At admasmith.app and allied networks eg ecop26.com we keep searching for who can todays students update Adam Smith moral system designs around - until 2012 Glaswegians had over 60 yeras of illumination from scholar skinner -browse his paper below or help celebrate knowhow of smithians at journal of new economics
extracts from adam smith celebration journal
As 18th century philosopher Smith worked close to the frontiers of knowledge in a number of fields.
As 18th century philosopher Smith worked close to the frontiers of knowledge in a number of fields.
He was also interested in science as a form of communication,
arguing in the LRBL (Lecture Rhetoric Belle Lettres) that the way in which this type of discourse is organized
should reflect its purpose as well as a judgement as to the psychological
characteristics of the audience to be addressed.
In a Lecture delivered on 24 January 1763 Smith
noted that didactic or scientific writing could have one of two aims: either to
‘lay down a proposition and prove this, by the different arguments that lead to
that conclusion’ or to deliver a system in any science. In the latter case Smith
advocated what he called the Newtonian
method, whereby we ‘lay down certain principles known or proved in the
beginning, from whence we account for the several phenomena, connecting all
together by the same Chain’ (LRBL, ii.133). Two points are to be noted.
Smith made extensive use of mechanistic analogies, sometimes derived
from Newton, seeing in the universe ‘a great machine’ wherein we may observe
‘means adjusted with the nicest artifice to the ends which they are intended to
produce’ (TMS, II.ii.3.5). In the same way he noted that ‘Human society, when
we contemplate it is a certain abstract and philosophical light, appears like a
great, an immense machine’ (TMS, VII.ii.1.2),It is striking that so sympathetic a thinker as Smith should have
extended the mechanistic analogy to systems of thought.
Systems in many respects resemble machines, a machine is a little
system created to perform, as well as to connect together, in reality, those
different movements and effects which the artist has occasion for. A system is
an Imaginary machine invented to connect together in the fancy those different
movements and effects which are already in reality performed (Astronomy, IV.19).
Smith’s teaching from the Chair of Moral Philosophy (1752- 64) was
divided into four parts: he lectured on natural theology,
ethics, jurisprudence, and economics in that order and in a style which
confirms his debt to his old teacher, Francis Hutcheson, under whom he studied
between 1737 and 1740. It is also clear that the lectures on ethics formed the
basis of The Theory of Moral Sentiments
(TMS) and that the subjects covered in the last part of the course were further
to be developed in The Wealth of Nations
(WN).
The TMS, which builds
upon the analyses of Hutcheson and David Hume is primarily concerned with the
way in which we form moral judgements. It was also designed to explain the
emergence, by natural as district from artificial means, of those barriers
which control our self-regarding and un-social passions. The argument gives
prominence to the emergence of general rules of conduct, based upon experience,
which include the rules of law. The analysis also confirms that accepted
standards of behaviour are related to environment and that they may vary in
different societies at the same point in time and in a given society over time.
...Smith’s work on
ethics was closely linked with the economic analysis which was to follow. For
example, if Smith gave prominence to the role of self-interest in this context,
auditors of his lecture course and readers of the TMS would be aware that the
basic drive to better our condition was subject to a process of moral scrutiny.
It would also be appreciated that economic aspirations had a social reference
in the sense that it is chiefly from a regard “to the sentiments of mankind,
that we pursue riches and avoid poverty” (TMS, I.iii.2.1). ...Smith also notes that we
tend to approve the means as well as the ends of ambition: “Hence ... that
eminent esteem with which all men naturally regard a steady perseverance in the
practice of frugality, industry, and application” (TMS, IV.2.8)
The lectures on jurisprudence on the other hand, help to explain the
emergence of government and its changing structure in terms of an analysis
which features the use of four distinct types of socio-economic environment;
the celebrated stages of hunting, pasture, agriculture and commerce. Smith also aims to specify the nature of
the system of positive law which might be expected in the stage of commerce ...throwing some light on the form of government which might conform to it
together with the political pressures to which it may be subject.
The treatment of jurisprudence is also important in that it helps to
explain the origins of the modern economy and the emergence of an institutional
structure where all goods and services command a price. It is in this context
that “Every man ...... Lives by exchanging, or becomes in some measure a
merchant” (WN, I.iv.1); a position which leads to Smith’s famous judgement
that:
“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.
Nobody but a beggar chooses to depend chiefly upon the benevolence of
his fellow Citizens. Even the beggar does not depend upon it entirely” (WN, I.ii.2).
Economic
Analysis and Economic Liberalism
In The
Wealth of Nations the theory of price and allocation was developed in terms
of a model which made due allowance for distinct factors of production (land,
labour, capital) and for the appropriate forms of return (rent, wages, profit).
This point, now so obvious, was an innovation of genius by Smith and permitted
him to develop an analysis of the allocative mechanism which ran in terms of
inter-related adjustments in both factor and commodity markets. The resulting
version of general interdependence also allowed Smith to move from the
discussion of “micro” to that of “macro” economic issues, and to develop a
model of the “circular flow” which relies heavily on the distinction, already
established by the contemporary French economists, between fixed and circulating
capital.
Furthermore with these terms, applied to the activities of individual undertakers, Smith transformed their meaning by their application to society at large. Working in terms of
period analysis where all magnitudes are dated, Smith in effect represented the
working of the economic process as series of activities and transactions which
linked the main socio-economic groups (proprietors, capitalists, and wage-labour)
and productive sectors. In Smith’s terms, current purchases in effect withdrew
consumption and investment goods from the circulating capital of society; goods
which were in turn replaced by virtue of productive activity in the same time
period.
We should note in this context that Smith was greatly influenced by
a specific model of the economy which he came across during a visit to Paris in
1766. The model was designed to explain the operation of an economic system
treated as an organism. It was first produced by Francois Quesnay, a medical
doctor, and developed by A R J Turgot (Meek 1962, 1973). The significance of
the analogy of the circulation of the blood would not be lost on Smith – and
nor would be the link with William Harvey, a distinguished member of the
medical school of Padua and a notable exponent of a methodological approach
which held that “the way to understand something is to take it apart, in deed
or in thought, ascertain the nature of its parts and then re-assemble it – resolve
and recompose it” (Watkins 1965, p52).
Looked at from one point of view, the analysis taken as a whole
provides one of the most dramatic examples of the doctrine of “unintended
social outcomes”, or the working of the “invisible hand”. The individual
entrepreneur, seeking the most efficient allocation of resources, contributes
to overall economic efficiency; the merchant’s reaction to price signals helps
to ensure that the allocation of resources accurately reflects the structure of
consumer preferences; the drive to better our condition contributes to economic
growth. Looked at from another
perspective, the work can be seen to have resulted in a great conceptual system
linking together logically separate, yet inter-related, problems
such as price,
allocation, distribution, macro-statics and macro-dynamics.
Smith’s prescriptions, with regard to economic policy, followed
directly on this analysis. In a system which depended on the efforts of
individuals, if it was to function efficiently, Smith argued that the sovereign
should discharge himself from a duty:
“in
the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of
which no human wisdom or knowledge could ever be sufficient, the duty of superintending
the industry of private people, and of directing it towards the employments
most suitable to the interest of the society” (WN, IV.ix.51).
In a further passage Smith drew attention to that “security which
the laws in Great Britain give to every man that he shall enjoy the fruits of
his own labour” and attributed the country’s contemporary performance to the
fact that the “natural effort to every individual to better his own condition,
when suffered to exert itself with freedom and security, is so powerful a
principle, that it is alone, and without any assistance, not only capable of
carrying on the society to wealth and prosperity, but of surmounting a hundred
impertinent obstructions with which the folly of human laws too often encumbers
its operations” (WN, IV.v.b.43). But within this general frame, Smith’s views
on economic and social policy were often subtle, surprising and illuminating.
Mercantilism and America
It will come as no surprise to find so much of The Wealth of Nations devoted to a very violent attack on what
Smith called the mercantile system, a system which was best understood in our
own country and in our own times” (WN, IV.2). As Smith describes it, the system
was based upon regulation in the interests of a positive balance of trade. In
intention such a policy was restrictive and therefore liable to that “general
objection which may be made to all the different expedients of the mercantile
system; the objection of forcing some part of the industry of the country into
a channel less advantageous than that in which it would run of its own accord”
(WN, IV,v.a.24).
Smith’s treatment of the Colonial relationship with America, the
centrepiece of British policy, provides an interesting and often topical
example.
On Smith’s account, the Regulating Acts of Trade and Navigation in
effect confined the American Colonies to primary products while Great Britain
concentrated on more refined manufactures – with trade carried on in British
ships. The net result was a subtle system of complementary markets which
benefited both parties. Smith perceived, however, that the policy was
fundamentally flawed in the sense that the relationship could not in the long-run be sustained.
The problem as Smith saw it lay in the fact that the rates of growth
in the two countries would be different. Such differences could be explained in
a number of ways. As Smith argued, there were differences in institutional
arrangements, factor endowments and in the degree of maturity of the two
economies. But in practice he placed most emphasis on the fact that the
Regulating Acts would themselves cause significant variations in performance.
In the case of America, Smith contended that the fact that the
country was confined to primary products created the optimal conditions for
growth in an undeveloped economy. While he believed that these restrictions
were a “manifest violation of one of the most sacred rights of mankind” he also
pointed out that the restrictions were unlikely to be burdensome in the
“present state of improvement” of the colonies (WN, IV.vii.b.44). But in the
longer run, the potential for economic growth in America must come into
conflict with current policy and require or force a change.
In the case of Great Britain, Smith emphasised that the rate of
growth was attributable to Britain’s concentration on manufactured products and
on the fact that she had become increasingly dependent on the distant trade
with America as distinct from developing European links. But above all else he
emphasised the point that the whole burden of the costs of maintaining the
Empire fell upon the British economy with consequent effects on public debt and
on the level of taxation.
Smith’s solution was dramatic but entirely consistent with the
general tenor of his critique of the mercantile system. He recommended that
Britain should dismantle the Regulating Acts of Trade and Navigation and create
a single, gigantic, free trade area –
an Atlantic Economic Community. Smith advocated the creation of a single state
with a harmonised system of taxation possessing all the advantages, as he saw
them, of a common language and culture.
In passages which remind us of Smith’s interest in constitutional
and political issues, he pointed out that such a solution would require Great
Britain to admit American deputies to the House of Commons, prompting the
thought that:
“in
the course of little or more than a century, perhaps, the produce of American
might exceed that of British taxation. The seat of empire would then naturally
remove itself to that part of the empire which contributed most to the general
defence and support of the whole” (WN, IV.vii.c.70): Philadelphia rather than
London.
By 1776 the opportunity, as he saw it, had been lost and military
defeat was the most likely outcome:
“The
plan which, if it would be executed, would certainly tend most to the prosperity, to the splendour,
and to the duration of the empire, if you except here and there a solitary
philosopher like myself, seem scarce to have a single advocate” (Corr, 382.)
In Smith’s view, the tragic (but sustainable) loss of opportunity in
America was to be explained in terms of the combination of collective
self-interest on the part of mercantile groups and political prejudice on the
part of the state and its citizens. Smith thus identified yet another problem
of modern relevance: that of government (as distinct from market) failure.
But even here Smith contemplated the loss of America with equanimity, believing as he did that Great Britain had opportunities to exploit in Europe – and that trade with America would resume in due course, provided always that a more liberal policy was adopted.
Domestic policy
Smith’s basic objection was to positions of privilege, such as
monopoly powers, as being both unjust and impolitic; unjust in that a position
of monopoly is a position of unfair advantage and impolitic in that the prices
of goods so controlled are “upon every occasion the highest that can be got”. But
at the same time Smith advocated a series of policies – all catalogued by Jacob
Viner (1927) – which range from government control of the coinage to regulation of mortgages and
the legal enforcement of contracts.
Four broad areas of intervention recommended by Smith are of
particular interest, in the sense that they involve issues of general
principle. First, he advised governments that, where they were faced with taxes
imposed by their competitors in trade, retaliation could be in order especially
if such an action had the effect of ensuring the “repeal of the high duties or
prohibitions complained of” (cf Winch 1983, p509). Secondly, Smith advocated
the use of taxation, not simply as a means of raising revenue, but as a means
of controlling certain activities, and of compensating for what would now be
known as a defective telescopic faculty, i.e. a failure to perceive our
long-run interest (cf WN, V.ii.g.4; V.ii.k.50; V/ii.g.12), commonly now
referred to as “short-termism”.
Smith was also well aware that the modern version of the “circular
flow” depended on paper money and on credit; in effect a system of “dual circulation”
involving a complex of transactions linking producers and merchants, dealers
and consumers (WN, II.ii.88); transactions that would involve cash (at the
level of the household) and credit (at the level of the firm). It is in this
context that Smith advocated control over the rate of interest, set in such a
way as to ensure that “sober people are universally preferred, as borrowers, to
prodigals and projectors” (WN, II.iv.15). He was also willing to regulate the
small note issue in the interests of a stable banking system.
Although Smith’s monetary analysis is not regarded as amongst the
strongest of his contributions, it should be remembered that he witnessed the
collapse of major banks in the 1770s (may even have been personally a victim of
one such) and was acutely aware of the problems generated by a sophisticated
credit structure. It was in this context that he articulated a very general
principle, namely, that “those exertions of the natural liberty of a few individuals, which might endanger the
security of the whole society, are, and ought to be restrained by the laws of
all governments; of the most free, as well as of the most despotical” (WN, II.ii..94).
Emphasis should be given, finally, to Smith’s contention that a
major responsibility of government must be the provision of certain public
works and institutions for facilitating the commerce of the society which were
“of such a nature, that the profit could never repay the expence to any
individual or small number of individuals, and which it, therefore, cannot be
expected that any individual or small number of individuals should erect or
maintain” (WN, V,i.c.1). In short, he was concerned to point out that the state
would have to organise services or public works which the profit motive alone
could not guarantee.
The examples of public works which Smith provided include such items
as roads, bridges, canals and harbours – all thoroughly in keeping with
the conditions of the time and with
Smith’s emphasis on the importance of transport as a contribution to the
effective operation of the market and to
the process of economic growth.
education
The theme is continued in
his treatment of another important service, namely education; a subject which
is developed in the course of Smith’s discussion of the social and
psychological costs of economic growth.
Section IV:
Education - The Costs of Economic Growth
It will be recalled that
for Smith moral judgement depends on our capacity for acts of imaginative
sympathy and that such acts can only take place within the context of some
social group (TMS, III.i.3). However, Smith also observed that these mechanisms
might break down in the context of the modern economy, due in part to the size
of some manufacturing units and of the cities which housed them.
If the problems of solitude and isolation consequent on the growth
of cities explain Smith’s first group of points, a related trend in the shape
of the division of labour helps to account for the second. In discussing this
important source of economic benefit (which is emphasised to an extraordinary
degree in The Wealth of Nations) Smith
noticed that it could involve costs. Or, as Smith put it in one of the most
famous passages in his major work:
“In
the progress of the division of labour, the employment of the far greater part
of those who live by labour, that is, of the great body of the people, comes to
be confined to a few very simple operations; frequently to one or two. But the
understandings of the greater part of men are necessarily formed by their
ordinary employments. The man whose whole life is spent in performing a few
simple operations, of which the effects too 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” (WN, V.i.f.50).
universities
Smith argued, notably in correspondence with his old friend and colleague William Cullen, that degrees can be likened to the statutes of apprenticeship (Corr, 177) and protested against the idea of universities having a monopoly of higher education (Corr, 174) on the ground that this would inhibit private teachers (eg of medicine) such as the Hunters, William Hewson and Sir William Fordyce. In particular Smith objected to a situation where professors enjoyed high incomes irrespective of competence or industry (WN, V.i.f.7): the Oxford, rather than the Glasgow model. In the same context he argued in favour of free movement of students between teachers and institutions (WN, V.i.f.12,13) as a means of inducing teachers to provide appropriate services.
It is the fact that the
“labouring poor, that is the great body of the people” must necessarily fall
into the state outlined that makes it necessary for government to intervene.
Smith’s justification for intervention is, as before, market
failure, in that the labouring poor, unlike those of rank and fortune, lack the
leisure, means, or (by virtue of their occupations) the inclination to provide
education for their children (WN, V.i.f.53). In view of the nature and scale of
the problem, Smith’s programme seems rather limited, but he did argue that the
poor could be taught “the most essential parts of education…to read, write, and
account” together with the “elementary parts of geometry and mechanics” (WN, V.i.f.54,55).
public finance
Smith believed that state should ensure that services are provided
indirectly, rather than centrally, that such services should be self-financing
wherever possible and especially that they should be so “structured as to
engage the motives and interests of those concerned” (Rosenberg 1960, 68; cf
Ricketts 1978). Once again, the fundamental
appeal is to self-love, even if Smith did recognise that many services would be
adequately performed as much from a sense of moral obligation as monetary
reward.
Lord Robbins once remarked
that Smith bequeathed to his successors in the classical school an opposition
to conscious paternalism; a belief that “central authority was incompetent to
decide on a proper distribution of resources”. Above all Smith developed an
important argument to the effect that economic freedom “rested on a two-fold
basis: belief in the desirability of freedom of choice for the consumer and
belief in the effectiveness, in meeting this choice, of freedom on the part of
producers” (1953, p12). If we add a dynamic dimension to this theme we have a
true reflection of Smith’s position; a position which helps to explain the
world’s continuing interest in his work.
It is also important to recall the need to distinguish between the principles which justify intervention
(which may be of universal validity) and the specific agenda which Smith offered (and which may reflect his understanding
of the situation which he actually confronted at the time of writing).
Principles according to Smith’s argument: the state should regulate activity to compensate for the imperfect knowledge of
individuals; it is the state which must continuously scrutinise the relevance
of particular laws and institutions; the state which has a duty to regulate and
control the activities of individuals which might otherwise prove damaging to
the interests of society at large; it is the state which must make adequate
provision for public works and services (including education) in cases where
the profit motive is likely to prove inadequate.
What is unambiguously true is that Smith sought to establish an economic environment or environments
within which individual initiative would flourish and by which it would be
harnessed.
The last reference serves to remind us that there is a further
dimension to his work which is essentially moral
and which is illustrated by his concern with the social costs of economic
growth. As we have seen, Smith made much of the point that the division of
labour could induce a form of mental mutilation; a degree of “torpor” which
could render the individual “incapable of bearing a part in any rational
conversation” or of conceiving “any just judgement concerning many even of the
ordinary duties of private life” (WN, V.i.f.50).
Smith identified the possibility that measurable increased in
economic welfare might be offset by the psychological damage which they entail
– unless steps are taken to avoid this outcome through a programme of
compulsory education and the cultivation of the arts (WN, V.i.g.15).
In passages which also recall his wider interests Smith drew attention
to the issue of education in a context which was essentially political. As he
put it, an “instructed and intelligent people … are always more decent and
orderly than an ignorant and stupid one … They are more disposed to examine,
and more capable of seeing through, the interested complaints of faction and
sedition” (WN, V.i.f.61).
Smith’s historical analysis made him well aware of the significance
of the form of Government which had emerged in Great Britain and sensitive to
the fact that such a Government gave scope to political ambition – another
competitive game with, as its object, the “prizes which sometimes come from the
wheel of the great state lottery of British politics” (WN, IV.vii.c.75). He
also recognised that the same economic forces which had raised the House of
Commons to what he called a superior degree of influence (as compared to the
House of Lords) also made it a focal point for business and commercial
interests. He noted that such power could be used to disadvantage particular
groups (cf WN, I.x.c.61) and made the general point that the legislative
proposals emanating from commercial interests.
“Ought
always to be listened to with great precaution, and ought never to be adopted
till after having been long and carefully examined, not only with the most scrupulous,
but with the most suspicious attention. It comes from the order of men, whose
interest is never exactly the same with that of the public, who have generally
an interest to deceive and even to oppress the public, and who accordingly
have, upon many occasions, both deceived and oppressed it” (WN, I.xi.10).
recap
the TMS also reminds us
that the pursuit of economic ends takes place with a social context, and that men maximise their chances of success by
respecting the rights of others. In Smith’s sense of the term, ‘prudence’ is essentially
rational self-love. In a famous passage from the TMS (II.ii.2.1) Smith noted,
with regard to the competitive individual, that:
“In the race for wealth, and honours, and preferments, he may run as
hard as he can, and strain every nerve and muscle, in order to outstrip all his
competitors. But if he should justle, or throw down any of them, the indulgence
of the spectators is entirely at an end. It is a violation of fair play, which
they cannot admit of”.
The idea of a single – all-embracing conceptual system, whose parts
should be mutually consistent, is not easily attainable in an age where the
division of labour has increased the quantity of science through specialisation.
Smith was aware of the division of labour in different areas of sciences, and
of the fact that specialisation often led to systems of thought which were
inconsistent with each other (Astronomy,
IV, 35, 52, 67). But the division of labour within a branch of science, eg economics, has led to a situation where
sub-branches of a single subject may be inconsistent with one another.
it may be noted that one of the most significant features of Smith’s
vision of the economic process lies in the fact that it has a significant time
dimension. For example, in dealing with the problem of value in exchange, Smith
made due allowance for the fact that the process involves judgements with
regard to the utility of the commodities to be acquired, and the disutility
involved in creasing the goods to be exchanged.
In the manner of his predecessors - Hutcheson, Carmichael and Pufendorf,
Smith was aware of the distinction between utility (and disutility) anticipated
and realised, and, therefore, of the process of adjustment which would
inevitable take place through time.
Smith’s theory of price, which allows for a wide range of changes in
taste, is also distinctive in that it allows for competition among and between buyers and
sellers, while presenting the allocative mechanism as one which involves
simultaneous and inter-related adjustments in both factor and
commodity markets.
As befits a writer who was concerned to address the problems of change,
and adjustment to change, Smith’s position was also distinctive in that he was
not directly concerned with the phenomenon of equilibrium. For Smith
the (supply) price was, as it were:
“The central price, to which the prices of all commodities are
continually gravitating whatever may be the obstacles which hinder them from
settling in this centre of response and continuance, they are constantly
tending towards it” (WN, I.viii.15).
But perhaps the most intriguing feature of the macro model is to be found in the way in which it was linked to
the analytics of Book 1 and in the way in which it was specified. As noted
earlier, Smith argued that incomes were generated as a result of productive
activity, thus making it possible for commodities to be withdrawn from the
‘circulating’ capital of society. As he pointed out, the consumption goods
withdrawn from the existing stock may be used up in the present period, or
added to the stock reserved for immediate consumption; or used to replace more
durable goods which had reached the end of their lives in the current period. In
a similar manner, entrepreneurs and merchants may also add to their stocks of
materials, or to their holding of fixed capital, while replacing the plant
which had reached the end of its operational life. It is equally obvious that
entrepreneurs and merchants may add to, or reduce their inventories in ways which will reflect the changed patterns of
demand for consumption and investment goods, and their past and current levels
of production. Variation in the level of inventories has profound implications
for the conventional theory of the allocative mechanism.
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Some people call Smith the last systems thinker of the newtonian era or the first of the post-newton area- This extract from history of enlightenment shows how extraordinary questioning in the middle of the second millennium became:
The Early Enlightenment: 1685-1730
The Enlightenment’s important 17th-century precursors included the Englishmen Francis Bacon and Thomas Hobbes, the Frenchman René Descartes and the key natural philosophers of the Scientific Revolution, including Galileo Galilei, Johannes Kepler and Gottfried Wilhelm Leibniz. Its roots are usually traced to 1680s England, where in the span of three years Isaac Newton published his “Principia Mathematica” (1686) and John Locke his “Essay Concerning Human Understanding” (1689)—two works that provided the scientific, mathematical and philosophical toolkit for the Enlightenment’s major advances.
Locke argued that human nature was mutable and that knowledge was gained through accumulated experience rather than by accessing some sort of outside truth. Newton’s calculus and optical theories provided the powerful Enlightenment metaphors for precisely measured change and illumination.
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