Sunday, January 15, 2006

Reply to Murray Rothbard 2





Gavin Kennedy

The early chapters of “Wealth of Nations” irritate readers in a hurry to read it like a modern economics textbook, and are often ignored by them. Francis Horner (1801) dismissed the early chapters of having any significance:

“This is a very superficial and unnecessary chapter; all that is valuable in the doctrine of it stated in a single sentence. The disquisition belongs rather to philosophy of the mind rather than to political economy: and as a metaphysical investigation, it is treated in a very slight and unsatisfying manner” (Brown, V. and Taylor, W. B. 1994, The Horner Papers, Edinburgh University Press).

Two centuries later, Murray Rothbard, under the cover of Schumpeter’s authority, dismisses them too. It is his (usual) sweeping opinion that for no “economist before or since did the division of labour assume such a position of commanding importance.” To the extent that this is true it reflects more on the unfortunate neglect of such economists than any obsession Smith may have entertained about the division of labour.

Rothbard considers the division of labour of trifling importance compared to the exaggerated ‘undue’ and ‘commanding importance’ accorded to it by Smith. This is a clear difference of opinion not open to resolution. However, Rothbard goes much further and throws about other, more serious, charges against Smith. Beyond the crimes of exaggeration, Rothbard adds those of downplaying the importance of ‘capital accumulation and the growth of technological knowledge’; not ‘apply[ing] his analysis of the division of labour to international trade; having ‘no inkling of the Indus­trial Revolution going on all about him’; plagiarizing the example of the pin factory from the French Encyclopédie (1755) and shifting ‘the main focus’ of the importance of the division of labour ‘from mutual benefit to an alleged irrational and innate 'propensity to truck, barter and exchange', as if human beings were lemmings determined by forces external to their own chosen purposes.’

After such a devastating broadside from a major post-war figure in Austrian economics, supported by the authority of Schumpeter, a veritable giant of the profession, it may be thought that Rothbard’s abusive rhetoric mustered in his intemperate article was perfectly justified. I think our American cousins call it ‘Slam Dunk’. But Rothbard would have known that economists habitually reading the same sources cut through rhetoric to check the solidity of apparently firm, because considered, assertions, it mattering not a tittle or a tattle to them of the reputations of those making the noise.

This gets to the core of the significance of the division or labour for Smith. He was not writing a textbook, nor a book of ‘principles of political economy’, nor even a tract or pamphlet on a topic of an aspect of political economy (currency, trade or agriculture, etc.,), and nor a set of lectures for a class in moral philosophy. “An Inquiry into the Nature and Causes of the Wealth of Nations” was a considered report answering the question embodied in its title. I have called it elsewhere a ‘one-man Royal Commission’, after the procedure in Britain, by which a government appoints some independent worthies to enquire into a subject of importance (the causes of crime, bad housing, transport, genetically modified foods, drug addiction, and such like) and then publishes their findings a few years later. “Wealth of Nations” should be read with that image in mind.

It is appropriate that Smith opens his report by taking a long view into the evolutionary history of factors bound up with the causes of the wealth of nations. Smith was aware that outside the perimeter of European societies there were very different societies elsewhere on Earth, some with ancient civilisations (India, China) and others commonly referred to as examples of the lives of the ‘Brutes’, or the kind of ‘savage’ societies that once were considered to have been the norm for all humans (e.g., Locke’s assertion in 1690 that in the ‘beginning all the world was America’).

That he leant heavily on the division of labour as a primary cause of the differences between the savage present of existing societies of the Brutes in America and Africa, and the civilised present of Western Europe is justifiable. That he was wrong in details and he knew nothing of the hundreds of thousands of years of the human and proto-human societies as they had evolved, is readily conceded, but other disciplines could now show those economists, who hasten past these insights, some quite fundamental gaps in their understanding of human behaviour, of which subject they (including the Austrians) claim unique sovereignty.
In “Adam Smith’s Lost Legacy” I criticise the extent to which Smith’s name has become ‘practically synonymous’ with the division of labour and the extent of the market, and I try to ‘lay this myth to rest’ in Chapter 26.

That he ignored others who had expressed thoughts of the division of labour is not entirely supported by his text. In paragraph 2 of Chapter 1 of “Wealth of Nations”, we find him drawing attention to previous views on the division of labour. He writes:

‘[The division of labour] is commonly supposed to be carried furthest in some very trifling’ manufactures (clear evidence of others before himself, presumably in the pamphlet literature he does not bother to cite in detail, expressing their views on the division of labour before he did) and he continues in this theme to identify ‘great manufacturers’ that cannot collect all of their workmen into ‘the same workhouse’ in a single place (large workplaces were rare in mid-18th century Scotland, excluding mines), and they necessarily disperse them such that the work is ‘divided into a greater number of parts’ and ‘the division [of labour] is not near so obvious, and has accordingly been much less observed’ (WN I.i.2: p. 14), but certainly observed by others to some extent.

This introduces the ‘pin maker’, but note (read carefully!) he writes that the division of labour in the ‘very trifling manufacture’ of pins ‘has been very often taken notice of’. Again he makes no claim to precedence or pretence at originality. The tense of ‘has been very often taken notice of’ is clear: the ‘notice’ that others took of the division of labour is in the past, i.e., before “Wealth of Nations” (1776); the Encyclopédie was published in 1755, 21 years earlier, and its contents were widely known to those of his contemporaries interested in political economy.

Smith had been teaching the division of labour since he arrived at Glasgow College (1751) and it had been expounded by Francis Hutcheson while Smith was a student (1737-40), and by Plato, William Petty (1683) and many others. Acknowledging well-known observations, well known to his readers, is hardly grounds for accusations of his plagiarism two hundred years later, because in the interim the pamphlet literature had been discarded, except to those with Internet access to libraries which stored copies.

Rothbard makes an extraordinary assertion:

The older and truer perception of the motive power for specialization and exchange was simply that each party to an exchange (which is necessarily two-party and two-commodity) benefits (or at least expects to benefit) from the exchange; otherwise the trade would not take place. But Smith unfortunately shifts the main focus from mutual benefit to an alleged irrational and innate 'propensity to truck, barter and exchange', as if human beings were lemmings determined by forces external to their own chosen purposes.

That it is older is agreed, that it is truer is problematical. ‘Specialisation and exchange’ narrows the domain of the division of labour considerably unless Rothbard insists that the division of labour was confined only to the era of exchange. The division of labour reached its modern fruition in the modern era of commerce, but it had a long history through the four ages of man, from the gathering-scavenging-hunting first stage onwards. Co-operation, an essential ingredient in the division of labour, evolved through the millennia in late proto-human (hominid) society; it did not just appear suddenly and fully operational in early acts of exchange in human society.

Co-operation in the scavenging or hunting game (larger than adult men) required more than one common set of attributes. Age separated man’s universal talents; the young ran faster, had strength and seldom lacked the impetuousness that often passes for courage; the older, perhaps lamer, certainly slower, than the young, and nursing that experience that often passes for guile, fulfilled different roles. These were not necessarily solely innate differences; they were the product of many incidents over their life-times, learned from the accidents of experience.

In an environment where violent predators competed for the same food sources, a division of labour amongst humans had reproductive advantages suitable to drive social evolution (a far faster form of evolution compared to natural selection). Scavenging and hunting big game was dangerous work for puny humans. While multi-tasking was possible, such activities guided by superior intelligence gave humans a competitive edge. Tracking and locating prey (already dead or suitable for killing), trapping and stripping the kill or the abandoned carcass quickly before rival predators, determined an able to kill anything in their way, challenged them for possession, and withdrawing intact, required knappers of stone tools, butchers and carriers, plus noisy skirmishers to keep predators at bay long enough for the others to complete their work. The nature of such work required a nascent division of labour, some elementary forms of organisation and cohesion.

Combined in a group there were many reproductive and survival advantages in divisions of labour, some from innate differences, some not. That Smith asserts the absence of innate differences between porters and philosophers is the result, ‘not so much from nature, as from habit, custom, and education’ is an error regarding the relative importance of nature versus nurture as root causes, but if he insisted that the differences were absolutely caused by ‘habit, custom and education’ he was wrong (WN I.ii.4: pp28-29) That we know somewhat differently today (though in some quarters the issue is still controversial) is a result of two hundred years additional research, and is commendable (education?), but hardly a decisive dismissal of Smith’s complicity in common enough errors of his time and afterwards. (I wish I could feel so certain of everything I assert as Murray Rothbard's self-confidence comes across in everything he asserted.)

What is important is Smith’s denial that the division of labour was ‘derived’ from ‘the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion’ (WN I.ii.1: page 25). He says much the same thing in relation to the origins of language and its evolution. He went on to argue that much the same process is behind the evolution of markets and their workings, though he obfuscated how markets work from using Shakespeare’s metaphor of the invisible hand (Macbeth, 3:2), clouding his clarity with the unfortunate interpretation of those (the majority?) who came to see markets as ‘miraculous’ and mysterious.

Only much later in the evolution of the division of labour from the creation of wealth (the goods created by human toil) spread to a level in which co-operation passed on towards exchange did its linkage to exchange appear. It was the extended families, who created their future histories in the empty wilderness of the Earth, and their descendants who migrated through adjacent territories and then continents until they entered the already occupied living space of other descendants from the same origins in Africa already there, who created exchange possibilities. It was contact amongst long separated human bands that drove social evolution into exchange relationships (and its ever present human phenomenon of violent plunder).

It is here that Rothbard separates himself from Smith’s view of the essential attribute of human exchange. He confuses motive with means; he makes the mistake he accuses Smith of committing. He writes:

simply that each party to an exchange (which is necessarily two-party and two-commodity) benefits (or at least expects to benefit) from the exchange; otherwise the trade would not take place.”

Yes, but: though each party unambiguously “benefits from the exchange”, where did the only practice that could realise the mutual benefits of trading come from, and as important, Mr Rothbard, how does exchange take place without what Smith calls the propensity for bargaining? Is Rothbard suggesting that it came exogenously “as if human beings were lemmings determined by forces external to their own chosen purposes”? Surely not! It must have come from within their attempts to realise the tentative benefits, which Smith suggested was the mechanism for trade – the behaviour that makes it happen:

the necessary, though very slow and gradual consequence of a certain propensity in human nature which has no such entensive utility; the propensity to truck, barter, and exchange one thing for another’ (WN I.ii.1: page 25).

Concentrate your attention on the words: ‘very slow and gradual consequence of a certain propensity’. This fits Smith’s evolutionary social model. It was not a result of a rational decision to exchange which everybody adopted simultaneously after reading von Mises and Rothbard in mid-20th century; humans discovered the alternatives to acquiring wealth they had not created themselves through an evident propensity that was one of the ‘original principles in human nature of which no further account can be given’ because the behaviours of our ancient predecessors did not fossilise and no trace remains. Smith’s other option for the origins of the propensity are ‘the necessary consequence of the faculties of reason and speech’ (WN I.ii.2. p. 25). In short, he did not know which it might have been, or if there was a third option (rational deduction in the Austrian tradition). He did not state that ‘irrational’ propensity was definitely ‘innate’; he did not know for sure and he left the two alternatives for future scholarship.

Two centuries later, Rothbard asserts he knows the answer for certain. And how does he know for certain? Because he thought it through rationally and with the benefit of two hundred years of modern scholarship, held in vast libraries, none of which was available to Adam Smith in Kirkcaldy in 1766, when he wrote the opening chapters of “Wealth of Nations”.

The alternative to bargaining for the benefits was violent plunder, which no doubt many tried instead, some ‘winning’ and as many ‘losing’ (the plunderers were out plundered by their supposed victims). Trading behaviour has always been as a ‘propensity’, not a guaranteed mandate. Where it happened it raised the wealth of its participants, whereas plunder raised the wealth of the ‘winning’ party, net of its real costs – dead and wounded and the ever present threat from surviving remnants of the ‘losers’ - and eliminated any potential benefits from the one-way transactions of the ‘losers’.

Trade does not just take place. It has to be negotiated. The parties have to ‘persuade’ each other to transact (Lectures in Jurisprudence, 1763, vi.56, p. 352). The fact that mainstream economics has ignored Smith’s assessment of the ‘propensity to truck, barter and exchange’ (negotiation) as the fundamental characteristic of trade since he wrote about it over two hundred years ago, is a criticism of economists (including among the Austrian variety), not Adam Smith.

I shall continue this appraisal of Murray Rothbard’s ‘damning’ assessment of Adam Smith in my next contribution and, hopefully, elucidate Smith’s actual views. Those wanting a faster route into what is ahead, see my “Adam Smith’s Lost legacy” (Palgrave Macmillan, 2005,
ISBN 1-4039-4789-9).


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