Monday, July 17, 2006

Smith's Legacy is More Important than Idle Chatter

Public debate about Adam Smith as a champion of either the Left or the Right continues, if only because one of the more prominent advocates of Smith as a honorary member of New Labour is Dr Gordon Brown, Chancellor of the Exchequer, and heir apparent to Tony Blair, the Prime Minister. William Rees-Mogg, unchallenged epitomiser of the British Establishment and as a former Editor of the House Journal of the same Establishment, The Times (London), urges (17 July) Brown to fight ‘now or never’ for his coronation.

William Keegan, in yesterday’s Observer (16 July) joined the debate. He wrote:

There is plenty of material in both The Wealth of Nations and Theory of Moral Sentiments to rid Smith's reputation of its Thatcherite image, although as Dr Emma Rothschild pointed out in her Enlightenment lecture, Smith was 'an exceptionally circumspect and artful writer' who 'was prepared to confuse posterity, just as he confused his own public'. But he did think that there was such a thing as society - and he approved of progressive taxation.

Smith might have lauded the 'invisible hand' - the 'butcher, the brewer or the baker' acting not from 'benevolence' but 'from their regard to their own interest' and 'the individual ... led by an invisible hand to promote an end which was no part of his intention'.

Yet 'to feel much for others and little for ourselves ... to restrain our selfish, and to indulge our benevolent affections, constitutes the perfection of human nature'

Mrs Thatcher was quoting Hayek to the effect that the individual is responsible for his actions, not something called ‘society’, a wholly reasonable proposition at the level of abstraction of personal responsibility, but long since jumped on by the chattering classes as absurd (at different levels of abstraction). I do not believe that William Keegan entertains for a moment that the individual is not responsible for his actions and that if brought to book for manifest selfishness and criminal or bestial actions, it would be a valid defence to argue that it ‘was not me, guv, I was compelled by society to do ‘em harm’. But in columnist banter, cheap shot are, well, cheap, and, I note, Mrs Thatcher is not let off the hook for her personal responsibilities for her actions when in government.

I am not letting William Keegan off the hook either, for his crass miss-statement that the so-called invisible hand (a metaphor taken from Shakespeare and Defoe) had anything to do with exchange behaviour with 'butchers, brewers and bakers'. Note how he runs two quite separate ideas together, no doubt under the excuse that this how conventional accounts of Adam Smith’s economics report his views. But conventional accounts do not represent Smith’s economics or his philosophy. The actions of self-interested driven individuals are as likely to cause harm to others (and to society) as positive benefits and leaving every action of self-interested behaviour unrestrained by the laws of society, by moral and ethical practices and beyond censure are absurd propositions that have no connection to Adam Smith, as the second paragraph from ‘Moral Sentiments’ demonstrates and which William Keegan blithely ignores (did sub-editors not read the passages together and at least ask the author for an explanation?).

He continues:

If there is one economic contribution he popularised, and on which left and right seem to agree, it is the importance of the division of labour, long cited as 'the mainspring of economic growth', not to say the justification for free trade and what is now known as 'globalisation'.

But JK Galbraith pointed out in A History of Economics: 'That the application of power and machinery to production, even in Smith's day, might have been a far greater source of efficiency than the specialised application of workers to a task is more probable ... To this day, nonetheless, Smith's division of labour remains a totemic source of efficiency, a cliche in all discussion of international trade policy.'

Needless to say, as this concept was being discussed at last week's seminar, I could not help thinking of another division of labour - the division within the Labour Party itself. But that is another story.”

The significance for Smith of the division of labour was not an abstract discussion about the division of tasks within a multi-task process, as in his report of Diderot’s pin factory plus the separate one that Smith visited (Chapter 1, Wealth of Nations) and Galbraith’s ‘application of power and machinery to production’, which incidentally ‘even in Smith's day’ could be said to be almost non-existent – power-driven machinery featured largely in the late 18th and 19th century, not the early 18th century.

The division of labour was of crucial significance to Smith even as the ‘rude’ (‘savage’) society of the Hunters was slowly transforming, to be followed by the Shepherds and Agricultural stages, long before the Age of Commerce of Classical Greece and Rome (see Wealth of Nations and Lectures in Jurisprudence), not to mention ‘free trade’ and ‘globalisation’. This is spelled out clearly in Chapter 2 of Wealth of Nations, where it is linked to the propensity to ‘truck, barter and exchange’.

The Division of Labour is a consequence of the propensity to exchange, not its progenitor. Power-driven machinery appeared many millennia after the original division of labour from technology unavailable in primitive society. The whole point about development today is that instead of awaiting (so to speak) the example of technology, modern markets, and highly complex and refined divisions of labour, and the concomitant benefits of allowing these forces to drive economies, all underdeveloped societies have available to them the option of leaping over the millennia time-tables experienced by the developed countries by choosing to link themselves to what already exists. China and India has chosen this path with visible results.

If this truth is repeated to the point of being a mere ‘icon’, that is a small price to pay for actively doing something about it. This linking process has severe ‘adjustment costs’ both for developing countries and for developed countries, but none of these costs are unmanageable or unpalatable, but neither are they easy to bear. The route is clear; the choice compelling, and opposition to both is, well, absurd, not to say downright sad.

It does not matter whether Left or Right claims Adam Smith’s legacy. What does matter is that they understand it. Against this challenge the ‘divisions in the Labour Party’ are trivial tittle-tattle.


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