histofthought1

The spread ofthe Smithian movement 501Hence, too, Smith's interventionist call for usury laws to lower the rate ofinterest so as to ration savings and channel them away from luxurious consumersand speculative 'projectors' to sober prime borrowers. Smith's contemptfor consumers also led him to discard the time-honoured subjectiveutility-scarcity theory of value, and to seek the cause of value not in frivolousconsumers but in real cost, or labour pain, embodied into the product.Hence Smith's crucial shift of emphasis in economic theory away fromconsumer demand and actual market prices, and towards unrealistic, long-runequilibrium. For only in long-run equilibrium does a labour pain, or cost,theory of pricing take on even superficial plausibility. But the exclusiveattention to long-run equilibrium led Smith to toss out the entire entrepreneurship-and-uncertaintyapproach that had been elaborated by Cantillon andTurgot; for in a timeless final equilibrium there is obviously no problem ofchange or uncertainty.Smith's labour theory of value led to Marxism and all the horrors to whichthat creed has given rise; and his exclusive emphasis on long-run equilibriumhas led to formalistic neoclassicism, which dominates today's economic theory,and to its exclusion frolll consideration of entrepreneurship and uncertainty.Smith's stress on the economy-in-perpetual-equilibrium also led him todiscard his old friend David Hume's important insight (even if inferior toCantillon's) into the international specie-flow-price mechanism, and to theimportant business cycle analysis that lies clearly implicit in that doctrine.For if the world economy is always in equilibrium, then there is no need toconsider or worry about increases in money supply causing price rises andoutflows of gold or silver abroad, or to consider the subsequent contraction ofmoney and prices.In essence, then, the common picture ofeconomic thought after Smith needsto be reversed. In the conventional view, Adam Smith, the towering founder, byhis theoretical genius and by the sheer weight of his knowledge of institutionalfacts, single-handedly created the discipline of political economy as well as thepublic policy of the free market, and did so out of a jumble of mercantilistfallacies and earlier absurd scholastic notions of a 'just price'. The real story isalmost the opposite. Before Smith, centuries of scholastic analysis had developedan excellent value theory and monetary theory, along with correspondingfree market and hard-money conclusions. Originally embedded among thescholastics in a systematic framework ofproperty rights and contract law basedon natural law theory, economic theory and policy had been elaborated stillfurther into a veritable science by Cantillon and Turgot in the eighteenthcentury. Far from founding the discipline of economics singlehanded, AdamSmith turned his back not only the scholastic and French traditions, but even onhis own mentors in the considerably more diluted natural law of the ScottishEnlightenment: Gershom Carmichael and his own teacher Francis Hutcheson.