Suggestions for Teaching Adam Smith, The ... - Columbia College

Suggestions for Teaching Adam Smith, The Wealth of NationsI. The basic problem:Most students, if they have heard of Smith, have heard of him through Chicago school economics and willtend automatically to assume that he is the same person as Milton Friedman or Frederick von Hayek. At thevery least, they will think of him as an ‘economist’ in the modern sense—as someone primarily interestedin the systems of circulation of money and/or products and in the market economy. That is perhaps halftrue, if that. Furthermore, the vast majority of students (at least in my experience) have some acquaintancewith elementary economics, and can understand and even explain fairly clearly the basic principles ofSmith’s version of market economics: the division of labor, the principle of ‘natural price’ and the laws ofsupply and demand, use value and exchange value, the accumulation of capital, the functioning of themarket and of the exchange system. (In this context, remind students in anticipation that Smith’s economictheories are in fact fundamentally the same as Marx’s—that may shake them up a little.) Moreover, in anera of stock, options, index futures, electronic funds, etc., they are unlikely to believe in the equivalence ofcash and wealth, and they will not automatically understand why Smith argues so hard against mercantiletheory.Hence in teaching WN, you can let the students explain the basic economic principles (in books 1and 2) fairly rapidly; some of mine can do it much better than I can, and are happy at long last to come tosomething with which they are very familiar. Three of my students who have been almost completely silentuntil now became positively voluble. If you have any such, give them a chance.Secondly, you should concentrate on the non-Chicago version of Smith: the ethical content and thedistinction of productive and unproductive labor; the economic history of Europe; the 18 th c. background ineconomic and moral theory and in economic history.II. Background:1. S. is writing about political economy (a term coined in 1615), not about economics in the modernsense: the mechanisms of creating public/national wealth, not the workings of a self-regulating system ofproduction and exchange. S. does write about the market as an autonomous institution, but he is interestedin it for its role in the production of wealth, not as a system in itself. Furthermore, S. was Professor ofMoral Philosophy at Glasgow, and his earlier (very influential) work is The Theory of the MoralSentiments. One of his main arguments in WN has to do with the famous “invisible hand” (485 Reich/130Dickey), which is not the automatic self-regulation of markets, but the fact that private self-interest and thenatural greed of humans unintentionally produce public benefit. [This is, to my mind, an exact parallel onthe economic level to Madison’s argument in Federalist 10 on the political level.] What is different aboutS.’s view of morality and economic activity is that traditionally (pre-18 th c), interest in making money wasconsidered vulgar, selfish, and contrary to the workings of Virtue. Like other 18 th c. writers (e.g.Montesquieu, at least in Persian Letters), S. is interested in exploring the links between virtue andcommerce, the possibility that wealth (and even luxury) can lead to social (and hence moral) improvement.(The theme of virtue and commerce is one of Pocock’s major topics: see the essays in Virtue, Commerce,and History; chapters 13-14 of The Machiavellian Moment; and Barbarism and Religion (1999), vol. 2,with a chapter (not particularly about WN) on Smith.)2. When WN was published (1776), the Industrial Revolution had barely begun: S. is not writing about thekind of industrial society or factory system that Engels and Marx knew. Important dates (selective): 1765spinning jenny; 1779 Iron Bridge; 1782 steam engine; 1784 power loom; 1793 cotton gin. This is, however,a period of sustained population and economic growth and of urbanization: between 1700 and 1800 theagricultural proportion of the population in England dropped by half (80% to 40%), in part because ofenclosure. During the same period foreign trade rose by approximately 1000%. Hence the fundamentalquestion for S. and others is why this happened, and how the various changes affected one another and howwealth is created. Hence also his criticism of other economic theories, i.e. mercantile theory (accumulationof specie, balance of trade, monopoly of colonial trade) and physiocratic theory (land rather than labor assource of value; agricultural labor as the sole form of productive labor).

III. Moral Economics1. The role of self-interest. On ‘invisible hand’ see above. S. does not have a high estimation ofhuman character. The famous passage (14/11) on the self-interest of the butcher and baker is a goodstarting point; so too is the passage on diamond buckles (444/110) with S.’s comment on “the vile maximof the masters of mankind.” The natural propensity “to truck, barter, and exchange” is fundamentallyamoral; but it should be contrasted with other philosophers’ views of humans’ natural tendencies(benevolence? pity? virtue?). S.’s system relies on neither virtue nor reason, but on greed and the naturaldesire to better oneself—economically, not morally. Note that he applies the Humean ‘useful or agreeable’to luxuries/conveniences, not to moral actions (437/105). In accordance with this, his definitions of virtueand vice are in terms of frugality and prodigality: the proper use of wealth is seen as an ethical rather than afinancial issue. That is also an aspect of the productive/unproductive distinction: Smith’s classification ofthe military and the church as unproductive is presumably meant to be shocking, or at least very striking.His discussion of the proper role of the clergy in Book 5 (Scots Presbyterian, clearly) suggests theirimportance in inculcating the virtues of frugality and sober life.2. The morality of the division of labor. Note that S. anticipates Marx (and the growth of heavyindustry) in worrying about the deadening effect of repetitive and mindless labor. He also clearlysympathizes with workers against capitalists (discussion of combinations, 76/32); speaks of ‘the lowestwage consistent with common humanity’; argues for national requirements in education (not publiceducation, however—Mill and S. agree on this) in order to alleviate the mindlessness of labor. Part of S.’sbelief in the importance of growth of national wealth is that it leads to higher wages (the comparison ofAmerica, China, and India—which is also an attack on the monopolistic East-India Company), which inturn leads to larger families and the possibility of increased division of labor (and round again).IV. Economic HistoryS.’s account of the development of European society/economy (Book 3, to be taken with the discussion ofmilitary costs and establishment in Book 5) is brilliant in its analysis of the reciprocal relationship of townand country, and above all of the importance of towns in the improvement of agriculture. So too theanalysis of the breakdown of medieval status-society in favor of leases, rents, and contractual bonds, withits direct effect on agricultural improvement and on the growth of internal (rather than foreign) commerce.Note in connection with this S.’s strong (anti-mercantile) belief that the most efficient engine of economicgrowth is not foreign trade but domestic trade. In Book 5, his four-stage anthropology (hunting, herding,agriculture, commerce) is linked to the development of military technology and to the necessary growth of‘unproductive’ professional armies to defend commerce: this is itself an aspect of the division of labor. Thequestion of the standing army is an important one in 18 th c. Whig thought, but S. approaches it from a verydifferent point of view.