standard invisible hand metaphor as something that Paul Samuelson popularized.

The blame shouldn’t all be going to Samuelson though. Carl Menger, the founder of the Austrian School, also fought in favor for Smith against the standard government free interpretation of Smith that was popular in Germany at the time. The German Historical School, with the exception of Karl Knies, did not particularly like Smith, for they held that Smith was an economist fighting for laissez faire economics, an economist fighting for the interest of the rich over the worker, etc. So the German Historical School, like Samuelson, also misinterprets Smith. Menger wrote an article with a purpose to clear up misconceptions that the historical school had about Smith*. Here is Menger:

In all cases of conflict of interest between the rich and the poor, A. Smith stands without exception on the side of the latter. I use the phrase ‘ without exception’ very carefully. There are no places in The Wealth of Nations where A. Smith represents the interest of the rich and powerful against the poor and weak. While A. Smith quite positively recognizes the free initiative of individualism in economic matters, he supports in all the cases state intervention where the matter relates to the abolition of laws, and the application thereof, that suppress the poor and weak for the sake of the rich and powerful.

It is not true, indeed it is a forgery of history, to say that A. Smith was a dogmatic advocate of the ‘ laisser faire, laisser aller’ principle and that he believed that the completely free play of individual interests would lead to the economic cure of society. In various parts of his work, he admits that the efforts and interests of individuals and entire social classes stand in direct opposition to public interests. Not only did he accept state intervention in most cases, but he believed it to be an order of humanity considering the public welfare.

One can find the similarities between Kennedy’s and Menger’s interpretation of Smith. the biggest one being that Smith’s concept of self interest is incompatible with interpretations of greed or selfishness.

This, once again, raises questions on how radical of a liberal Menger was. People that study Menger’s life realize that he sees Smith has a big influence, probably his biggest influence. His concept of spontaneous order (which is also misinterpreted by a lot of Austrians) is arguably the same as Smith’s concept of the invisible hand.

Personally, I have always been skeptical of the standard interpretation of what the invisible hand implies, especially after reading Vaughn’s book Austrian economics in America

Nevertheless, classical liberalism, at least back then, saw an active state indeed. Modern libertarians need to realize this. They seem to only be concerned about what things classical liberals criticized the State for, and yet forget to look at the other side of the coin. In other words, classical liberals went far beyond just looking at a state to provide basic public needs (roads, security, law) and advocated interventions, which modern libertarians would look at as being anti market.

* I use this paper for passages

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23 responses to “How Many Economists Can Say They Read Adam Smith?

    • Indeed… I would definitely check out Gavin Kennedy’s blog (link in post)… A pretty good resource for Adam Smith. Michael Brady also has some decent amazon reviews on books by Adam smith and books about Adam Smith, in which he does clear up some misconceptions

      • I was going to refer to Dr. Michael Emmett Brady’s writings on Adam Smith. He’s a big fan of both Adam Smith and John Maynard Keynes. Also, speaking of Gavin Kennedy, were you aware that Gavin Kennedy linked to Dr. Michael Emmett Brady’s paper comparing and contrasting Adam Smith and John Maynard Keynes’s attitudes toward speculation with that of Jeremy Bentham’s?

        http://adamsmithslostlegacy.blogspot.com/2011/10/adam-smith-jeremy-
        bentham-and-keynes.html

        Here’s the link to Dr. Michael Emmett Brady’s paper.

        http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1728225

        I personally can’t claim to have read too much of Adam Smith. I hope to read The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations, but I lack the will and the time to properly see both tasks through. Regarding good sources on Adam Smith other than Gavin Kennedy, you also might want to check out Emma Rothschild and Amartya Sen’s work on the great Scottish philosopher-economist.

          • I wasn’t aware of that…what books by Emma Rothschild have you read?

            Also, what did you think of the links that I supplied in my previous post?

            Finally, did you receive my e-mail with the attachments containing the works of Dr. Michael Emmett Brady?

    • I knew I would get a comment like this… No the point isn’t that Austrians must agree with everything Menger states. Some points for this post are that :

      1) it gives some new insights on Menger’s views that are not widely known.

      2) it should give Austrians less of an incentive to look at all interventions as socialist. We look at Hoppe’s article and conclude from it that Hayek was a moderate social liberal, but looking at Menger’s writings, Menger seems to be ‘more interventionist’ than Hayek, so if Hayek was a social democrat, what label should be given to Menger? Calling Menger a socialist also would be absurd to many Austrians, given that he is the founding father of the school!

      3) it should give Austrians more of an incentive to dig deeper in Menger’s less popular writings, many of which are still in German

      4) it provides some understandings of classical liberalism that libertarians fail to grasp or ignore.

    • Well first, why discredit anything because a person says it is bad? Wouldnt it be more beneficial to actually come up with your own conclusion?

      secondly, I do not take rothbard serious at all, and his criticism is a prime example why…Sure some of Smiths ideas arent original but the same could surly be said about rothbard … Also his criticism towards my favorite Austrian, Ludwig lachmann, is really nothing but giant strawman.

      Thirdly, it is quite known that Menger’s biggest influence is Smith, so as an Austrian economist, shouldnt you be interested in at least knowing what Smith wrote, given that he was a big influence on the founder of the Austian school

  1. Have you read David Friedman’s criticism of Gavin Kennedy’s interpretation of Smith’s invisible hand metaphor? Gavin is good on a number of points, but he’s a bit OCD about his idiosyncratic and not very defendable interpretation of that (and his blog is atrociously poorly organized!). Gavin reposted some of it on his blog in a few places (e.g. here http://adamsmithslostlegacy.blogspot.co.nz/2010/08/david-friedman-replies-to-invisible.html and here http://adamsmithslostlegacy.blogspot.co.nz/2010/08/david-friedman-replies-to-invisible_26.html )

    Friedman has also quite eloquently criticized (at Cato Unbound and further responses at BHL) the notion–stated by Menger in your post–that Smith’s work could be said to be on one side of a class conflict between rich and poor.

    I agree with your comments above regarding Rothbard. On the whole, the tendency to talk about personalities rather than ideas gets old and pointless pretty fast imo. For instance, I don’t see what the positive role of reciprocity and self-interest beyond “greedy, selfish, individual material interest” have at all to do with state interventionism or opposition thereto.

    • I’ll have to check that out. But a point I must make:

      After reading the whole of Menger’s lectures, I don’t think that Menger defending Smith as an economist for the working class is implying any class conflict. Menger’s point was that Smith’s economic views would quite benefit the working class too, and as he went on in the lecture, quite benefited the working class far more than the German social policies implemented at that time. This was quite a radical position for Menger to take because he is essentially saying that a classical liberal economic view (which Menger thought of Smith as one) benefited the working class far better than the social policies of that advocated by the German Historical School. I’ll read what Friedman has to say about Kennedy and Menger but given what you have said, I think he has Menger’s interpretation of Smith all wrong.

      • Right, I didn’t mean to indicate that Friedman was talking about Menger. As far as I know, he’s never talked about Menger’s views on Smith’s work, specifically. But he has criticized contemporary academics who’ve made points similar to the one from Menger about rich v. poor that you quote in your original post. From your comment, it looks like Menger and Friedman would more closely agree on Smith’s broadly utilitarian liberalism.

          • Friedman characterizes Smith’s position in most of his arguments as broadly ‘something like (pre-Benthamite) utilitarianism’. Virtue ethics could be subsumed under this broad label by many definitions at some number of steps removed. McCloskey’s article is interesting. Smith didn’t put forward a singular strict or explicit ethical metric and he wasn’t completely consistent in his statements, so his ethics are open to interpretation on some margins. Vernon Smith and Ed Stringham have also written recent and very good articles on The Theory of Moral Sentiments and ethics in relation to economics.

            However the point that Friedman makes is that it is clearly *not* the case that Smith used or put forward a class conflict or left-egalitarian framework or the like (Chomsky, for example, has asserted that he did). Menger’s quoted statement looks a bit like the Chomskyan errors wrt Smith, but Marmolejo says he is more nuanced. Ok.

            I have no idea who “Dr. Michael Emmett Brady” is… Sounds like a character from some bad television show set in a hospital.

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