A University Teacher makes a Monumental Error About Adam Smith

James K. Galbraith, teaches economics at the Lyndon B. Johnson School of Public Affairs at the University of Texas-Austin., and he previously served in several positions on the staff of the U.S. Congress, including executive director of the Joint Economic Committee. He has an article published in “Mother Jones” (28 November): “Smith v Darwin”, carrying the sub-title: “Like Intelligent Design, the idea of the Invisible Hand stubbornly persists in the face of overwhelming evidence.”

Not having any sympathy for the Intelligent Design movement in the USA (otherwise known as ‘creationism’, via a back door), I approached this article with mixed feelings. My reading of Adam Smith suggests exactly the opposite conclusion, but then I base my assessment on what Adam Smith actually wrote and not on what the Chicago school of economics, with help from Paul Samuelson, transformed Adam Smith’s ideas into, an axiomatically self-interested obsessive theory, also known as ‘Homo economicus’.

To miss the point that Adam Smith brought to all of his work, whether on the origins of languages, the history of astronomy, the history of human society, the development of human kind through the four stages (gatherer-hunter; shepherd, farmer and commercial society), the origins of the division of labour, the evolution of moral sentiments through the impartial spectator and what we now call socialisation, is an error of the highest magnitude, indicating that James K. Galbraith, whatever his other merits, has not read Adam Smith’s actual Works. Smith was steeped in the evolution of human society. He did not anticipate the origin of species, but he certainly did anticipate the evolution of human society.

He writes:

“Economists, on the other hand, have been Intelligent Designers since the beginning. Adam Smith was a deist; he believed in a world governed by a benevolent system of natural law. Consider this familiar passage from Wealth of Nations, published in 1776, with its now mostly forgotten anti-globalization flavor:

"By preferring the support of domestic to that of foreign industry [every individual] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

What a misreading of a passage in “Wealth of Nations”! It is actually part of Smith's evolutionary approach and nothing to do with “globalisation” (please read the whole chapter, not just a quotation). He argued that capital stock would first be used in agriculture, then in domestic manufactures and finally in foreign trade, each phase spilling over its surplus capital into the next stage as it progressively developed (he was actually somewhat disappointed to observe that the neat sequence was not followed in Europe; ‘too much’ was going into manufacturing and not enough into ‘improving agriculture’).

His point in this passage was that holders of capital stock prefer to develop locally first because of the scarcity of capital stock and the risks of distant ventures (it was the turbulent 18th century!). He had no doubt that overseas ventures would feature in due course (otherwise there would be little growth towards home opulence if activity was confined to a locality only, and his theory of absolute advantage would be redundant).

I have argued in “Adam Smith’s Lost Legacy” (Palgrave, 2005) that Smith’s alleged Deism is in doubt, as most certainly were his alleged religious beliefs, and I develop this theme in my forthcoming book on Adam Smith for Palgrave’s “Great Thinkers in Economics” series.

James writes:

“Smith's Creator did not interfere. He simply wrote the laws and left them for events to demonstrate and man to discover. The greatest American economist, Thorstein Veblen, observed that "the guidance of…the invisible hand takes place…through a comprehensive scheme of contrivances established from the beginning." What is this if not Intelligent Design?”

To describe Thorstein Veblen as “the greatest American economist” is overly generous (which is an opinion and as such is open to debate), but to bring in the isolated metaphor of the invisible hand as if it was a theory or an explanation of anything is gratuitous exaggeration.
Smith used the same metaphor three times only, in three separate works: ‘The History of Astronomy” (1743-48 and first published posthumously in 1795), where it refers to pagan superstition, code for all religious belief); ‘Moral Sentiments’ (1759), where it refers to the distribution of surplus product on feudal estates which maintained retainers, and serfs, in much the same amounts as would be produced by them if the land was divided equally; and in “Wealth of Nations” (1776) in respect of human motivation (nothing to do with markets). In fact, the metaphor was not Smith’s; it was Shakespeare’s (Macbeth: 3: 2), ‘thy bloody and invisible hand’. James K. Galbraith is reading too much into the presentation of a metaphor in secondary sources and not enough into Smith’s actual use of it.

Whatever the value of Veblen’s critique of economics, post-Darwin, the subject had moved on a great deal from the political economy of Adam Smith (he died in 1790). Far from there being “too little … material process and ‘cumulative or unfolding sequence’ ”, all of Smith’s extant works say exactly the opposite. James should read his “Lectures in Jurisprudence” and be ready to be amazed at the extent of Smith’s analysis of ‘material process’ and ‘cumulative and unfolding sequence[s]’.

James K. Galbraith continues:

“Evolutionism, in the Darwinian form that cannot be reconciled to God's design or even to the Invisible Hand, remains a pure—if I were religious I would say sublime—product of free human thought.”

I agree, I agree! If you end the confusion about Smith’s evolutionary assessment of society with alleged religious design you might just come to appreciate the ‘product of [his] free human thought’.

The only reason the invisible hand metaphor “stubbornly persists in the face of overwhelming evidence” is because people like James K. Galbraith have bought into the false prospectus that it is something far more important or relevant to Smith’s thinking than it ever was to him. For the cause of this misinterpretation, don’t look to Adam Smith, look to how it has been presented in Economics 101 all over the USA.

Nobody who reads Smith’s actual Works in the whole can possibly hold to a view of Smith as the “High Priest of Capitalism”, “Father of Laissez-faire”, advocate of “Selfishness and Greed”, founder of the sole motivation in a society based on “self-interest”, author of two contradictory Works, “Moral Sentiments” and “Wealth of Nations”, and advocate of the “minimal night-watchman state”.

As for intelligent design and creationism, taking his writings out of the context of the repressive religious climate of mid-18th-century Scotland (much like today’s Iran), with zealots patrolling within earshot and sight of everything anybody in public life said or wrote for the faintest sign of apostasy, due allowance must be made for how Smith expressed himself prudently.

My challenge to James K. Galbraith is to read Adam Smith’s Works and not to rely on second- or third-hand accounts of his writings. I say, no more; for goodness sakes James, do Smith the justice and the courtesy of condemning him for what he did write, not what you have heard he wrote.