The Wealth of Nations (1776) discussed.
On Thursday, 19 February 2015, Melvyn Bragg and his guests, Richard Whatmore, Donald Winch and Helen Paul, on In Our Time, radio 4, discussed Adam Smith's celebrated economic treatise The Wealth of Nations (1776). I will say what each speaker approximately said then add a few comments of my own. This method hardly reproduces the programme as it was but it does report the substance of it.
Bragg said that Smith was one of Scotland's greatest thinkers, a moral philosopher and pioneer of economic theory, whose 1776 masterpiece has come to define classical economics. Scotland was way ahead of London intellectually for this was the time of the Scottish Enlightenment and Smith was one of the major thinkers of that phenomenon.
As a boy, Adam Smith was a scholar who did well at Grammar school then later at the University of Glasgow but he found the University of Oxford way below par. However, he used his time there to do a lot of reading. He went to France and met Voltaire, amongst many others. His 1776 book was based on his careful consideration of the transformation that was wrought on the British economy by the Industrial Revolution, and it looked at how the result contrasted with marketplaces elsewhere in nations around the world, so the book outlined a theory of wealth, and how it is accumulated, that has arguably had more influence on economic theory than any other book so far. Bragg said he rather liked the fact that Adam Smith was willing to let the seat of the British Empire move from London to Philadelphia to preserve it.
Richard Whatmore, the Professor of Modern History and Director of the Institute of Intellectual History at the University of St Andrews said the book was basically against the state regulation of markets. The Wealth of Nations (1776) came out of the Enlightenment in general and the Scottish Enlightenment in particular. Adam Smith was born in 1723into a Scotland full of problems, not least the divide between the Highlands and Lowlands. David Hume saw that commerce needed to be taken seriously by the state, but owing to early losses the rulers in Scotland agreed to the Act of Union with England in 1707 on the promise of compensation, or full replacement of the losses, so many thought that “Scotland was bought and sold for English gold”. But despite those fears that it might be bad for Scotland, the free trade zone that 1707 introduced seemed soon to be a success. But there was the upset of the 1745 Jacobite Uprising, so all was not harmony.
Commerce was seen as the basis of society so the state needed to be concerned with it. As the basis of society commerce was new, though commerce itself was old. The new society needed to be justified. In the past commercial cities had been defeated by agricultural or shepherd states, as Rome had beaten Carthage for example.
Commerce was not so good at war, so commercial societies did not tend to last long. But in Europe, by the eighteen century, commerce had become more stable. Why? This needed to be both explained and justified and this is what Smith set out to do in his book.
Smith found that part of the explanation was that ordinary men saw that, if they saved a bit, they could soon make conditions for themselves and their families a bit better by working on the market system in some specialised job.
Adam Smith was a very historical writer and he held that an economist would need to be an historian too. He held an account was needed from the fall of Rome up to modern times and he planned a big book to show the rule of law was needed but he burnt the notes for this third book on not getting round writing them up, but he revised his two main books repeatedly till the end of his life. The Theory of Moral Sentiments (1759) was not just an early stage that he later abandoned but rather central to his life’s aims.
The invisible hand metaphor is used in The Wealth of Nations (1776) once but in The Theory of Moral Sentiments (1759) a few times. Adam Smith saw himself as a moderate between mercantilists on the one hand and the physiocrats, or complete free traders, on the other.
Adam Smith did not expect this book to have much influence. One of his major ideas was unintended consequences. Tom Paine loved book III and IV of the 1776 book. But Edmund Burke also loved The Wealth of Nations too. But his major book on law was not begun but rather he burnt the notes for it.
Donald Winch, the Emeritus Professor of Intellectual History at the University of Sussex said that Adam Smith’s father had died early and his mother became very close to her son, who soon attended the local Grammar School, in Kirkcaldy. At the age of 14, the boy went on to the University of Glasgow and he was good at both the school and the college. At the college he had Francis Hutcheson as his teacher. Hutcheson was one of the first not to lecture in Latin but rather in English. All the teachers he had at the college were full professors.
The Theory of Moral Sentiments (1759) was revised till Adam Smith’s last days. He burnt his notes and plan for his big third book. He was against the egoism of Thomas Hobbes. He favoured social rather than selfish activity.
By Smith’s time, England no longer had a peasantry, though other nations still did and they also retained other aspects of feudalism too. But in England all had become partly merchants, as Smith noted. His 1776 book was in five books. “Greed is good” but Adam Smith did not say so. But he held that each can make things somewhat better by saving for the future.
Mercantilism was the very opposite of what Adam Smith wanted, as it was the inverse of liberalism.
Smith delayed publishing The Wealth of Nations for three years to see what happened in America. He lived in London away from his beloved Kirkcaldy home owing to his concern about the fate of British Empire. He held that mercantilism was no good so the colonists were right to reject that aspect of the British Empire.
Smith was against corporatism. Beware of businessmen when gathered together as they might well be in a conspiracy against the public, he warned.
Helen Paul, a Lecturer in Economics and Economic History at the University of Southampton said that Adam Smith was against both the mercantilists and the physiocrats. Mercantilism was old but the politicians in Smith’s still largely held to it. This old paradigm held that trade was zero-sum.
Adam Smith used the example of the pin factory where one man could not even make a single pin a day on his own but with about eighteen others with distinct tasks on the division of labour then thousands of pins might be produced.
He did work that led to the current knowledge we of the price system but he worked before that was completely achieved.
As he thought that shipping should be protected as it aided the problem of defence he was not quite fully in favour of free trade.
COMMENTS: The three experts did not do too badly. They might have said that Joseph Butler was the big influence in David Hume to get him to reject Thomas Hobbes on egoism and Butler also said there is not enough self-love too. Hume adopted both in his ethical writings and later Adam Smith did too in the 1759 book.
Clearly, Smith’s main idea of the division of labour gears all who join it to serve others as a by-product whilst doing their best for themselves and thus the metaphor of the hidden hand, as it is usually interpreted, is quite superfluous.
Richard Whatmore was right to note that trade rarely fits well with war for trade is aimed at service rather than with abusing people but the state sets out to rule the people, rather than to serve them, and its coercive governing can soon spill over into war, especially when state meets state.
Richard Cobden saw that free trade crowds out war, a thesis he found in The Wealth of Nations (1776).