Thursday, June 29, 2006

Trade As The Engine of Peace

Trade is the engine of peace, not ‘democracy’ or ‘capitalism’. These last two are not incompatible with peace; but they do not automatically cause it. History shows how necessary it is for democratic and capitalist countries to go to war on occasion.

Governments, democratic and otherwise, have the powers and the instruments of war – the first duty, said Smith, of all governments was to protect its citizenry from the depredations of neighbours (some living next door; others across national boundaries).

Hence, I am always wary of enthusiasts lauding the merits of democracy or capitalism for the merits that rightly belong to trade and markets. Clarity in these matters carries credibility, which foggy thinking does not.

Carl J Scram (USA Today 26 June) writes a punchy article along these themes which is broadly correct except in his ascription of the engine for peace being a virtue of democracy and what he calls ‘Smith’s entrepreneurial capitalism’, or the USA, a country with many virtues, of which the US Constitution is one of them.

“Capitalism spreads freedom even as democracy falters”

“How would Presidents George Washington, John Quincy Adams or Thomas Jefferson handle Iraq? Afghanistan? The war on terror? The search for global peace?
One overlooked "founder" offers enduring answers: Adam Smith. Smith published the Wealth of Nations in 1776, the same year the Continental Congress declared American independence. By the time of the Constitutional Convention 11 years later, his ideas had been incorporated into the thinking of the new nation's leaders.

Smith's great revelation was that political freedom would most likely emerge and persist under conditions of economic freedom, what we now call capitalism. Our democratic system as defined in our Constitution incorporated respect for this economic system.

Like Smith's invisible hand in the market, the Framers saw an invisible hand in our politics. They believed that, if allowed to work freely, these hands together would shape America into the land where invention, creativity and entrepreneurial activity would flourish. “
In the two centuries since then, Smith's proposition has served to advance all of civilization. America has become the hope of the oppressed, the "mother of exiles" and the cradle of modern commerce.

Instead, in the 1980s, we returned to our origins and bet on individual entrepreneurs rather than on government bureaucrats. The result has been today's extraordinary economic engine — Smith's entrepreneurial capitalism at work.

If, with our assistance, Adam Smith's entrepreneurial capitalism were to become ubiquitous, the cross-border investment in the success of our brothers and sisters around the world, and theirs in us, would cause people everywhere to see the futility of ancient struggles, whether based on plunder, conquest or theocratic fervor.
In the insight of our invisible founder is the secret for achieving a future of global peace

[Carl J. Schramm is president and CEO of the Ewing Marion Kauffman Foundation, which focuses on advancing entrepreneurial success.]

Note that the ‘invisible hand’ is now metamorphosed into an ‘invisible founder’! OK, it’s only a literary allusion, playing on a worn-out metaphor, and journalism is like that, so I'll leave it.

Markets involve a behaviour known as bargaining (‘Give me that which I want and I will give you this that you want’, Smith, WN I.ii.) It is the voluntary process of bargaining that peaceful relationships are built upon and warlike tendencies are diminished. The economic systems of either partner are less relevant than the action required to realise their traded solutions.

Of course, most large and deep markets today are found in countries with capitalist forms of ownership and democratic forms of accountability. But slide from one to the other as if they are the same. Markets predated capitalism by millennia. Smith, himself, never knew anything about capitalism, an economic system of the century after he had died in 1790 (and its forms changed mightily since the 1870s; even the 1970s).

Markets operate best in conditions of Liberty, said Smith (Lectures in Jurisprudence, 1762-3, Liberty Fund, Indiana).

The six minimal criteria of Liberty are:

1 An independent judiciary holding office for life (and good behaviour)
2 Laws made exclusively by the Legislature, not the Judiciary or the Executive
3 Habeas Corpus to ensure timely due process
4 Juries of the defendant’s peers to hear all the evidence and decide on the verdict
5 The Legislature to have powers of impeachment over the Executive
6 Regular and frequent elections to the Legislature. (Adam Smith's Lost Legacy, 2005)

By modern standards these are modest criteria, but they do not operate in the vast majority of members states of the UN and are continually exposed as a failing at the core of the UN. Even in long-established democracies, including the USA and the UK, they require the most suspicious and searching vigilance to preserve through democratic accountability.

Western foreign policy should be directed at extending markets in all countries, and domestic policy should be directed at extending markets within the capitalist democracies, where the dead hand of state management has a grip on what markets can do better.

To the extent that Carl Schramm means this, I agree with him (and so would Adam Smith).

Tuesday, June 27, 2006

Mere Praise and Merited Praise: Warren Buffet Fully Deserves the Latter

Proper applause is due to Warren Buffett for his gift of his fortune of $31 billion to the Gates Foundation (Bill Gates is another very rich man giving his fortune away in a well-thought programme that aims to make lasting differences to the recipients’ lives and those who follow on).

People may receive praise, and wallow in it, but the real goal of moral people is to deserve praise, whether they receive praise or not.

With such an intrusive media today, it would not be easy to hide fortunes of this magnitude, and with a litigious society too, if there was any doubts about Warren Buffert’s clear intentions to dispose of his fortune while of sound mind a body, his posthumous legacy would be wasted in litigation from undeserving others. So, publicity is inevitable and unavoidable.
But there is absolutely no doubt that that Warren Buffett and Bill Gates deserve every ounce of praise their actions attract.

The Times on-line (London) 27 June, reports:

HOW do you thank a man whose just given you $31 billion to spend? Bill Gates came up with the answer yesterday, by giving Warren Buffett, his fellow billionaire philanthropist, his personal copy of Adam Smith’s The Wealth of Nations.

When they appeared together for the first time since Mr Buffett announced his $31 billion (£17 billion) donation to the Microsoft founder’s charitable foundation, Mr Gates recited the opening line of Smith’s famous doctrine in tribute to his friend.

“How[ever] selfish soever man may be supposed, there are evidently some principles in his nature[,] which interest him in the fortune of others, and render their happiness necessary to him,” the world’s richest man said to its second-richest

The quote is from Smith’s The Theory of Moral Sentiments (I.i.1.1: p 9) [delete ‘ever’ in first square bracket; insert comma in second] not Wealth of Nations.

However, it is entirely appropriate. Smith would have approved. He did likewise on a much more modest scale with his income before he died in 1790. He gave it away in private chartable acts to indigent relatives and unknown others, in small sums over many years, and left a mere £400 in cash to his heir, plus his library (itself worth a small fortune), but of the rest of his lifetime earnings (he was exceptionally frugal by nature), there was none.

Lawyers against monoplies live in glass houses

Quoting Adam Smith on a 18th century problem may not add much to dealing with a 21st century problem, especially if the quoter misunderstands what Smith was getting at.

Yahoo The Nation -- "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public..." wrote Adam Smith in 1776. Four new class action suits allege that folks running hospitals are doing just that: conspiring to depress nurses' wages, even though, as I've written before, raising them could help address a nurse shortage which threatens public health.

Smith was suspicious, and with good reason, of why ‘people of the same trade’ meet together. He was, of course, dealing with a different situation to the hospitals in ‘Albany, Chicago, Memphis and San Antonio’, of which the author writes.

In the 18th century main towns were by law entitled to require all ‘merchants and manufacturers’ (the latter covering ‘trades’, such as artisans, mechanics, printers, weavers, cabinet makers, coach buildings, wheelwrights, and such like) to have served seven-year apprenticeships to Masters who were members of their respective Guilds that, effectively, ‘ran the towns’, in self-perpetuating oligarchs.

One example of which, clearly illustrates the point Smith was getting at. James Watt, a self-taught mechanic, was barred from opening a workshop within the city boundaries by the Corporation of City Guilds because he had not served the requisite seven-year apprenticeship in the city (he came from Greenock, along the Clyde).

Fortunately for him, and the eventual industrial revolution decades later, the University of Glasgow (known as the ‘college’) was outside the city boundaries, and the writ of the incorporated ‘trades’ did not run beyond the city boundaries. The faculty of Glasgow, on the look for a competent mechanic who could keep their instruments repaired and maintained, offered him several rooms in the college to conduct his work (his ‘day job’) and his experimental work in his own time.

Adam Smith at the time was Professor of Moral Sentiments and he dealt with matters relating to James Watt on behalf of the Senate (as the Senate minutes show). He was, therefore, well aware of the pernicious influence of the ‘guilds of trades’ and it was these that he was getting at as part of his critique of monopolies enshrined in laws of ancient vintage. He goes on to suggest that governments should not make it easier for trades to combine together by such modest, though obvious, measures of intended tradesmen having to register with the city authorities, because this made it easy for the guild to visit them and check their credentials, and then use the legal powers they had to stifle competition.

Smith’s targets were not companies and businesses as we know them in the 21st century; they were individual ‘skilled’ or ‘apprenticed-served’ people sheltering under the Apprenticeship laws, which Smith wanted repealed. The engaged in suhc practices to keep their prices higher than competition would have allowed.

Filed yesterday in Albany, Chicago, Memphis and San Antonio, the suits allege that hospitals in those cities are exchanging detailed information about nurses' pay, so that each can keep labor costs low without suffering a competitive disadvantage. A lead lawyer on the suit, Dan Small of Cohen, Milstein, Hausfeld and Toll (a large corporate firm whose deep pockets are backing the sex discrimination suit against Wal-Mart) tells me that the suits are based on interviews with current and former employees of these hospitals, who were privy to meetings and discussions in which pay information was shared. In each of these markets, raising the wages could have helped to alleviate a nurse shortage, instead.’

What we have here is a conspiracy to keep wages uniformly at the rate of the least efficient hospital. That must be worthy of legal action.

However, I notice that it is being pushed by an example of a modern day ‘Guild’:

Dan Small of Cohen, Milstein, Hausfeld and Toll (a large corporate firm whose deep pockets are backing the sex discrimination suit against Wal-Mart).”

The author of the article misses the irony of a large modern law firm funding actions against firms misusing their connections with each other (and for which they should be brought to justice) when, like all law firms, it is protected by laws that ensure its members have monopoly rights to exercise their trade as lawyers, which exclude competition from persons, who have not served their legal ‘apprenticeships’, with all the fury and energies that could not teach an 18th-century City of Glasgow Guild of Trades anything about how to keep James Watt from practising his trade within the boundaries of Glasgow.

This, of course, is another example of reading a handy quote from Wealth of Nations, misreading the meaning of words and the context to which they applied, and assuming it is about what happens in the mid-US in 2006.

In Smith’s day the law backed Guild Corporations against the public interest; in 2006 in the US, the law backs the public against ‘conspiracies’ by modern corporations. There is an enormous difference.

Incidentally, after two hundred years, no laws have yet breached the law monopolists to tackle their legally-backed rights to exercise their trade exclusively, including keeping out rival lawyers from different cities, let alone different countries. No wonder they have ‘deep pockets’!

Monday, June 26, 2006

Waiting for Doha

The Times (London) 26 June, Editorial:

“Yet the case for free trade needs to be made again and again, because jobs lost to foreign competition are more obvious to the public than opportunities created by Adam Smith’s “hidden hand”. And politicians rarely make themselves popular by urging people to embrace competition and change.

The need to act has seldom been more urgent. The health of the postwar trading system is at stake. After nearly five years of phoney war, the Doha round of global trade negotiations has degenerated into a destructive and unwinnable battle of fixed positions, mainly, though not exclusively, between the EU and the United States. Without bold leadership, there is scant hope of peace breaking out by December. Soon thereafter, George W. Bush’s “fast track” negotiating authority from Congress will expire and it will be too late to avert a costly and
time-defeating defeat.”

Fair point made about long-term versus short-tem perceptions. I am not sure what is meant by Adam Smith’s “hidden hand”, but if it’s a reference to the unintended, unplanned and unconscious motivation that operates as a long term process to arrive at unintended outcomes it is not appropriate in this context.

Politicians cannot bring the benefits of free trade about by legislation; they can legislate to remove the tariff barriers they imposed in the first place, but from then on it is up to individuals to act in ways that extend trade and the division of labour. And Smith was mindful of the costs this policy could impose on the losers as well as the benefits to the gainers, and recommended that the policy be pursued with a sense of ‘common humanity’, and gradually over whatever period was found necessary.

Bold strokes by governments are lauded in theory, but given that governments were the original cause of the problems that the Doha round is supposed to be addressing, I am not sure, even if the ‘bold leaders’ stepped up to the plate before December, that there would be much evidence that the intended benefits would manifest themselves quickly, or, and this is a relief, that the expected losses and their associated problems would appear quickly either.

Economies do not change by human fiat (except for the worse); they take their time. Racy, almost panicky, editorials in the Times always read well. But come the end of December, and the Doha round rapidly becomes forgotten, I am not expecting any really dramatic changes in these matters.

Sunday, June 25, 2006

'Commerce' or 'Trade'?

‘Montesquieu on Commerce’ by Tim Hilton (Globalisation Institute blog) produces an interesting quote:

“The natural effect of commerce is to lead to peace” (Baron de Montesquieu, 1748, The Spirit of the Laws, Book 20, Chapter 2: ‘Of the Spirit of Commerce’).

This is a claim made since at least the 18th century. It should make sense, logically, but I am not sure expressed this way it is as convincing as Thomas Nugent’s translation of Montesquieu:

‘Peace is the natural effect of trade.’

Baron de Montesquieu, 1748, The Spirit of the Laws, Book 20, Chapter 2: ‘Of the Spirit of Commerce’, translated by Thomas Nugent, with an introduction by Franz Neumann, two volumes in one, Hafner Library of Classics, Hafner Publishing, New York, 1949, p 316.

As I do not have a French copy of Montesquieu’s wonderful title I cannot check which version is more accurate (and the translator quoted by Tim Wilson is not given, or from which English edition he is sourcing his quotation).

Why the quibble? Because the next sentence of Montesquieu’s paragraph, as translated by Thomas Nugent, is more helpful of elucidating his meaning:

Two nations who traffic with each other become reciprocally dependent; for if one has an interest in buying, the other has an interest in selling; and their union thus is founded on their mutual necessities.”

It is trade – the action of two-way exchange – that solidifies relationships between nations. I am not sure about ‘commerce’, a very broad activity well beyond the act of trade, leading to peace; war ‘leads’ to peace, but that is not so good. Trade, on the other hand has a natural affect in that peace is a possibility from the mutual dependence of each country on the other in a reciprocal relationship for each other’s benefit.

Hence, my comment is more than a ‘quibble’.

Saturday, June 24, 2006

The Great School of Self-Command

Greg Mankiw asks on his Blog: "Self-Control and Academic Success "

Australian reports:

A child's capacity for self-discipline was about twice as important as his or her IQ when it came to predicting academic success.

I can believe that. But I wonder: To what extent is the capacity for self-control something we learn and to what extent is it something in our genes?


Gavin Kennedy said...

Adam Smith wrote about something similar in Theory of Moral Sentiments. He called a child's transfer from home to school the point where the child enters the 'Great School of Self Command'.

No longer sheltered from others by parents and the family, whose loving embrace tends to be indulgent towards the child's self-centredness, the child's school fellows are not so indulgent and the child has to 'get along', as we say now, by 'getting along' with other children, and by modifying self-indulgence with some concerns of the needs of others (the Impartial Spectator).Those that do this well, do better at school.

Smith was brought up by his widowed mother and went to school at 8, and before was taught at home (possibly because of his sickly infancy). His mother totally ‘indulged’ him according the Dugald Stewart, who heard this from his relatives and others in Kirkcaldy (many of his male relatives had served in the military, no doubt colouring their judgement – everybody is an expert at bringing up other people’s children, in my experience). School was a bit of a shock if the above comments on the Greta School of Self-Command represent his experience on his first days at Kirkcaldy Burgh School. Whatever happened in the play ground, Smith certainly established a reputation for studiousness while at school (his mother and cousins worried about him over-indulging in aademic work whenever he got close to books).

His self-command (aka self disciplne) paid off, because he was approved for Glasgow University at age 14 by his school master, John Millar, evidently already knowing a bit more than a bit of Greek and Latin, sufficient to attend university lectures, which in those days in Scotland were given entirely in Latin by the Professors, so Latin competence was an entrance qualification.

Fortunately, his Professor, the ‘never-to-be-forgotten’ Francis Hutcheson, broke tradition and started delivering lectures in Moral Philosophy in English. However, Smith did not need this help and went on to Balliol College, Oxford University on a competitive Snell Exhibition, where he continued his classical studies.

From there on, the rest is history.

Friday, June 23, 2006

Apologies! Diverted by Smith's Value Theory.

I looked up just now and noticed to my horror that I have not posted since Wednesday. Shock, horror! This will never do. I read many economics blogs everyday and notice some post quality contributions several times a day. But they are often fulltime academics, with time to read other blogs, the msm and the latest books.

As a retired academic, I have little time for all the things I have to do, including writing a book which is reaching a critical mass (I find a mass of criticisms when I read over what I have completed so far) and deadlines approach too fast, as do the years that pass.

For example, I had been reading this past two days my Chapter on Smith's (alleged) labour theory of value, and when you return to a subject after a while you notice things passed over last time. I noticed, as I checked over the references to Wealth of Nations, just how mixed up his two key chapters were (V and VI). He keeps switching contexts. Re-reading the chapters over for the nth time, it occurred to me that a large part of the problem of interpreting Smith on value and price is caused by his less than perspicuous (his favoiurite word) presentation of his two distinct models of value - one for the 1st Age of Man, the hunter, and the other for the 3rd and 4th Ages of Man, Agriculture and Commerce. That this probably contributed to him being labelled, incorrectly in my view, as a labour theory of value economist, it is important that in an evaluation of his contribution to the history of thinking in economics, I should seriously tackle, once again, what exactly he did say about value theory. I am reasonably happy with the result, and I hope in due course you will be too.

Now, I do not know what caused him to be so unclear, but it set me thinking and to re-drafting the earlier way I had explained it. This took me the last two days, and as I am here alone (the family is back in Edinburgh for three weeks) I lost track of others things I should be doing as well - like grading two hundred MBA scripts that arrived yesterday by courier (in retirement I still grade these papers until the end of 2007, though this lot are wanted back in ten days), plus my regular household and garden chores).

I do not see how this problem is going to get easier in the next few weeks, so apologies if my contributions are less frequent, though I will make every effort to tackle issues as they come up.

Wednesday, June 21, 2006

Critics of Smith Who Missed the Plot

Reflecting on the recent exchanges of between myself and persons published by on Rothbard’s (and to a lesser extent the views of Salim Rashid) on Adam Smith’s contributions of the division of labour, I think I can see where our differences have arisen.

So far the ‘debate’ has tended to focus on the minutia of the examples Smith quotes in Wealth of Nations - the ‘pin factory’ or rather, factories – he refers to more than one of them, one from Diderot’s Encyclopaedia (1755), with 18 distinct operations, and one he visited himself, with 10 men and boys employed (some undertaking several of the required operations).

Rothbard and Rashid make a fuss about Smith not acknowledging Diderot as a source, but in the circumstances of mid-18th century Scotland, when the division of labour was well-known and the current literature shows it to have been so , and hence never claimed, or implied, he was original in the topic, he may not have considered it important, at least not to the same degree modern PhD scholars are trained to cite every single fact, no matter how trivial, to demonstrate to their unforgiving examiners their command of the Literature.

I was drawn into debating the inaccuracy of Rothbard’s arithmetic and reading of the relevant paragraphs, as if these were an important source of our differences. They are not. At most they are mildly instructive. The main point should be whether what Smith was doing was consistent with his reasons for writing An Inquiry into the Nature and Causes of the Wealth of Nations. In this respect I am sure Smith was consistent and as sure that Rothbard, Rashid and others, missed the plot.

When writing in this area of Smith’s work some months ago for my contribution to Palgrave’s Great Thinkers in Economics series, I focussed on the underlying system of thought that Smith brought to all of his Works, and I did not take the usual approach of writing solely about the contents of Wealth of Nations, interesting and important as they are (they cannot be missed anyway).

Smith did not write a textbook on political economy, or a manifesto on how to, or why it might be a good idea to, change society (of which he had many criticisms); he wrote to understand how society, primarily in Britain, had arrived at its then current form. In essence, as Sam Fleischacker expresses it, he looked backwards, not forwards (which is why he had little to say about the future role of the industrial revolution and potential technologies, and such like).

Wealth of Nations (1776) opens with the division of labour and if these chapters are read with his Lectures in Jurisprudence (1762-3) we see the key to why he took twelve years to painstakingly research and write his inquiry into the nature and causes of the wealth of nations. The copy of the lectures covering the materials with which he opens Wealth of Nations were delivered towards the end of the session (March 1763) and as he had been giving them at least since 1752 in something like that form (perhaps earlier in his Edinburgh lectures too, 1748-51) the rather dramatic illustration he uses of the contrast between the living conditions and access to the ‘necessaries and conveniences of life’ of the common and ‘meanest’ British day labourer and an ‘Indian’ king (North American native), I believe, prompted his inquiry: ‘How was it that the ‘meanest labourer’ in Britain, living in a hovel and in dreadful ‘poverty’ compared to a rich landowner was nevertheless incomparably better off than the Indian (later editions, ‘African’) ‘prince’ who held the lives of ‘1000 naked savages’ at his disposal?

Rejecting any racial explanation (intelligence, culture, etc.,) Smith asserts that the cause was purely the existence and development of the division of labour in Europe and its non-development, or primitive manifestation, in North America and Africa. Now this must have prompted the follow-on question of why the division of labour – and with it its driving force, the human ‘propensity to ‘truck, barter, and exchange’ – was more developed in Europe and less developed in America?

In 1763, he did not know the answer, of course, but his Moral Sentiments (1759) had brought his name to the attention of Charles Townshend (who almost single headedly provoked through his taxation policies the American colonial rebellion – he was the British Chancellor) whose wife wanted her son, the Duke of Buccleugh (sometimes spelt ‘Buccleuch’), then aged 15 and at Eton, to go to France on the ritual ‘tour’ with a prominent academic Tutor.

Once in France in 1764-66, Smith commenced writing Wealth of Nations from his Glasgow lecture notes (we know because large chunks of the latter reappear in the former). That was what he was inquiring into and this is why the division of labour opens his report of his inquiries. Smith used the existing and well-known materials on the division of labour, known since Plato and observed widely since – citations of 18th century texts run to many dozens of items – to convey: a) his linking of what many knew about the division of labour already to the ‘force’ of the principle of ‘exchange’ (bargaining) – one was intertwined with the other (not widely known or much noticed in the literature then or since); b) the ‘force’ of the propensity to exchange set limits on the division of labour at any one moment – the market!; and c) the division of labour was weak in the first ‘Ages of Man’ (Hunting, Shepherding) – and progressively stronger in the later ‘Ages of Man’ (Farming, Commerce) and that the North American Indians (it was or had been different in Central America before the Spanish arrived) had not gone past Hunting as their mode of subsistence, and such agricultural activities as they had were primitive side-lines, rather than production sectors, and therefore they were bereft of the advantages of a division of labour. Given time they would have developed farming, but the Europeans arrived, who had been farming for 8,000 years (perhaps in parts for longer) and disrupted their ‘Natural’liberties.

Hence, I say that Rothbard and Rashid missed the plot, at least as Smith understood it, and they judge him by the standards of economic knowledge 200 years later. By the standards of his day, his insights into the nature and causes of the creation of wealth are at least worthy of a little respect.

Monday, June 19, 2006

Adam Ferguson, Adam Smith and David Hume: the unhappy trio

Continuing on the theme of the growing interest in all matters to do with the Scottish Enlightenment in general and the personalities of its luminaries in particular, Kirsty Milne, a staff writer for the Scotsman group, picks on Adam Ferguson, a lesser known (to the general public) contributor to the flood of ideas that poured over the walls of academe in those heady days of the last half of the 18th century.

Ferguson wrote a book, An Essay on The History of Civil Society (1767), regarded by many, as the first real book on sociology. He had an ambivalent relationship with David Hume and Adam Smith and Kirsty Milne hooks her piece around their supposed differences:

Visionary who realised struggle held the key to enlightenment by Kirsty Milne” (Scotland on Sunday)

“Ferguson does not get the attention that is paid to his friends Adam Smith and David Hume, though they socialised in the same Edinburgh circles and helped one another with introductions and jobs. Notwithstanding the Essay on the History of Civil Society, published in 1767, which made his name known throughout Europe, Ferguson has lost out to Hume's suavity and Smith's sonority

There is probably something in the tone of this paragraph which captures what went wrong with the personal relationships of these three intellectuals (Hume died in 1776, Smith in 1790 and Ferguson in 1815).

Ferguson had many qualities and some excellent insights that if they had been cultivated by deeper study of existing societies they could have produced and enormous contribution, recognised as among the best of the Enlightenment. Consider this sentence from his ‘Civil Society’:

Every step and every movement of the multitude, even in what are termed enlightened ages, are made with equal blindness to the future; and nations stumble upon establishments, which are indeed the result of human action, but not the execution of any human design’(Ferguson, 1767: Pt. 3.2).

He was onto something fundamental here, along similar lines to Smith’s social evolution through the independent unplanned, unconscious and unintentional actions of individuals over long periods. It is close to later ‘spontaneous order’ theories.

Yet he also includes in his Essay an excess (in my view) of un-researched, undocumented and largely untenable assertions that flow from his personal predilections about idealistic notions of the ‘warrior’ man, martial spirits and 'courageous imperatives school of history'. Once these assumptions about human behaviours from an unspecified age are set loose, Ferguson’s text takes on an unprovable and unconvincing tone which led readers, such as Hume (who read it in draft) to dismiss it as unworthy of publication, a remark that did not endear him to Ferguson, who was miffed with Hume thereafter, as he was with Smith on other occasions where they had differences of opinion.

In short, far from being bosom friends, the three men were divided 2:1 as fellow members of the Republic of Letters, in which minority relationship Ferguson felt aggrieved that he wasn’t taken seriously enough by the other two. This is a pity because, as I recognise, Ferguson was close to being brilliant but just short of also being average.

While Smith, in The Theory of Moral Sentiments, draws up a model for social relations in a market economy, Ferguson frets about how markets might damage our civic health. The other Adam is an antidote to the idea that the Scottish Enlightenment was all about free trade and 'politeness', an 18th-century buzzword describing ideal behaviour towards strangers in expanding towns and cities. Ferguson dismissed this shallow form of sociability as insincere, claiming that behind every polite facade lay 'a grimace'.”

I think the last sentence on the ‘insincerity’ of sociability was perhaps a personal experience of Hume’s putdowns and Smith’s complicity in them (for example their undisguised amusement at Ferguson being appointed to Edinburgh's Chair in Natural Philosophy although he knew nothing of mathematics; a bluff he carried off for three year before moving to the more congenial, for him, Chair of Moral Philosophy). Smith had his own reservations about Ferguson’s Essay on grounds, not fully explained, that he thought it used ideas from his Glasgow lectures without acknowledgement.

Ferguson’s ‘frets’ about the negative features of Commerce were widely shared by 17th and 18th century philosophers, including by Smith. The classical philosophers of Greece also had deep reservations about commerce, luxury and money accumulation as corruptions of the proper virtues (of which the ‘martial spirit’ was one of them – 'effeminacy' from the indolent life had undone many civilisations in the view of this school).

All the philosophers of the Enlightenment had been taught the philosophy of the classical schools. On balance, Hume and Smith considered the benefits to enlightenment and to the dreadful condition of the labouring poor from a revived commercialism, overcame its potential negative features. Ferguson, living just below the ‘Highland Line’, may have had romantic notions about the causes and the price of the famed ‘martial spirit’ he attributed to the males in the Clan System, no doubt fuelled by Ferguson’s role as Chaplain to the Black Watch, a Highland regiment of the line, peopled by the males of the species. Incidentally, see below, Ferguson was at the Battle of Fontenoy, a bloody battle to say the least, but whether he did more than administer his Chaplain’s duties from the rear or by actually joining in the fighting is not known (he let it be known for years that he wanted to join in and help the men dying within view ,but was ordered back by his Commanding Officer).

Despite the philosophers' mutual affection, there were real ideological differences between them. (Hume so disliked the Essay on the History of Civil Society, which he saw in draft, that he felt it should not be published.) While Smith and Hume rejoiced in market-led prosperity, Ferguson worried that it had made man "a detached and solitary being", dealing with others "as he does with his cattle and his soil, for the sake of the profits they bring". Nor did Ferguson accept that the world was moving inexorably towards what he called "polished and commercial nations", warning that empires can fall as well as rise, and that civilisation can easily revert to barbarism.

What Ferguson did not consider was what the absence of commerce in the Highlands did to the females of the men in danger of being “detached and solitary beings”. Smith in Wealth of Nations reports on the dreadful lives of young women having as many as 19 children of which few survived from the grinding poverty of a rural economy in the desperately unforgiving environment of the Highlands. ‘Brigadoon’ it wasn’t. Ferguson was not a Jacobite, but his blind sympathy for the full costs of life in the Highland culture for the women and children, and any men of a non-martial spirit, suggests a tinge of guilt felt for what the murderous men in the army of the British King did to the unarmed Highland people at their raping, looting and murdering lack of mercy after the failure of the 1745 Jacobite Rebellion.

Smith was very clear about the prospects of all civilisations and warns in Moral Sentiments that their inevitable fate is to decay.

This ambivalence shows in his admiration for the loyalty and courage of 'primitive' peoples. Unlike Hume and Smith, who were strictly Lowlanders, Ferguson was born in Perthshire and knew Gaelic. He served as chaplain to the Black Watch for nine years from 1745, and may have fought with them against the French at the battle of Fontenoy. Whereas Smith uses the Highlands in The Wealth of Nations to illustrate poverty and feudalism, Ferguson never mentions Scotland, drawing his examples from North American tribes. But his stress on the bravery, generosity and honour of "rude nations" may have been intended as a covert compliment to the clans in the post-Jacobite era.”

Ferguson’s knowledge of ‘rude societies’ was not unusual in the 18th century. He drew from the same deep well as did Hume, Smith and the others. Indeed, Smith’s lectures at Glasgow (1751-64) show more than just traces of acquaintance with the writings of those who had lived among the North American tribes (e.g., Charlevoix and Lafitau were extensively quoted from by many writers from Locke’s time to Ferguson’s – North America was a veritable theme park on life before civilisation).

Ferguson drew his usual stress on the martial honour strain allegedly found in ‘savage’ societies, much along the line of Rousseau in his idealistic, where not totally imaginary, portrayal in his ‘Discourse on the origin of Inequality’ (1755). Ferguson (and Hume and Smith) read French.

Kirsty gives the impression that Smith ignored the American tribes to focus on the Highland case. He most certainly did not. She forgets just how big a book the 990-page Wealth of Nations became because of Smith’s detailed coverage on every theme and evidence of data he could find. Smith’s earlier Glasgow lectures show a strong acquaintance with the American literature. She might have wondered why Ferguson ignored the evidence of the Scottish Highlands, a few tens of miles to the north with which many readers were familiar, and chose the evidence of books about a continent’s people, thousands of miles west and which most of his readers would never visit or meet anybody from.

She could also have mentioned that Karl Marx praised Ferguson in ‘Capital’ and considered him to be Smith’s ‘master’ and ‘teacher’, with Smith his ‘pupil’, who was also guilty of ‘reproducing’ Ferguson’s work (Marx, Capital, 1867, pp 123, n1; 354; 361-2). The Glasgow Lectures on Jurisprudence (1762-3) show that Smith preceded Ferguson, who probably acquired notes of Smith’s lectures (many were circulating in Edinburgh and Glasgow) and used them for parts of his Essay (causing a minor squabble between them). Marx did not have access to the Glasgow Lectures because they were not discovered and published until 1895.

However, this does not detract from Ferguson's contribution to sociology and you should read his Essay - second-hand copies are available (try Abe

Also read Kirsty Milne’s informed piece at: It's a good place to start.

Sunday, June 18, 2006

An Excellent Article on Adam Smith by Eamonn Butler

Eamonn Butler is the Director of the well-known Adam Smith Institute in London and a leading advocate of Smithian informed ideas of practical value for the public, generally, and consumers and families particularly. He is a staunch believer in freedom and is ever vigilant about threats to liberty in the UK (especially emanating from government and the European Union).

In today’s The Business, as its name implies a business oriented newspaper, and one I read regularly, Eamonn Butler has an article on Adam Smith (of whom he knows better than most), which addresses an aspect of recent efforts in the UK to convince the wider public that if Adam Smith was alive today he would support the Labour Government and its ‘New Labour’ policies.

These efforts are usually linked to the UK Chancellor, Gordon Brown, though how much of it emanates from his office I could not speculate, but Eamonn Butler suggests that Gordon Brown is behind it all, and as one of the best informed people in the immediate vicinity of the Westminster village, Butler would know

The Business 18 June: Eamonn Butler writes:

“Picking a fight over whether Adam Smith was a Scottish socialist or an outrider of ­laissez-faire capitalism is, however, rather unedifying. Smith’s ideas may contain lasting truths, but they were formed in his own age, not ours, when the world was very different. He has little to say about our ­modern concerns (such as democratic government, state healthcare, emissions trading, incapacity benefit and income tax) largely because they did not exist back then.”

Excellent. Absolute right and many commentators, including academic economists would benefit from remembering Eamonn’s point.

A second argument in the attempt to ­rebrand Adam Smith is that he did not really mention the “invisible hand” very much – maybe three times in a million words. And even then he does not use it as an argument for laissez-faire – that things will work out fine, whatever excesses people get up to.

This again is quite true. But even if Smith had not used the phrase at all, his work in general stands in the long tradition of thinking, identified by the late Nobel economist F A Hayek, that order can exist without commands. The twists and turns of a flock of birds, the efficient industry of an anthill, do not depend on some one individual telling the others what to do. Likewise, the market is an example of order without commands. A shortage of some product is reflected in higher prices, which in turn induce people to produce more. The lack of an authority does not produce chaos: it does not require a regulator to rule that more is needed and to tell suppliers to step up their production. That, of course, would be socialism

Here I have a qualification. I always draw attention to the facts that modern association of the metaphor of the invisible hand with Smith’s theory of markets is not just a factual error, but historically a doctrinal one too.

Smith’s theory of markets is perfectly clear without reference to mystical invisible hands. Markets are not mysterious or even ‘miraculous’. Their workings are perfectly clear as the price example Eamonn gives demonstrates, and Smith made clear in Wealth of Nations, Book I. That is why Smith never used the metaphor (from Shakespeare’s Macbeth in 1605 and Defoe’s Moll Flanders in 1722, and no doubt elsewhere) in relation to markets. If he thought there was a benefit in doing so he would have done so. He didn’t, so that was not an intention of his and the words were literally put into his mouth by people in the 19th and 20th centuries.

Smith did have a theory of unintended consequences. It was very important to his entire writings beginning with his essay on the History of Astronomy (1744-48?), his Theory of Moral Sentiments (1759), his essay on the Formation of Language (1761), his Lectures in Jurisprudence (1752-64) and his Wealth of Nations (1776).

For an excellent survey of its role in his work, see James Otteson’s Adam Smith’s Market Place of Life (Cambridge University Press, 2002), possibly the most significant original piece of work on Adam Smith in the past twenty years.

Now, if Eamonn is suggesting that the invisible hand is to be shifted from the incorrect ascription to Smith’s theory of markets to Smith’s theory of the unconscious, unintended, unplanned, and undirected actions of separated individuals acting in their self-interests, he has noticed a possible analogous use of the metaphor but not one that Smith used.

Jim Otteson also noted the analogy (p 267) but reminded readers that the events and the outcome (a language, a market, a code of morals, etc.,) are ‘coincidental’, and probably become appear to be linked by ‘something’ because ‘it is often difficult for philosophers to accept the possibility that an elaborate, sophisticated institution – like a language – could have developed with no overall rational design because their own preoccupation with rationality leads them to see it at work in any complicated system.’ We see the same thing in the biological sciences in the diversionary mystical nonsense of ‘intelligent design’ (who ‘designed’ the ‘designer’?).

I agree with Jim Otteson and further I think that misapplying metaphors creates the wrong impression about the wonder of human social evolution by attributing mystic ‘invisible hands’, or worse, ‘invisible gods’, to perfectly explainable processes. In another context, Smith called such attributions ‘pusillanimous superstition’ and the habits of mankind in conditions of ignorant savagery.

In any case, Smith did not advocate ­laissez-faire, but a free, competitive, market economy.”

Agreed. He never used the words, but so many economists assert adamantly that he was in favour of laissez faire, particularly when defending business activities from any regulation or supervision whatsoever, they open a flank to those who want to re-construct Smith as a socialist. As Eamonn and I do not want to expose flanks in our presentations of what Smith said when he didn’t, I suggest we make this point clear as often as is necessary.

Next time I meet Gordon Brown I will remind him of this point and also the subsequent points that Eamonn goes on to make about ‘free, competitive market economies.’

Overall, an excellent article and congratulations to Eamonn Butler of the Adam Smith Institute for writing it – and to The Business for publishing it.

Thursday, June 15, 2006

Rounds 3 and 4: Rothbard versus Smith's Reputation

Two further postings of mine on the Blog. If you can take any more, read below:


I hope I am not included among those as ‘coming out of the woodwork’ to ‘bash Murray Rothbard’. I have no axe to grind against a person I did not know. In reading his critique of Adam Smith and I found gaping holes in his argument, at least on a subject I know something about. As to his standing generally, I have no view whatsoever.

I offered criticism on two items: his attack on Smith on the division of labour, where elementary textual errors are found, which I have detailed twice; and on the alleged superior merits of Cantillon, in which I find both Smith’s and Cantillon’s presentation of market and labour value relationships are identical, yet Smith is blamed for Marx and the horrors of communism, and the delay in establishing marginal analysis to the 1870s, while Cantillon’s complicity – if such an absurd charge could be made against Smith for what many talented people did or did not do in the 19th century, long after he was dead. Having pointed this out twice, like the division of labour, I have received no comments from Rothbard’s defenders.

“For one thing, there is an important difference between being dishonest (a conscious falsity) and simply being unusually impatient or biased in one's reading, although I am not prepared to accept the latter as a pervasive characteristic of Rothbard's scholarship either”.

I completely agree. Though when someone is as abrasive in scholarly exchanges as Rothbard appears to have been, scholarly carelessness is bound to become an issue. Scholars in their ‘cooler hours’ should, well, cool it, and check their references and, as Smith expressed it, ‘by lowering his passion to that pitch, in which the spectators are capable of going along with him’ and should endeavour to ‘flatten .. the sharpness of its natural tone, in order to reduce it to harmony and concord with the emotions of those who are about him’ (Adam Smith, Theory of Moral Sentiments, I.i.4.7, p 22).

I agree my two points questioning the accuracy of two of Murray Rothbard’s ‘myths about Adam Smith’ (in a book, not a web posting, where a certain degree of informality is inevitable and accepted) cannot judge the overall quality of his oeuvre. I have written a detailed critique of his other points in a book I am currently writing on Adam Smith, to be published by Palgrave Macmillan in 2007.

However, I believe there is much more to the 17th-18th century problem focus on what is known today as the ‘labour theory of value’ and Smith’s ‘contribution’ 19th-20th century confusion.

That some posters are adamant that value is ‘obviously’ to do with what something is worth to a consumer, can hardly be a serious critique of an author who did not have the benefit of 200 years additional work by many bright minds. When Smith wrote his ‘juvenile’ (graduate?) essay on Astronomy he did not use Rothbard’s language and tone to mock Plato, Eudoxus, Ptolemy, Descartes, and others, who were stuck in the conventional ‘certainties’ of the Sun revolving round the Earth (‘obviously the Earth went round the Sun!’). Scholars treat their distant predecessors, errors and all, with respect, not derision and tabloid headlines.

Ask yourself: how much did you know about the theory of value on day 1 of Economics 101, which some posters assert with such confidence, almost sneering at Smith because he knew only what everybody around him knew? Suppose you had to write an essay on it without access to a modern textbook, a library full of journal articles and a your tutor’s guidance?

Smith, and his contemporaries, had John Locke, Hutcheson (and Cantillon?), etc., when he delivered his lectures at Glasgow, 1752-64. He hadn’t yet met Turgot and the French Physiocrats. Ricardo had Smith and a few others. Remember, Smith gave lectures on political economy, using the materials he wrote, much of which appeared unchanged in Wealth of Nations in 1776, between 12 and 24 years later.

Judge him as predecessor, not as some kind of rival for the respect to which you are entitled for what you contribute to economics today.

Wednesday, June 14, 2006

Rothbard's Hyperbole Challenged - again

From the on Rothbard’s critique of Smith: my response to a comment supporting Rothbard:

From Paul Marks:

“That Adam Smith contributed nothing that was both true and original. When he said something that was true it had already said by others (for example even the account of the pin factory was lifted from a French reference book - as one can tell because he gives the number of stages in a French factory not a British one) such things as the division of labour had already been gone into by others.

And when Adam Smith does produce something fairly new (such as the Labour Theory of Value - which he falls into having in his early years understood that there was no "paradox of value" on such things as gold and water [see his lectures versus the Wealth of Nations]), it is not true.

So Rothbard is correct and David Friedman mistaken."

My Response:

You are compounding the same errors Rothbard made on the ‘pin-maker’ trade.

1 Diderot’s Enclyopedie was itself copied from a British text, Cyclopaedia (4th ed.1741) and Smith states at the head of the paragraph ‘the division of labour has been very often taken notice of’. He made no claims to his precedence at all – people who read his text carelessly (as I believe did Rothbard) credited precedence to him long after he was dead. Plato wrote on the division of labour, so did Sir William Petty, and others; none were credited by Diderot. The division of labour was a phenomenon well known by the 18th century.
2 The 18 operations were all performed by ‘distinct hands, though in others the same man will perform two or three of them’ (Wealth of Nations) and Smith gives an example: ‘I have seen a small manufactury of this kind where ten men only were employed’ and ‘where some of them consequently performed two or three distinct operations’ (next sentence, Wealth of Nations) but he does not state how many distinct operations there were in the manufactury he visited (Rothbard states Smith never visited one!).

3 You forget it seems that Smith lived in Kirkcaldy, a small village across the Firth of Forth in Fife where there were several little ‘manufacturies’, some he visited, including the nail maker.

4 I hardly think there was a ‘British’ norm, and as the Cyclopaedia was published in London, not Scotland, its information came from nearby. It is Edwin Caanan who pointed out (vo.ii, 2nd and 4th editions) the ‘number of separate operations [at] twenty-five’. Smith reported what he saw, not what Rothbard misread in a footnote to a book published in 1937.
5 Briefly, Smith’s reference to the ‘labour theory of value’ is no different than Cantillon’s (valeur intrinseque = labour price; valeur de marche = market price) and Smith (Natural price = labour price; Market Price).

I do not understand why in the one case this is a sign of great economic foresight and in the other a sign of causing a relapse in economic theory for 100 years!

I think Murray Rothbard had a tendency to hyperbole."

Posted by
Gavin Kennedy

Murray Rothbard Strikes Again

Mise.Org published nearly 40 pages of an article and a 1998 web debate (at least that is what it took on my printer) on Murray Rothbard’s assessment of Adam Smith and David Friedman’s critical comments. I am always interested in material on Adam Smith and will take sometime to read through the pages to assess its quality.

I posted a comment on the blog (see below) because I noted immediately that on one issue at least David Friedman was wrong and on one issue at least Murray Rothbard was right: Adam Smith was not an advocate of laissez faire (he never used the words), and if this is what I think the vulgar call a ‘pissing contest’, Rothbard won that round.

For my comments on 'Murray Rothbard’s Myths about Adam Smith' see my article under the button on the left column here.

My posting on today:

“I am impressed with the amount of resources that is devoting to Adam Smith, though I have severe reservations about the approach of Murray Rothbard to the subject. I have already criticised material published under Rothbard’s name on the division of labour (which I believe he got seriously wrong, as well as muddling his reading of the relevant passages). I posted some of this here and also on (‘Murray Rothbard’s Myths’).

However, I am grateful for your publishing this 1998 exchange between David Friedman and the Misses institute and also this latest article by David Gordon. Ii will take some time to read through it all (36 pages of a web debate), plus what Gordon has published today. I shall return to this when I have digested the issues.

On one point I can contribute right now.

‘Rothbard's contention that Smith did not consistently advocate laissez-faire is much less radical than Friedman insinuates.’

If this is an argument about whether Smith was in favour of laissez-faire, I can state, with authority I hope, that Smith was not in favour of laissez faire to the degree that Friedman appears to be asserting, which I take is from his version of Adam Smith, as preached at Chicago, and not the Adam Smith who lived in Kirkcaldy, Scotland.

Smith never used the words laissez faire in his circa one-and-half-million published words. He was never in favour of (nor thought it was other than utopian to believe that) such an economic arrangement be instituted. He was not an anarchist or a libertarian. If Rothbard is asserting that Smith was less than an advocate of laissez-faire, then he is correct and Friedman is wrong.
On Cantillon, I commented on this blog [] last week. I shall return to the other issues soon.”

Tuesday, June 13, 2006

The Enlightenment Season is Upon Us

David Belcher, The Herald’s (Glasgow) tv critic gets into the act too: writing of ‘The Play’s the Thing’ and Andrew Marr’s ‘Age of Genius’, he ends his piece with an Enlightenment flourish:

Kicking off a month-long portrait of the eighteenth century on BBC Four, Age of Genius had Andrew Marr stalking Edinburgh's landmark closes, pubs and museums in the footsteps of rationalist pioneer David Hume and his free-thinking associates. Bony of visage, the jug-eared Marr is an obvious enthusiast; an energetic arm-waggler who speaks whereof he knows. The boy's got verve, authority and a head full of brains.

Andrew also has a way with words, describing Auld Reekie's shackled Calvinist former rulers as "porridge-eating mullahs". I wasn't so sure about the way he compared Hume's predilection for backgammon to having "a go on the eighteenth-century PlayStation" – but, unlike any other historian I've encountered, he has moved me to go and check out David Hume's works. In book form, that is, the DVD of the eighteenth century.”

See what I mean? It’s the Enlightenment season in full swing. This is all good, of course, for tourism, a most neglected part of the Scottish scene when it comes to Scottish intellectual history.

The spate of books, tv programmes, column inches and features in newspapers, and, now, speeches by politicians, about the Enlightenment and the people in it, suggests we might be on the verge of a genuine surge of interest in David Hume, Adam Smith, James Hutton, Joseph Black, James Watt, and Adam Ferguson, plus all the others from every scientific and literary profession, a veritable galaxy of stars from Edinburgh’s golden decades that closed with the 18th century. ('Will we see their like again?')

A little rivalry is also reflected in Scotland’s national newspapers (Smith would approve) in that in The Herald (Glasgow) its articles and comments on the Enlightenment tend to focus on David Hume and in The Scotsman (Edinburgh) the focus is on Adam Smith. Ironically, Smith had more to do with Glasgow than David Hume, studying there at Glasgow University from 1737-40 and becoming a Professor there from 1751-64. He also lived in Edinburgh from 1748-51 and from 1773-90, with interludes in London.

However, be that as it may, the rivalry between Scotland’s two main national newspapers seems to have more to do with political leanings, with The Scotsman more right of centre than The Herald, more left of centre.

Whatever, it’s all good news for students of the Enlightenment and its ideas.

Mervyn King Does a Greenspan

Mervyn King, Governor of the Bank of England (Mr Greenspan’s UK equivalent) addresses a dinner meeting of Scottish Financial Enterprise (an academic and finance practitioners’ think tank) and the Chamber of Commerce in Edinburgh, saying he was in ‘no hurry to raise interest rates’ writes Ian McConnell, Business Editor of The Herald (Glasgow);

It seems mandatory for speeches in Scotland today for the speakers to make reference to the Scottish Enlightenment, especially its prominent luminaries such as David Hume and Adam Smith. Mervyn King duly obliged.

King said: "Just as the Monetary Policy Committee meets monthly to decide on interest rates, so David Hume and Adam Smith met regularly in the Poker Club (in Edinburgh) to debate the policy issues of the day.”

The Poker Club was formed to ‘ignite’ debate on the formation of a militia in Scotland on the grounds that the enforced disarmament of Scotland following the failed 1745 rebellion by some of the Highland clans in support of the ‘pretender’ to the British throne (led by ‘Bonnie Prince Charlie’, who was neither ‘bonnie’ nor a ‘prince’, though he proved to be a bit of a ‘charlie’) had left the country undefended (evidenced by John Paul Jones appearing off Leith in the Firth of Forth and frightening the populace with his unspecified menace). There was also the fact that the loyal Scottish Regiments were serving with the British Army abroad (it was ever thus, and still is today) and the 'Red Coats' that were in Scotland from the standing army did not have a 'helpful' public image in the Highlands.

Smith, originally in favour of a militia because he entertained the view, presented more strongly by a fellow academic at Edinburgh University, Adam Ferguson, sometimes referred to as the first sociologist, a title that may belong more properly to Smith, that commerce undermines a nation’s ‘martial spirit’, considered to be important by Smith. The American Rebellion showed that a militia that spends some years in the field, as George Washington demonstrated, could become a match for a standing army, hence Smith, ever pragmatic, changed his mind (see Book V, Wealth of Nations).

"Hume was an officer of the Club with the unusual title of the Assassin's Assessor, 'without whose assent nothing could be done', and whose role was to ensure that in meetings 'there was likely to be no bloodshed'.

"So I take it that Hume at least would have been content with last week's decision to leave interest rates unchanged. There is no Assassin's Assessor on the Monetary Policy Committee, nor - you will be relieved to hear - any bloodshed. But, month by month, we shall be debating the prospects for the economy in order to decide in which direction, if any, interest rates need to move.


I think that is a fair ‘hook’ that King created between the Monetary Committee and Hume. Though I must say, no one could be further from being an Assassin that David Hume, the gentle philosopher, who never raised his voice in anger, even against some of the more idiotic of the religious zealots who tried to torment him, which is, perhaps, why he was accepted so warmly by many Church Ministers who disagreed with his scepticism about all things religious but admired him as a very polite gentleman.

It may also explain his attraction to so many ladies, some of whom he entertained in quiet consultations at his house St David’s Street just off Princes Street and close to St Andrew Square, in Edinburgh.

Monday, June 12, 2006

Blomberg Reviews Buchan on Adam Smith

Matthew Lynn writes a review of James Buchan’sAdam Smith and the Pursuit of Liberty’ (Profile Books, UK) and “The Authentic Adam Smith: His Life and Ideas (W. W. Norton, US) that is a class example of how to write, a) a book review that tells you what you get for your money, and b) it tells you about Adam Smith, who and what he was, what he believed in, and what the author of the book intended.

Matthew Lynn’s review is at and is more than worth your time ordering and reading it. It is probably the best and most accurate review I have read of James Buchan's book, and I might say, the best review of most books on Adam Smith (slight reservations about the sub-editor’s heading: “Adam Smith Bio Recalls Moralist, Hypochondria and Irish Whores” , though it certainly grabs your attention!).

For the record I must quibble about this sentence:

Smith's vision of the ``invisible hand'' of the market grew out of a wider vision of a moral and just society.”

Smith didn’t have a ‘vision’ of the metaphor of the invisible hand, for why I say this, read my numerous comments here on the miss-crediting of this lonely metaphor (from Shakespeare and Defoe) to a ‘theory of markets’ (his theory of market is quite separate from his later and sole use of the metaphor for another puprose about unintended consequences to do with security), and it certainly was not a ‘vision’. Modern readers have credited the metaphor for other ends that have nothing to do with Smith’s use.

However, that said, what a stunning review Matthew Lynn has written! I am sure James Buchan and his publisher will be pleased, and I hope sales will be generated that will take the authentic Adam Smith into wider circulation.

A sample of Lynn’s assessment of Buchan’s book:

So it's good to be reminded that Smith first started to question government meddling in the economy because he was interested in morality and freedom. He wasn't interested in creating a system that would make a few people fabulous wealthy, let alone a world marked by excessive, conspicuous consumption.

His purpose was to build a just society. When each human is allowed to earn his own living in his own way, Smith argued, he ultimately benefits the society around him. That's worth bearing in mind next time you hear an antiglobalist tell you that the free market is fundamentally immoral.

Our appreciation of that market began with a Scotsman imagining a more moral society. Although Smith will still be remembered primarily as an economist, Buchan is right to try to restore the philosophical Smith to the prominence he deserves

Top that anybody? That is precisely what James Buchan achieves in his most accessible biography of Adam Smith, 'Irish ladies of a willing disposition' and all.

Sunday, June 11, 2006

Thomas Reid's Theory of the Formation of Morals was non-Scientific

I have been asked by a student why I was so harsh on Thomas Reid in my earlier post and could I explain why he does not deserve to be included among the luminaries of the Scottsh Enlightenment.

These are interesting questions and my brief answer is offered below (I did say that 'List' articles are only matters of opinion, which is why I do not offer them myself - your list is as good as mine, probably better):

Adam Smith’s explanations and the theory supporting them of how moral sentiments are formed were able to maintain their credibility when moral science steps outside 18th-century Europe to explain the process of moral formation in societies devoid of the habits, institutions and, indeed, religious experiences, with which he and his readers were familiar.

If religious precepts and pulpit exhortations are not enough in societies that share them (a view expressed by Albert O. Hirschman, in his 1977 book, The Passions and the Interests: political arguments for capitalism before its triumph, (p 15), Princeton University Press), how were morals formed in societies that did not share the precepts of British Churches, or were entirely ignorant of them, including those of other societies throughout prehistory, let alone classical Greece and Rome prior to Constantine?

This question remains a telling blow against the alternative so-called ‘common sense’ theory of Thomas Reid (1710-96) that he advanced against Smith’s 'Theory of Moral Sentiments', which was a theory of moral formation for all societies in all ages. In short it was a scientific theory because testable and not a parochial theory like Reid's, relevant to one time and place only ,and therefore failed its first test.

On this ground the inclusion of Thomas Reid in Julian Baggini’s list of major Scottish contributors to the Enlightenment must be suspect. Reid represented a step backwards to pre-Enlightenment philosophies of morality based on revealed truths of the Christian religion, and this hardly qualifies him to the stature Baggini accords him.

To Be Present During the Enlightenment Does Not a Make Professor Thomas Reid a Major Figure in it

"Scotland’s fantastic 4" by By Julian Baggini, who asks:

“First Jack McConnell [Scotland’s ‘First Minister’, i.e., prime minister, but not in name] called for a new Scottish Enlightenment. Now a BBC TV series is focusing on what happened last time round. So who were the thinkers who did so much to shape the modern world?”

Julian Baggini offers his four names: Francis Hutcheson (Professor of Moral Philosophy at the University of Glasgow and Adam Smith’s mentor from 1737 to 1746), who described him as the ‘never to be forgotten’ professor); David Hume, Britain’s best philosopher by far, and close friend of Adam Smith from 1752-76; Thomas Reid, a professor of philosophy and exponent of ‘common sense’ philosophy, who borrowed Smith’s notes and any from others who might have some, when he took over Smith’s Chair of Moral Philosophy in 1764, and subsequently criticised Smith’s Moral Sentiments, indicating at least to me that he did not understand it; and the man himself Adam Smith, who needs no introduction here.

Why Thomas Reid is included in Baggini’s ‘Scotland’s fantastic 4’ is a surprise, at least to me. I suspect it is his way of making his case that “Glasgow was where most of its [the Enlightenment] kings were crowned’, or, perhaps, Baggini studied philosophy and remembers his student notes. But, anybody’s ‘list’ of ‘top anything’ is open to question and ridicule from the opinions of others.

Here is what Baggini says about Adam Smith:

“ADAM SMITH (1723-90)
Who was he?
The founder of modern economics, Smith was also a moral philosopher, holding the chair once held by Hutcheson in the subject at Glasgow from 1755-64. During that time he published his Theory Of Moral Sentiments, which built upon Hume’s pioneering work on the same subject. But it was for his work in political economy that he was immortalised and, unlike Hume, the importance of his work was recognised in his own time. Pitt the Younger said of him, “we are all your scholars”.

What were his big ideas?

Smith is best-known for his idea of the “invisible hand”. This means that if you leave people to pursue their own apparently selfish interests, what you find is that everyone ends up better off. Although it is blind, the market is much better at making sure everything is produced at the right price and in the right quantities than governments who try to control trade. For example, if you try to regulate milk production by paying farmers, whether people want their dairy products or not, you end up spending far too much producing foodstuffs nobody needs. Leave it to the market, however and farmers will only produce what people are prepared to buy, at the price they are willing to pay.

This may make Smith seem like a darling of modern day neo-liberals who want to reduce the role of the state. But Smith was much subtler than this. First, he recognised the dangers of allowing monopolies to seize control of sectors of the economy, so he was very much for regulating markets to make sure this doesn’t happen. Second, he was in favour of the state providing education and healthcare out of taxation, as he saw that these basic needs would not be provided by the market acting alone.

Was he any fun?

Like Hume, Smith was a bachelor who seemed to be more or less asexual. The most exciting episode of his life came when, aged four, he was kidnapped by gypsies. His uncle soon saved him, however, and from then until his death he led a fairly uneventful, though phenomenally successful, life of the mind.

How did he change the world?

Smith defined a discipline, but has unfortunately come to be somewhat misunderstood and is now seen as a standard-bearer for the kind of no-holds-barred aggressive capitalism he never favoured. However, Gordon Brown recently claimed Smith for New Labour, which if anything is more plausible than seeing him as a neo-conservative.”

I could pick my way through this but I am rather busy today writing my new book on Adam Smith for Palgrave’s ‘Great Thinkers in Economics’ series (tentatively with the working title: Adam Smith on the Wealth of Nations).

I’ll leave Baggini’s statement as a class essay for keen readers (500 words):

“Smith is best-known for his idea of the “invisible hand”. This means that if you leave people to pursue their own apparently selfish interests, what you find is that everyone ends up better off. Discuss."

Friday, June 09, 2006

Adam Smith's Grave Made Respectable Again

Good News for those interested in history and Adam Smith. Today’s Edinburgh Evening News carries a report by Andrew Picken of the restoration of Adam Smith’s tombstone and the posting of much needed signage to help visitors find his grave at the Canongate Churchyard where he was buried in 1790.

The tombstone and its immediate surrounds have been somewhat dilapidated for many years and also they were difficult to find unless you were prepared to walk round every grave until you found it.

Here’s part of the article (copyright Scotsman Newspapers – I hope the Editor and his lawyers will please forgive my publishing it):

“Wealth of oil tycoon funds tribute to a nation's hero” by Andrew Picken

“THE burial place of one of Scotland's greatest thinkers has finally been given the prominence campaigners have long said it was due thanks to the generosity of a Scots-born oil tycoon.
The tomb of leading economist Adam Smith, known as the "father of capitalism", has been lying largely forgotten in the Canongate Kirkyard for years despite the important role Smith played in shaping the modern world.

A campaign to give the grave more prominence was started four years ago and has resulted in today's official unveiling of an Adam Smith flagstone (pictured below) on the Canongate entrance to the Kirk and markers through the graveyard to the tomb of the Kirkcaldy-born philosopher.

Oil boss Bob Lamond, who was educated at George Heriot's and studied geology at Edinburgh University, donated £10,000 for the improvements, which he hopes will attract more visitors to the historic grave.

The grave has been given further prominence by a large Caithness stone slab, inscribed with a quotation from Smith's most famous book The Wealth of Nations, being installed in front of it thanks to a donation from the private bank Adam and Company, a subsidiary of the Royal Bank of Scotland. Mr Lamond's interest in the grave came after he read an article in a business magazine during the mid-nineties contrasting the state of Smith's dilapidated tomb in Edinburgh with the well-kept grave of socialist philosopher Karl Marx in London.

"I was amazed to read this," explained Mr Lamond, 61, a regular visitor to the Capital since he moved to Canada in 1965. The contribution that Smith made to the world should be recognised.

"A number of years ago I offered to put up a plaque and now we have arrived at this which, seeing it all finished today, makes me very proud. I think the combination of the flagstone and the guiding markers will help bring a greater number of visitors to the kirk.

"What we have now is a tasteful and subtle tribute to a man who can be rightly thought of as a proud part of Edinburgh's heritage. The stone work on the original grave is still going strong and the new slab with the quote from Wealth of Nations is a great addition."
Adam Smith died in 1790, having lived his last years in Panmure House, close to the Canongate.

Alasdair Fairburn, a volunteer at the Canongate Kirk who has been involved in the campaign to improve access to Smith's grave, said: "Working in the Kirk we were always being asked by people where Adam Smith's grave was and it was never really that clear to guide people there.

"We get all sorts of people, from economic students to American tourists, in to see this grave and it is great to see the finished article after all these years and I hope it will create a renewed interest in the Kirkyard.

Lord Provost Lesley Hinds said: "This very generous gesture has been made possible by the good nature, determination and selfless contributions of those who respected the life and important work of Adam Smith. It is always a delight to me to discover the range of services people are prepared to offer to the City of Edinburgh. The unveiling of this flagstone and marker is a case in point. Adam Smith was truly a great Scotsman, it is only fitting that this is recognised and his grave is marked to identify him as such.’

In 2007, a statue is to be erected in the High Street opposite where Adam Smith worked as a Scottish Commissioner of Customs from 1778 to a few months before he died in 1790. While employed in this role he was responsible for 95 per cent of the Customs correspondence, so he did not treat it as mere sinecure, as was more common in the 18th century.

The new statue is being sponsored by public subscription (no public funds) organised by the Adam Smith Institute, a lively think-tank (see its daily Blog at: and it is under artistic design in Paisely, near Glasgow.

Smith lived with his mother (Margaret Douglas) and his cousin (Janet Douglas) at Panmure House (still standing, though the worse for use – fine future site for an Adam Smith library and museum?) in the High Street, located between the new statue by the St Giles Church and the Canongate grave yard.

Entrepreneurs and 'Contractors'?

In my contribution to the discussion about Cantillon and Adam Smith in ‘comments’ on, I mentioned the differences in meaning in French and English for the word, ‘entrepreneur’.

A correspondent (‘CC’) asks: ‘Why aren't contractors entrepreneurs?’ To which I replied:

Good question. I didn’t stray into defining entrepreneur as used by modern economists because I assumed a common discourse on this subject in the thread.

Not all proprietors, owners of businesses and such like are entrepreneurs in the English language sense. Being one implies a certain ground breaking, above average, even very high, risk taking in new ventures of the kind that Schumpeter expressed as the ‘perennial gale of creative destruction’. These are the people who innovate, even revolutionise products, processes and markets, cross frontiers of technology and marketing, and who build businesses way beyond the aspirations (and more important, perhaps, the abilities) of the rest of us.

Many businesses are managed as routine, seldom changing, and administered by risk- averse type persons, who envisage little change in their market environment. Not all capitalists are entrepreneurs, which leaves the gaps and the room for those who are.

By ‘contractor’ is meant people like ‘haulage contractor’ or ‘building contractor’. They could be entrepreneurs, like the shipping owner who created the container industry in place of ‘loose’ cargo, or the founders of global courier companies, or the foudners of iPod and Apple computers, or Bill Gates of Microsoft.

‘Contractors’ in the French ‘entrepreneur’ sense could become entrepreneurs in the English sense – if they delivered a new service in their business sector not successfully applied before; for example, if one of them invested in a national network of self-haulage delivery branches (‘U-Move’?).

In early-mid 18th-century France, when Cantillon writing (and Adam Smith in 1748-52) these differences in meanings are important when we make assertions about their insights. My point is that we should be careful to transport modern terminology back 200-plus years and expect to have the necessary exactness for meaningful comparisons about their relevance today.

Thursday, June 08, 2006

Two Languages Separated by Different Meanings to Borrowed Words

There is a mini-debate, livel in parts, but also educational, over on blog on the merits of Cantillon and Murray Rothbard's treatment of him as the 'father' of economics (with sly digs as usual from Rothbard's writings against Adam Smith, as if this 'father', 'high priest' nonsense had any merit). Ignore the dross; go for the ideas.

What is much more interesting is the discussion of Cantillon's economics Essai (1734) in the comments to a review, worthwhile reading in full (the Essai, as well as the review and the comments).

I have made two comments. Here is my second:

'One can find traces of future ideas that were developed years after in almost any 18th-century text or pamphlet on aspects of political economy, including Wealth of Nations. I think some people are clutching at straws to show Cantillon was 'better' than Smith, or vice versa. It is a pointless debate, not subject to resolution.

Cantillon had a distinction between 'intrinsic price or value' (‘le prix ou la valeur intrinseque’) and 'market' price (le prix du marché) in the Essai (Part 1: Chapter 10) and Smith distinguished between ‘Natural Price’ and ‘Market Price’ in Wealth of Nations (Book 1: chapter VII). Both of them stated cost of production as a determinant of price (‘la mesure de la terre du travail qui entre dans sa production’)and both recognised, as they must if they went to their local markets, that prices varied as demand and supply varied. To criticise Smith for having a labour theory of value and thereby make him responsible for Marxism and the horrors that followed (as Rothbard verges upon) is nonsense, and becomes even more dubious when Cantillon is exonerated because close reading of his words (English or French?) uncovers supposed proto-utility thinking.

Secondly, the French word ‘entrepreneur’ has a slightly different meaning than it has gained from English speaking economics. You can witness this in France. Many times my rural French neighbours speak of so-and-so as ‘l’entrepreneur’ in answer to a question as to what he does. By this they often means he runs a small lorry business, etc., but they do not mean that he or she is entrepreneurial in the sense I suspect we are talking about here, but that (in English) he is a ‘contractor’. Smith used the English word ‘projector’ when referring to what we, in English, mean by the adoption of the French word, ‘entrepreneur’. There may be a little language confusion on debates that use entrepreneur meaning one thing in French and another in English (of which English speakers in the US and Britain sometimes do with different meanings to the same word ostensibly from the same language!).

Neo-classical economics removed people from their equations, including 'entrepreneurial' (English meaning) activity. Crediting Cantillon with the discovery of the entrepreneur in business when he simply meant what French people mean by the word, namely ‘contractors’, not what 21st-century economists mean, is disingenuous.'

I recommend blog, whatever your views on Austrian economics and its critique (sometimes bad tempered) of neo-classical economics. They publish some interesting and original material on the history of economics, well worth noting, even downloading.

Wednesday, June 07, 2006

Good Journalism is Good for Exports

Here’s an innocuous piece by William Rees-Mogg, the former editor of The Times (London) having a go at Gordon Brown, self-proclaimed admirer of Adam Smith (they both come from Kirkcaldy, in Fife, Scotland) and Britain’s Chancellor of the Exchequer (no 2 job in British politics). He hopes to occupy the no 1 job when Tony Blair retires as UK Prime Minister.

Nothing wrong factually with the references to Adam Smith (as expected from a proper journalist of the old school), with the possible exception of the heading (work of a sub-editor?), it being a bit much to quote a source from the 18th century about a problem in the 21st.

However, enjoy a positive use of Smith’s name in the body of the text. (Osborne is the shadow Chancellor from the Conservative interest in the UK parliament, who hope to replace Brown at the next General Election – quite lively young man he is too.)

Ignore Gordon Brown — cutting tax is good for us

I was pleased that Osborne also referred to the work of the classical Scottish economist Adam Smith. Many young economists — and Osborne is only 35 — tend to think Smith, who lived in the 18th century, is out of date. Better young economists recognise the value of the history of ideas. Truth is sometimes unfashionable, but that does not mean it ceases to be true.
Smith wrote that taxation should be transparent, simple, efficient and fair. Gordon Brown has created in his own image a system that is opaque, complex, inefficient and unfair. That is some achievement, particularly as Brown is also a student of Smith.”

William Rees-Mogg sybdicates his journalism around the world. Doing his bit for British exports and his pension!

I found this on Mail on Sunday (UK), International News Service (NZ), Kaleej Times Dubai, United Arab Emerates (7 June), and it probably appeared elsewhere too.

Tuesday, June 06, 2006

A Great 'Birthday' Congratulations (one small quibble)

An excellent Blog celebrating Adam Smith’s ‘birthday’ is published today from Lawrence W. Reed, who is president of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich.

I agree with almost all of it for its refreshing and excellent prose on Smith’s moral philosophy and economics, but I am unhappy with this sentence:

Prices and profit would act as an "invisible hand" with far more efficiency than any monarch or parliament. And competition would see to it that quality is improved and prices are kept low’.

Regular readers will know why. For those that don’t, I shall simply assert that Smith never used the metaphor of the invisible hand in relation to ‘prices and profits’, nor to ‘markets’. In fact it had little to do with economics. It was about human motivations, said in passing only once in Wealth of Nations (p 456).

However, the rest of it is pretty good and I fully commend it to you. (visit: and search: ‘Happy Birthday, Adam Smith!’ - sorry no URL available). I have reproduced it below (with full permission).

Several other congratulations to Adam Smith have been published in Blogland since Saturday 3 June on his 283rd ‘birthday’ anniversary.

Most note that 5 June was the day he was baptised in the Scottish manner, usually a few days after a baby’s birth, sometimes longer, so we don’t know his actual birth date as it was not recorded in any extant documentation.

Happy Birthday, Adam Smith!

The birthday of a great man just passed virtually unnoticed — even in his homeland — though he shaped the modern world perhaps as much as anybody. That man was Adam Smith, the world’s first economist.

Smith was baptized on June 5, 1723, in Kirkcaldy, Scotland. It’s not known for certain, but presumed that he was either born on that very day, or a day or two before. Whichever date it was, he entered a world that his reason and eloquence would later transform.
For 300 years before Smith, Western Europe was dominated by an economic system known as "mercantilism." Though it provided for modest improvements in life and liberty over the feudalism that came before, it was a system rooted in error that stifled enterprise and treated individuals as pawns of the state.

Mercantilist thinkers believed that the world’s wealth was a fixed pie, giving rise to endless conflict between nations. After all, if you think there’s only so much and you want more of it, you’ve got to take it from someone else.

Mercantilists were economic nationalists. Foreign goods, they thought, were sufficiently harmful to the domestic economy so that government policy should be marshaled to promote exports and restrict imports. Instead of imported goods, they wanted exports to be paid for by foreigners in gold and silver. To the mercantilist, the precious metals were the very definition of wealth, especially to the extent that they piled up in the coffers of the monarch.

Because they had little sympathy for self-interest, the profit motive and the operation of prices, mercantilists wanted governments to bestow monopoly privileges upon a favored few. In Britain, the king even granted a protected monopoly over the production of playing cards to a particular, highly-placed noble.

Economics in the late 18th century was not yet a focused subject of its own, but rather a poorly organized compartment of what was known as "moral philosophy." Smith’s first of two books, The Theory of Moral Sentiments, was published in 1759 when he held the chair of moral philosophy at Glasgow University. He was the first moral philosopher to recognize that the business of enterprise — and all the motives and actions in the marketplace that give rise to it — was deserving of careful, full-time study as a modern discipline of social science. The culmination of his thoughts in this regard came in 1776. As American colonists were declaring their independence from Britain, Smith was publishing his own shot heard round the world, An Inquiry into the Nature and Causes of the Wealth of Nations, better known ever since as simply The Wealth of Nations.
Smith’s choice of the longer title is revealing in itself. Note that he didn’t set out to explore the nature and causes of the poverty of nations. Poverty, in his mind, was what happened when nothing happens, when people are idle by choice or force, or when production is prevented or destroyed. He wanted to know what brings the things we call material wealth into being, and why. It was a searching examination that would make him a withering critic of the mercantilist order.
Wealth was not gold and silver in Smith’s view. Precious metals, though reliable as media of exchange and for their own industrial uses, were no more than claims against the real thing. All of the gold and silver in the world would leave one starving and freezing if they couldn’t be exchanged for food and clothing. Wealth to the world’s first economist was plainly this: goods and services. Whatever increased the supply and quality of goods and services, lowered their price or enhanced their value made for greater wealth and higher standards of living. The "pie" of national wealth isn’t fixed; you can bake a bigger one by producing more.

Baking that bigger pie, Smith showed, results from investments in capital and the division of labor. His famous example of the specialized tasks in a pin factory demonstrated how the division of labor works to produce far more than if each of us acted in isolation to produce everything himself. It was a principle that Smith showed works for nations precisely because it works for the individuals who make them up. He was consequently an economic internationalist, one who believes in the widest possible cooperation between peoples irrespective of political boundaries. He was, in short, a consummate free trader at a time when trade was hampered by an endless roster of counterproductive tariffs, quotas and prohibitions.

Smith wasn’t hung up on the old mercantilist fallacy that more goods should be exported than imported. He exploded this
"balance of trade" fallacy by arguing that since goods and services constituted a nation’s wealth, it made no sense for government to make sure that more left the country than came in.

Self-interest, frowned upon for ages as acquisitive, anti-social behavior, was celebrated by Smith as an indispensable spur to economic progress. "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner," he wrote, "but from their regard to their own interest." Moreover, self-interest was an unsurpassed incentive: "The natural effort of every individual to better his own condition ... is so powerful, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often encumbers its operations."

In a free economy, he reasoned, no one can put a crown on his head and command that others provide him with goods. To satisfy his own desires, he must produce what others want at a price they can afford. Prices send signals to producers so that they will know what to make more of and what to provide less of. It wasn’t necessary for the king to assign tasks and bestow monopolies to see that things get done. Prices and profit would act as an "invisible hand" with far more efficiency than any monarch or parliament. And competition would see to it that quality is improved and prices are kept low.

Smith’s view of competition was undoubtedly shaped by the way he saw the universities of his day, loaded with coddled, tenured professors whose pay had little to do with their service to their pupils or the public at large. While a student at Oxford in the 1740s, he observed the lassitude of his professors who "had given up altogether even the pretense of teaching."

If it seems that Smith put much more faith in people and markets than in kings and edicts, it’s because that’s precisely right. With characteristic eloquence, he declared that ". . .[I]n the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it."
Smith displayed an understanding of government that eclipses that of many citizens today when he wrote, "It is the highest impertinence and presumption, therefore, in kings and ministers, to pretend to watch over the economy of private people, and to restrain their expense . . . . They are themselves always, and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will."

The ideas of Adam Smith exerted enormous influence before he died in 1790 and especially in the 19th century. America’s Founders were greatly affected by his insights. The Wealth of Nations became required reading among men and women of ideas the world over. A tribute to him more than any other individual, the world in 1900 was much freer and more prosperous than anyone imagined in 1776. The march of free trade and globalization in our own time is further testimony to the enduring legacy of Adam Smith.
A think tank in Britain bears his name and seeks to make that legacy better known. [The Adam Smith Institute]

Ideas really do matter. They can change the world. Adam Smith proved that in spades, and we are all immeasurably better off because of the ideas he shattered and the ones he set in motion.