Thursday, December 20, 2007

Was Adam Smith a 'Proto-Austrian'?

Peter Klein writing (19 December) on Organisation and Markets [here] presents an arresting headline ‘Adam Smith: Proto-Austrian?’ and an interesting take on Smithian political economy and ‘Austrian’ economics. Two paragraphs caught my attention:

Mises and Hayek admired Smith as a social theorist and system builder while rejecting much of his technical apparatus, especially the labor theory of value.’

‘In “Adam Smith’s System of Natural Liberty: Competition, Contestability and Market Process” Bradley characterizes Smith’s system of “perfect liberty” as an ancestor of the Austrian model of the competitive market process, not the neoclassical model of perfect competition.

I am not convinced that Adam Smith had a labour theory of value for other than what he called ‘rude’ society (the first age on mankind, which ‘all the world’ experienced).

Much of what is attributed to a ‘theory of value’ is a debate about measuring value, for which labour was considered as a possible numeraire (Francis Hutcheson suggested a day’s ploughing as a numeraire because the technique had not changed for a thousand years).

When society moved to ‘improved’ modes of subsistence based on property (shepherding, farming and commerce) the unambiguous Natural Right Law to the product of one’s labour no longer applies, because there are now others with a claim on the output. This was Adam Smith’s point of departure from a labour theory of value.

True, it is not very clear on a quick reading of the relevant chapters of Wealth Of Nations (WN I.v and .vi) because Smith kept switching between the two states of ‘rude’ and ‘improved’ society, without always making clear he was doing so.

From memory, I have noted how often leading ‘Austrian’ economists accuse Adam Smith of numerous ‘crimes’ on the labour theory of value (even blaming him – e.g., Murray Rothbard - for keeping the labour theory of value alive so that Karl Marx could inspire his followers to set up of the Gulag!). Given that ever one of Adam Smith’s contemporaries, including John Locke before him, and his successors, Malthus and Ricardo, were far more firmly attached to the labour theory of value, particularly as an embodied value inside the product, I am astonished that they pick on Adam Smith, whose commitment to labour as a measure of value was tenuous to put it at its strongest.

It is somewhat misleading to state: ‘Smith’s system of “perfect liberty” as an ancestor of the Austrian model of the competitive market process’. This is a fairly common association, though it is inaccurate. Some neoclassical economists refer to Natural Law theories as if they are identical with perfect competition. If Austrians are stopping short of that and confining the association to an ‘ancestor’ of a ‘competitive market process’, the problem remain.

Adam Smith was taught ‘Natural Law’ theories by Francis Hutcheson in the Scotch philosophical tradition passed on from Grotius, Pufendorf and Carmichael. This theory was not Adam Smith’s; he taught Natural Law in the Scotch tradition; apparently ‘Bradley’ is either forgetful, or is not acquainted with the authors of the theory.

The theory was about jurisprudence, not competition in commercial society. In fact Natural Law rights applied, in theory, to any type of society and were independent of the form of government.

Smith also recognised when it was necessary to set aside natural rights (in banking and party walls). They were not inviolate. He was not an extremist.


Blogger John Médaille said...

Gavin, you seem very reluctant to defend Smith's use of the LTV. Do you think he was wrong, or are you saying that he just did not hold it?

5:25 a.m.  
Blogger Gavin Kennedy said...

Hi John

I am saying he did not hold to a LTV, except for 'rude' society.

The argument is too long to present here, so I shall send to you the relevnat chapter from my new book on "Adam Smith: the moral philosopher and his political economy2 (in Press: Palgrave Great Thinkers in Economics series, mid-2008)


12:26 p.m.  

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