histofthought1

448 Economic thought before Adam Smithment was important in economic development and that saving was the necessaryand sufficient condition of such investment. The only way to increasecapital, then, is by private savings or thrift. Thus, Smith wrote, 'Whoeversaves money, as the phrase is, adds proportionately to the general mass ofcapital. ... The world can augment its capital only in one way, by parsimony' .Savings, and not labour, is the cause of accumulation of capital, and suchsavings promptly 'puts into motion an additional quantity of industry [labour]'.The saver, then, spends as readily as the spendthrift, except that hedoes so to increase capital and eventually benefit the consumption of all;hence 'every frugal man is a public benefactor'. All this was a pale shadow ofthe scintillating and creative work of Turgot, with his emphasis on time, thestructure of production, and time-preference. And it was probably cribbedfrom Turgot to boot. But at least it was sound, and it stamped its imprintindelibly on classical economics. As Schumpeter put it, in discussing what hecalls 'the Turgot-Smith theory of saving and investment': 'Turgot, then, mustbe held responsible for the first serious analysis of these matters, as A. Smithmust (at the least) with having it inculcated into the minds of economists'.13Finally, apart from the Marxists, even the abject Smithians of today rejector at least dismiss the Master's productive vs unproductive labour distinction.Characteristically, however, Smith was not even clear and consistent in hisfallacies. His presentation in Book I of the Wealth of Nations contradictsBook II. In Book I, he properly states that 'Every man is rich or pooraccording to the degree in which he can afford to enjoy the necessaries,conveniences, and amusements of human life', a phrase almost directly liftedfrom Cantillon. But in that case, of course, there is no difference in productivitybetween material objects and immaterial services, all of which contributeto such 'necessaries, conveniences, and amusements', and indeed Smith'sdiscussion of wages proceeds in Book I as if there were no distinctionbetween productive and unproductive work.16.5 The theory of valueAdam Smith's doctrine on value was an unmitigated disaster, and it deepensthe mystery in explaining Smith. For in this case, not only was Smith's theoryof value a degeneration from his teacher Hutcheson and indeed from centuriesof developed economic thought, but it was also a similar degenerationfrom Smith's own previous unpublished lectures. In Hutcheson and for centuries,from the late scholastics onward, the value and price of a product weredetermined first by its subjective utility in the minds of the consumers, andsecond, by the relative scarcity or abundance of the good being evaluated.The more abundant any given good, the lower its value; the scarcer the good,the higher its value. All that this tradition needed to complete its explanationwas the marginal principle of the 1870s, a focus on a given unit of the good,