Monday, July 02, 2007

What Wealth Of Nations is Really About

‘Emmanuel’ asks: "What Would Adam Smith Do?" in the Blog, International Political Economy Zone (2 July):

What would Adam Smith do for a living nowadays? It seems an odd question to ask about the person some refer to as the father of economics. However, two researchers at the University of Texas, Daniel Sutter and Rex Pjesky, argue that Smith would not have been able to find work in modern economics as his approach was mainly non-quantitative; his method relied on prose and not maths. Indeed, some Nobel Prize winners in Economics have won the award with little or no quantitative analysis such as Gunnar Myrdal, Friedrich Hayek, Ronald Coase, Thomas Schelling, and James Buchanan. However, in their survey of recent publications in economics journals, the UT authors find that few papers are free from quantitative analysis.”

Emmanuel’s question can be answered on two levels; first Adam Smith’s mathematical ability; and second, the purpose behind Wealth Of Nations.

The absence of mathematics (and ‘political arithmetic’ or statistics) is not evidence of the absence of mathematical ability (an elementary error of assessing evidence).

From his biographical accounts he showed mathematical ability as a student in 1737-40 at Glasgow University according to his friend Matthew Stewart, later Professor of mathematics at Edinburgh University, and father of Dugald Stewart, Smith’s first biographer. Professor Robert Simson, teaching mathematics at Glasgow and a leading authority of Euclidean geometry, ran an informal mathematics seminar outside the University syllabus for interested and able students and colleagues, to which Smith attended and participated. He was reportedly still discussing ‘difficult’ problems in maths throughout his life. Smith interests in all subjects was eclectic.

Of course, mathematics has moved on a great deal since and so has economics; if anything the two seemed to have merged in the last sixty years since Samuelson’s 1948 ‘Foundations’. I doubt whether Smith would have been comfortable with neoclassical economics, expressed verbally or mathematically; probably he woudl find it too divorced from the real world to answer any meaningful questions about it.

That leads to the purpose of Wealth Of Nations. It should be obvious to readers who know anything about the context in which wrote his book that it never was intended as a textbook of economics, nor as a book of principles of economics.

In so far as it included economics these were supportive of his main theme and were directed at the audience for which he intended it to be read. ‘Police’, or the assurance of the regular supplies of the products of land and labour, were included in the moral philosophy syllabus of Scottish universities in the 18th century. Smith followed that tradition in his lectures at Glasgow University during his tenure, 1751-64 and remained essentially a moral philosopher.

The problem (or, opportunity) that he addressed was his observation that Western Europe showed signs of recovering since the 15th century from the thousand year stagnation following the fall of Rome in the 5th century. This was evident in the crude evidence in literature, architecture, technology (most of it to assist and augment the powers of labour, as seen in Diderot’s multi-volume Encyclopaedia) and in the slowly rising population (only possible if a 'surplus' was being produced).

Smith saw the philosophers role as ‘to do nothing, but observe everything’, which he did from his wide reading of classical sources, modern travellers’ tales on America, Africa, the Pacific, Asia, and from reading contemporary accounts of Europe.

From these sources (there were few others), he observed the long-run changes that were occurring in the basic elements of ‘police’: people of all levels were slowly becoming better off (absolutely, not relatively). Compared to the wretched lives of ‘savages’ in the America’s (which were made worse off by violent and cruel European colonists), the lives of the poorest common labourers and their families in Scotland were much better served by ‘police’ than that of the ‘savages’. Rousseau’s admiration for non-commercial man was an illusion; the gap between them and their ‘chiefs’ or ‘princes’, was greater than that between European princes and their subjects.

That led to asking of what did ‘wealth’ consist (money, or their access to the ‘necessaries, conveniences and amusements of life’)? Observing that it was the latter (gold was a means, not an end), the next question was ‘what caused the production of the people of Europe to have access to the ‘necessaries, conveniences and amusements of life’, denied to the people of the ‘savage’ world?

It is in answering those two questions that Smith wrote Wealth Of Nations, using the library of sources, those which he had to hand or access to. He did not have a ready made set of principles on a nearby shelf; short pamphlets that he had access to provided some narrow answers, but mostly he had to evaluate limited current knowledge, synthesise many sources and present his conclusions to his intended audience, the men who legislated, who determined policies, and those who influenced the former. In short, the British political class.

He concluded that the drift of national states in Europe into jealousy of trade, mercantile protectionism, internal regulation of commerce and ventures such as colonies and wars over trivial ends, reduced the ability of the full fruits of commerce and improved agriculture to be realised. He was not against government roles in 'police'; he opposed then current government roles for following false doctrines from mercantile minded colonists and protectionists.

In this context, the absence of mathematical interpretations of reality, partial and general equilibrium theorems, statistical tests and others not yet invented in 1764-76, nor before he died, is a false, if not trivial issue. It is clear to me that most economists do not understand what Smith was about, if they have ever read more than a few isolated quotations from his book(s).

It is as worthwhile asking modern economists to write a book on how current economies work, what are its singular features, and how will they persuade today’s legislatures to act to take advantage of the potential in economics growth and the growth in knowledge.

Don't hold your breath.


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