My comments on Murray Rothbard's Criticism of Adam Smith
This week's posts on Libertarians reminded me of a criticial assessments I made in 2005 when I started the Lost Legacy Blog. Looking back I eventually found the post - rather long I am afraid - but it may be of interest. I have left it as I wrote it, though I noted some minor changes I would make if I wrote it today. I never took Murray Rothbard's style of debate with critics. I am told by some academic economists who knew him that Rothbard was quite abrasive and tended to bully the reputation of those who doubted his ideas.
Well, while such tittle tattle is in n way decisive, I do know with confidence that he was wrong about Adam Smith's contributions on the topic mentioned in my post.
Let me know what you think.
“Murray Rothbard’s Myth about Adam Smith” HERE
Murray N. Rothbard, the late and distinguished contributor to the von Mises’ school of Austrian economics, wrote a chapter (‘The Myth of Adam Smith’) in An Austrian Perspective on the History of Economic Thought, and a large extract from it was published in January 2006 on the Ludwig von Mises’ Institute’s Blog. During January and March I wrote six pieces criticising Rothbard’s assertions, reproduced here with minor editorial corrections.
1 In, if I may say so, an appropriate Rothbardian fashion (no prisoners, no ambiguity, no wasted prose), the von Mises Institute announced its re-publication of Rothbard’s classic in a blurb typical of Rothbard’s pugilistic style:
“In an essay that made his masterpiece on the history of thought famous, Murray Rothbard argues that Adam Smith's should not be called the founder of economics, nor a theorist who improved on economic science, nor even a consistent defender of the market economy. Rothbard sees him as unoriginal, confused, opportunistic, vastly overrated, and even dishonest. Yet this except is only a tiny bit of what you will find in this 2-volume wonder”. I have read, so far, a few of Rothbard’s contributions (I am working my way through von Mises’ “Human Action” amidst other duties) and should not comment at this time on Austrian economics in general until I am familiar with the Austrian approach, which strikes me, from recent acquaintance with the Mises Institute Blog, as formidable, at least in its certitudes about everything. However, I am familiar with the life and works of Adam Smith and spend a deal of time correcting obvious errors broadcast about him. To that extent I agree that there are many myths about the man, his writings and his ideas, and I title this critical essay on Rothbard’s ‘The Myth of Adam Smith’ as ‘Murray Rothbard’s Myths about Adam Smith’.
Given the length of Murray Rothbard’s slamming critique, I cannot reply to it in the detail it requires in a single Blog contribution and I shall return to other aspects of Rothbard’s essay in future Blogs. While Murray Rothbard (1925-1995) cannot reply, nor can Adam Smith (1723-90), but I am sure we can conduct critical discussion without lacking in manners. My first point of detail concerns Rothbard’s reference to “Sir James Steuart's (1712-80) outdated two-volume work, Principles of Political Œconomy (1767).” Rothbard treats Smith’s neglect to mention in “Wealth of Nations”, Sir James Steuart’s then recently published book as evidence of something underhand and suspicious (so did Salim Rashid), both hinting that Smith’s neglect was responsible, somehow, for Steuart’s book not doing as well as it might have done. I quote from Rothbard: “… Sir James Steuart's (1712-80) outdated two-volume work, Principles of Political Oeconomy (1767). Steuart, a Jacobite who had been involved in Bonnie Prince Charlie's rebellion, was for much of his life an exile in Germany, where he became imbued with the methodology and ideals of German 'cameralism.' Cameralism was a virulent form of absolutist mercantilism that flourished in Germany in the seventeenth and eighteenth centuries. Cameralists, even more than western European mercantilists, were not economists at all—that is, they did not analyse the processes of the market but were technical advisers to rulers on how and in what way to build up state power over the economy. Steuart's Principles was in that tradition, scarcely economics but rather a call for massive government intervention and totalitarian planning, from detailed regulation of trade to a system of compulsory cartels to inflationary monetary policy. “Even though Steuart's Principles was out of step with the emerging classical liberal Zeitgeist, it was no foregone conclusion that the work would have little or no influence. The book was well received, highly respected, and sold very well, and five years after its publication, in 1772, Steuart won out over Adam Smith in acquiring a post as monetary consultant to the East India Company.”
Adam Smith was not a Jacobite. His father had a credible record of commitment to the Hanoverian King’s cause and was an active party to the Unionist shenanigans that led to the merger of the parliaments of Scotland with England in 1707 (the Crowns were unified in 1603). Yet Smith was not a person who carried political differences into personal relationships.
His first published writing was his preface to the publication of William Hamilton’s Poems on Several Occasions in 1748. Hamilton was a Jacobite in exile, who was pardoned later. So, Smith had no personal or political reason to ostracise Steuart or his book. Indeed, we know he regularly conversed with him after his discreet return from exile in 1763, when Smith returned from his Tour of France in 1766. As Smith directed some of his polemics against mercantile political economy in “Wealth of Nations” to confute Steuart’s ‘false principles’, he hardly ignored Steuart’s book, though he admitted, proudly, that he did this ‘without mentioning’ Steuart or his book: “I have the same opinion of Sir James Stewarts Book that you have. Without once mentioning it, I flatter myself that every principle in it, will meet with a clear and distinct confutation in mine.”
I cannot think of many, if any, occasions in which Smith criticised a living person’s writings by name, though he could be robust with the named writings of those who were dead. It may have had something to do with an old fashioned sense of the proprieties common among gentlemen in 18th-century Scotland. It was quite common in published works, well into the 19th century, for authors to refer to people’s names with most letters blanked out. For example, James Steuart would have been referred to as: ‘J-------------t’. Given Steuart’s theme in favour of mercantile-state building, I consider its failure as a book after 1772 had more to do with its contents than to any sales it might have received if Smith had identified it in 1776. It took some time before “Wealth of Nations” made significant sales (a point mocked at by Rashid). From what I know of the various editions of Smith’s book they did not sell like hot cakes (he sent free copies to many important people) and I would wager they made greater sales in later editions in the 19th and 20th centuries than they did while he was alive. Frederick List lambasted Smith’s “Wealth of Nations” because it contained vigorous criticism of mercantile state building, which List saw as the foundation for German unification and nationalism. The consequences were seen in the 20th Century. Rothbard takes a side-swipe at Smith with gratuitously tendentious implications:
“in 1772, Steuart won out over Adam Smith in acquiring a post as monetary consultant to the East India Company.”
This suggests that Smith had applied for a post with the East India Company in competition with Sir James Steuart and had lost the contest because Steuart was judged the better monetary specialist. It could only convince someone who has no idea of the facts. For one thing, Steuart’s book circulated from 1767 and Smith did not publish “Wealth of Nations” until 1776. For another, the facts of the circumstances surrounding Smith’s name lying before directors of the East India Company, who were looking for a specialist to advise them on the currency problem they had in Bengal, rubbish Rothbard’s unworthy implications. Smith did not apply for the post, as is clear in his polite remarks to the person who had put his name forward without consulting Smith first: “I think myself very much honoured and obliged to you for having mentioned me to the east India Directors as a person who could be of any use to them. You have acted in your old way of doing your friends a good office behind their backs, pretty much as other people do them a bad one. There is no labour of any kind which you can impose on me which I will not readily undertake. By what Mr Stewart and Mr Ferguson hinted to me concerning your notion of the proper remedy for the disorders of the coin in Bengal, I believe our opinions upon that subject are perfectly the same”
‘Mr Ferguson’ was Adam Ferguson, and Smith’s spelling of Steuart’s name is how the name was spelt in Scotland, whereas ‘Steuart’ or, more commonly ‘Stuart’, is the English spelling. And while discussing Rothbard’s ‘side-swipe’, I should mention the fact that so-called ‘Bonnie Prince Charlie’ was neither ‘bonnie’ (check his portrait!) nor a ‘Prince’. He was the foreign-speaking grandson of the former British King, who had been deposed by constitutional means from the throne in favour of the Hanoverian King William of Orange. Charlie’s' father was a Pretender to the throne; his son’s claim to be a Prince was false (‘treason never prospers, because if it prospers none dare call it treason’). To describe Steuart as being ‘involved’ in Charlie’s futile rebellion understates his role for he was his private secretary, suggesting a more wholesome commitment to the Jacobite cause than merely being ‘involved’ in it; many thousands were ‘involved’ in the rebellion, but few became ‘private secretary’ to its leader.
The early chapters of “Wealth of Nations” often irritate those in a hurry to read it like a modern economics textbook. For example, Francis Horner (1801) dismissed the significance of the early chapters: “This is a very superficial and unnecessary chapter; all that is valuable in the doctrine of it stated in a single sentence. The disquisition belongs rather to philosophy of the mind rather than to political economy: and as a metaphysical investigation, it is treated in a very slight and unsatisfying manner”
Two centuries later, Murray Rothbard, under cover of Schumpeter’s prodigious authority, dismisses them too. It is Rothbard’s sweeping opinion that for no “economist before or since did the division of labour assume such a position of commanding importance.” To the extent that this is true it reflects more on the unfortunate neglect by such economists than any obsession Smith may have entertained about the division of labour. Rothbard considers the division of labour of trifling importance compared to the exaggerated ‘undue’ and ‘commanding importance’ accorded to it by Smith. This is a clear difference of opinion, not open to resolution. However, Rothbard goes much further and throws about other, more serious, charges against Smith. Beyond the crimes of exaggeration, Rothbard adds those of downplaying the importance of ‘capital accumulation and the growth of technological knowledge’; not ‘apply[ing] his analysis of the division of labour to international trade; having ‘no inkling of the Industrial Revolution going on all about him’; plagiarizing the example of the pin factory from the French Encyclopédie (1755) and shifting ‘the main focus’ of the importance of the division of labour ‘from mutual benefit to an alleged irrational and innate 'propensity to truck, barter and exchange', as if human beings were lemmings determined by forces external to their own chosen purposes.’ After such a devastating broadside from a major post-war figure in Austrian economics, supported by the authority of Schumpeter, a veritable giant of the profession, it may be thought that Rothbard’s abusive rhetoric, mustered in his intemperate chapter, was perfectly justified. I think our American cousins call it ‘Slam Dunk’. But when reading well-known sources, we should ignore the rhetoric and check the solidity of the assertions. This takes us to the core of the significance of the division or labour for Smith. He was not writing a ‘Principles of Political Economy’ textbook, nor even a Treatise on a topic of an aspect of political economy (currency, trade or agriculture, etc.,), or a set of lectures for a moral philosophy class. “An Inquiry into the Nature and Causes of the Wealth of Nations” was the report of his answer to the question embodied in its title. Elsewhere, I have called it a ‘one-man Royal Commission’, after the procedure in Britain, by which a government appoints independent worthies to enquire into a subject of importance (the causes of crime, bad housing, transport, genetically modified foods, drug addiction, and such like) and then publishes their findings a few years later. “Wealth of Nations” should be read with that image in mind. It is appropriate that Smith opens his report by taking a long view into the evolutionary history of factors bound up with the causes of the wealth of nations. Smith was aware that outside the perimeter of European societies there were very different societies elsewhere on Earth, some with ancient civilisations (India, China) and others commonly referred to as examples of the lives of the ‘Brutes’, or the kind of ‘savage’ societies that once were considered to have been the norm for all humans (e.g., Locke’s assertion in 1690 that in the ‘beginning all the world was America’).
That he leant heavily on the division of labour as a primary cause of the differences between the savage societies in America and Africa, and the civilised present of Western Europe is justifiable. That he was wrong in details and he knew nothing of the hundreds of thousands of years of the human and proto-human societies as they had evolved, is readily conceded, but other disciplines could now show those economists, who hasten past these insights, quite fundamental gaps in their understanding of human behaviour, of which subject they (including the Austrians) claim a unique sovereignty.
In “Adam Smith’s Lost Legacy”, I criticise the extent to which Smith’s name has become ‘practically synonymous’ with the division of labour and the extent of the market, and I try to ‘lay this myth to rest’. That he ignored others who had discussed the division of labour is not entirely supported by thee vidence of his text. In “Wealth of Nations”, he draws attention to previous views on the division of labour. He gives clear evidence of others before himself, presumably in the pamphlet literature that he does not bother to cite in detail, expressing their views on the division of labour before he did: ‘[The division of labour] is commonly supposed to be carried furthest in some very trifling’ manufactures’ and he continues in this theme to identify ‘great manufacturers’ that cannot collect all of their workmen into ‘the same workhouse’ in a single place (large workplaces were rare in mid-18th century Scotland, excluding mines), and they necessarily disperse them such that the work is ‘divided into a greater number of parts’ and ‘the division [of labour] is not near so obvious, and has accordingly been much less observed’, but that he acknowledged that it was observed by others (from the words in my italics) is certain. Smith introduces the ‘pin maker’, but note (read carefully!) he writes that the division of labour in the ‘very trifling manufacture’ of pins ‘has been very often taken notice of’ (my italics). Again Smith makes no claim to precedence or pretence at originality, contrary to Rothbard’s assertions. The tense of ‘has been very often taken notice of’ is clear: the ‘notice’ that others took of the division of labour was in the past, i.e., before “Wealth of Nations” (1776); the Encyclopédie was published in 1755, 21 years earlier, and its contents were widely known to contemporaries interested in political economy (Smith had copies in his library). Smith taught the division of labour since he arrived at Glasgow College (1751) and it was also expounded by Francis Hutcheson while Smith was a student (1737-40), and by Plato, William Petty (1683) and many others. Acknowledging observations by others, which were well known to his readers, is hardly grounds to accuse him of plagiarism two hundred years later. In the interim, the pamphlet literature, about which Rothbard and Rashid make a great deal of fuss, was not treated as seriously as it is today by scholars with Internet access to libraries that store copies. Rothbard makes an extraordinary assertion: “The older and truer perception of the motive power for specialization and exchange was simply that each party to an exchange (which is necessarily two-party and two-commodity) benefits (or at least expects to benefit) from the exchange; otherwise the trade would not take place. But Smith unfortunately shifts the main focus from mutual benefit to an alleged irrational and innate 'propensity to truck, barter and exchange', as if human beings were lemmings determined by forces external to their own chosen purposes.” That it is older is agreed, that it is truer is problematical. ‘Specialisation and exchange’ narrows the domain of the division of labour considerably unless Rothbard insists that the division of labour was confined only to the era of commercial exchange. The division of labour reached its modern fruition in the modern era of commerce, but it had a long history through the four ages of man, from the gathering-scavenging-hunting first stage onwards. Co-operation, an essential ingredient in the division of labour, evolved through the millennia in late proto-human (hominid) society; it did not just appear suddenly and fully operational in early acts of exchange in human society. Co-operation in the scavenging or hunting of large game (larger than adult men) required more than one common set of attributes. Age separated man’s universal talents; the young ran faster, had strength and seldom lacked the impetuousness that often passes for courage; the older, perhaps lamer, certainly slower than the young, and nursing that experience that often passes for guile, fulfilled different roles. These were not necessarily solely innate differences; they were the product of many incidents over their life-times, learned from the accidents of experience and observation. In an environment where violent predators competed for the same food sources, a division of labour amongst humans had reproductive advantages suitable to drive social evolution (a far faster form of evolution compared to natural selection). Scavenging and hunting big game was dangerous work for puny humans. While multi-tasking was possible and such activities guided by superior intelligence gave humans a competitive edge. Tracking and locating prey (already dead or suitable for killing), trapping and stripping the kill or the abandoned carcass quickly before rival predators, determined an able to kill anything in their way, challenged them for possession, and withdrawing intact, required knappers of stone tools, butchers and carriers, plus noisy skirmishers to keep predators at bay long enough for the others to complete their work. The nature of such work required a nascent division of labour, some elementary forms of organisation and social cohesion.
Combined in a group there were many reproductive and survival advantages in divisions of labour from innate and life-cycle differences. That Smith asserts the absence of innate differences between porters and philosophers is the result, ‘not so much from nature, as from habit, custom, and education’ is an error regarding the relative importance of nature versus nurture as root causes. If he insisted that the differences were solely and absolutely caused by ‘habit, custom and education’, he was wrong. That we know differently today (though in some quarters it is still controversial) is a result of two hundred years additional research, and is commendable (education?), but hardly a decisive dismissal of Smith’s complicity in common enough errors of his time and afterwards. (I wish I could feel so certain of everything I assert as Murray Rothbard's self-confidence in everything he asserted.) What is important is Smith’s denial that the division of labour was ‘derived’ from ‘the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion’. He says much the same thing in relation to the origins and evolution of language. He went on to argue that much the same process is behind the evolution of markets and their workings, though he obfuscated how markets work from introducing Shakespeare’s metaphor of the invisible hand, clouding his clarity of how markets work with the unfortunate interpretation of those (the majority?) who came to see markets as ‘miraculous’ and mysterious, even though Smith’s single use of the metaphor in “Wealth of Nations” appears in a passage not directly related to markets. Only much later in the evolution of the division of labour into the creation of wealth (goods created by human toil), when the divisions of labour had spread through co-operation, did it lead towards ‘truck, barter and exchange [of] one thing for another’. Extended families and small bands created their future histories in the empty wildernesses of the Earth, as their descendants migrated through adjacent territories and then continents, and proliferated into regular contact with other descendants from Africa. It was contact amongst long separated human bands that drove social evolution into exchange relationships (and the ever present phenomenon of violent plunder). Here Rothbard separates himself from Smith’s view of the essential attribute of human exchange. He confuses motive with means; he makes the mistake he accuses Smith of committing. He writes: “simply that each party to an exchange (which is necessarily two-party and two-commodity) benefits (or at least expects to benefit) from the exchange; otherwise the trade would not take place.” Yes, but, though each party unambiguously “benefits from the exchange”, where did the only practice that could realise the mutual benefits of trading come from, and, as important, how does exchange take place without what Smith calls the propensity for bargaining? Is Rothbard suggesting that it came exogenously “as if human beings were lemmings determined by forces external to their own chosen purposes”? Surely not! It must have come from their attempts to realise those tentative benefits, which Smith suggested was the mechanism for trade – the behaviour that makes it happen: ‘the necessary, though very slow and gradual consequence of a certain propensity in human nature which has no such extensive utility; the propensity to truck, barter, and exchange one thing for another’. Concentrate on the words: ‘very slow and gradual consequence of a certain propensity’. This is Smith’s evolutionary social model. It was not a result of a rational decision to exchange, which everybody adopted simultaneously after reading von Mises and Rothbard in the mid-20th century; humans discovered the alternatives (plunder or trade) to acquiring wealth they had not created themselves through an evident propensity that was one of the ‘original principles in human nature of which no further account can be given’. The behaviours of our ancient predecessors did not fossilise and no trace of how they behaved or what they thought remains.
Smith’s other option for the origins of the propensity are ‘the necessary consequence of the faculties of reason and speech’. In short, he did not know for certain which option it might have been, or if there was a third option (by rational deduction in the Austrian tradition). He did not state that ‘irrational’ propensity was definitely ‘innate’; he did not know for sure and he left the two alternatives for future scholarship.
Two centuries later, Rothbard asserts he knows the answer for certain. And how does he know for certain? Because he thought it through rationally and with the benefit of two hundred years of modern scholarship that is held in vast libraries, none of which was available to Adam Smith in Kirkcaldy in 1766, when he wrote the opening chapters of “Wealth of Nations”. The alternative to bargaining for the benefits was/is violent plunder, which no doubt many tried instead, some ‘winning’ and as many ‘losing’ (the plunderers were out plundered by their supposed victims). Trading behaviour has always been a ‘propensity’, not a mandate. Where non-zero sum trade happens it raises the wealth of its participants, whereas plunder raises the wealth of the ‘winning’ party, net of its real costs – dead and wounded, and the ever present threat from surviving remnants of the ‘losers’ - which reduces or eliminates potential benefits from one-way violent zero-sum transactions. Trade does not just take place. It has to be negotiated. It is both a process and an outcome. The parties have to ‘persuade’ each other to transact. The fact that mainstream economics ignores Smith’s ‘propensity to truck, barter and exchange’ (negotiation) as the fundamental characteristic of trade, is a criticism of economists (including the Austrian variety), not Adam Smith. 3
Murray Rothbard asserts the following unfair criticism plus an elementary error: “In addition, Smith failed to apply his analysis of the division of labour to international trade, where it would have provided powerful ammunition for his own free trade policies. It was to be left to James Mill to make such an application in his excellent theory of comparative advantage. Furthermore, domestically, Smith placed far too much importance on the division of labour within a factory or industry, while neglecting the more significant division of labour among industries.” This is not central to my replies to Rothbard on Smith, but it typifies his rhetoric, that he counts as a ‘failing’ in a predecessor, that another political economist 50 or more years after he died, had ‘been left’(?) to apply a theory which his predecessor had not created on his own account. That John Stuart Mill elaborated on a concept on the back of David Ricardo’s work is highly commendable (that is how science progresses and evolves), but if we are to blame all predecessors for not anticipating our insights in the centuries that follow them (and us!) we would have a pretty jaundiced view of the practice of science. But look closely at the main charge against Smith. Rothbard asserts he ignored the division of labour in ‘international trade’ and ‘the more significant division of labour among industries.’ What breathtaking forgetfulness on Rothbard’s part – it cannot possibly be caused by Rothbard’s ignorance, for his reputation as a major scholar in economic science is widely appreciated.
But to the facts. The famous ‘pin factory’ (of which more later) was not the sole reference to the division of labour in “Wealth of Nations”. It was only one ‘trifling’ paragraph example, chosen I suspect to illustrate the principle of the division of labour and not to exhaust it. In the very next paragraph Smith writes: “In every other art and manufacture, the effects of the division of labour are similar to what they are in this very trifling one… The division of labour, however, so far as it can be introduced, occasions, in every art, a proportionable increase of the productive powers of labour. The separation of the different trades and employments from one another, seems to have taken place, in consequence of this advantage. This separation too is generally carried furthest in those countries which enjoy the highest degree of industry and improvement; what is the work of one man, in a rude state of society, being generally that of several in an improved one…. The labour too which necessary to produce any one complete manufacture, is almost always divided among a great number of hands. How many different trades are employed in each branch of the linen and woollen manufactures, from the growers of the flax and the wool, to the bleachers and smoothers of the linen, to the dyers and dressers of the cloth!”  For Smith his survey of the application of the division of labour in mid-18th century Scotland, and what we now know, but nobody did at the time, was only the beginning of a deepening of commerce and industry on a scale unprecedented in all of history that has not stopped yet, concerned the ‘downstream’ processes of product groups (flax and wool) because these were the most evident examples of the division of labour at work in Smith's day. He did not ‘neglect’ the significance of the division of labour ‘among’ industries at all. He wrote about them!
Only seven paragraphs on Smith develops his lesser known (at least to those who rely on abridgements and third-hand accounts of what Smith wrote, a charge nobody could make against Rothbard) example of the division of labour, that of the manufacture of the ‘accommodation’ of the ‘common artificer’, which utilises a ‘number of people’ different industries who contribute ‘a part’ to procurements of the common labourer. These people must ‘join their different arts in order to complete even this homely production’, writes Smith, and goes on to elaborate on the different industries ‘in distant parts of the country’ and ‘a great multitude of workmen’ needed to produce by their ‘joint labour’ the common labourer’s woollen coat. These different industries, according to Rothbard neglected by Smith, include shepherds, weavers, fullers, ‘many merchants and carriers’, commerce and navigation, ship-builders, sailors, sail-makers, rope makers, drugs for dyers (‘from the remotest corners of the world’, introducing an international trade element into his discourse, which Rothbard calls Smith’s ‘failing’), tool-makers, makers of ‘complicated machinery’ for ships, millers, and looms, even the ‘shears’ that ‘clip the wool’, miners of coal and ore, builders of furnaces for smelting, timber fellers, charcoal burners, brick-makers,, brick-layers, furnace men, mill-wrights, forgers, smiths, all ‘joined in their different arts in order to produce them’. Smith, having mentioned the common labourers' other requirements in dress, furniture, shirts, shoes, bed, kitchen grate, tables, furniture, knives and forks, earthen and pewter plates, bread, beer, and glass windows, concludes:
“If we examine, I say, all these things, and consider the variety of labour employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilised country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated”. 4
To conclude the discussion on Smith’s alleged plagiarism of the division of labour I shall turn to Murray Rothbard’s own myths. He convinced himself that he had found a ‘smoking gun’ in Smith’s version of the division of labour and his quarrel with Adam Ferguson. Closer analysis shows Rothbard quiet wrong in his borrowed interpretation from Professor Hamowy’s 'Adam Smith, Adam Ferguson, and the Division of Labour' : “Professor Hamowy has shown that Smith did not break with his old friend, as had previously been thought, because of Ferguson's use of the concept of the division of labour in his “Essay on the History of Civil Society” in 1767. In view of all the writers who had employed the concept earlier, this behaviour would have been ludicrous, even for Adam Smith. Hamowy conjectures that the break came in the early 1 780s, because of Ferguson's discussion at their club of what would later be published as part of his Principles of Moral and Political Science in 1792…. Thus Adam Smith broke up a long-standing friendship by unjustly accusing Adam Ferguson of plagiarizing an example which, in truth, both men had taken without acknowledgement from the French Encyclopédie.” Believing that such behaviour would have been ‘ludicrous’ on Smith’s part should have been followed by Rothbard exercising caution in copying these attributions from Professor Hamowys. I agree that their dispute was not over the principle of the division of labour, because of well-known common knowledge of their prior publication in more ancient writings, as Smith acknowledges in his reference to the pin manufactory example. But what were their differences about then? Ferguson in his History of Civic Society (1767) introduced the relatively new proposition of the division of labour causing what we now call ‘alienation’, a theme taken up by Smith in ‘Wealth of Nations’. If there was to be a quarrel over precedence it was more likely to be the subject of alienation and not the principle of the division of labour. Ferguson’s references to alienation pre-date ‘Wealth of Nations’, but they do not pre-date his ‘Lectures in Jurisprudence’ delivered between 1750 and 1764. The fact that Smith's lecturers were not published until the end of the 19th century does not disqualify a quarrel over precedence in alienation because several hundred persons heard his lectures, he spoke about his ideas regularly in his clubs and ‘social hours’, and Ferguson mixed in the same circles. The ‘lost’ lectures misled Karl Marx into attributing to Ferguson precedence in ‘alienation’ theory, and describing him as the ‘teacher’ of Adam Smith and also Smith as his ‘pupil’! But Smith had lectured in 1763 on alienation years before Ferguson published his version in 1767. But was it really a quarrel, as Professor Hamowys claims and Rothbard endorses, about the contents of a book Ferguson was to publish in 1792 (Smith died in 1790), or was it about something else published earlier while Smith was alive? In the original report of the alleged charges by Smith he is alleged to have accused Ferguson: ‘of having borrowed some of his inventions without owning them. This Ferguson denied, but owned he had derived many notions from a French author, and that Smith had been there before him’
It was not just a ‘French source’ in the original quotation, but a ‘French Author’, and the best candidate for the French author is Baron Montesquieu and his book, ‘Spirit of the Law’ (1748), whose concepts and ideas featured strongly in Smith’s lectures at Glasgow University, which we know because he acknowledged Montesquieu six times (though not a further 20 times). Speech does not lend itself to author citations and, anyway, Smith never edited the students’ notes for accuracy, and his own manuscript for Jurisprudence was burned on his instructions a short while before he died. His lectures were taken down by students and widely circulated – two copies of which were discovered over 100 years later. Ferguson could not have quoting from this source directly, but he could have been quoting from another set of student notes (now lost) or, more likely from student’s reports of Smith’s lectures circulating in the Edinburgh clubs. Ferguson’s History of Civil Society appeared in 1767 and in its first edition he made no acknowledgement of Montesquieu’s work as a source, and Smith would have recognised this deficiency. Indeed, Ferguson published the following bizarre apology in the second 1773 edition: ‘In his [Montesquieu’s] writings will be found, not only the original of what I am now, for the sake of order, to copy from him, but likewise probably the source of many observations, which in different places, I may, under the belief of invention, have repeated without quoting the author.’ This leaves me to deal with the final and, if I may opine, gratuitously false criticism of Smith on trivial arithmetical details (which Rothbard also manages to get wrong!) of the famous pin manufactory example in ‘Wealth of Nations’: ‘There is strong evidence that the 'French source' for both writers was the article on Epingles (pins) in the Encyclopédie (1755), since that article mentions 18 distinct operations in making a pin, the same number repeated by Smith in the Wealth of Nations, although in English pin factories 25 was the more common number of operations.’ What are we to make of this ‘evidence’? Is Rothbard arguing that the alleged discrepancy between 18 (Encyclopédie) and 25 (England) shows he had caught out Smith in a borrowed example? A closer reading of the passage in ‘Wealth of Nations’ suggests otherwise. First of all the ‘18’ operations are reported to have been ‘very often taken notice of’ (p.14), i.e., sufficiently familiar to be common knowledge by 1776 (21 years after the Encyclopédie article in 1755). Then Smith goes on to describe a ‘small pin manufactory, which he states emphatically: ‘I have seen’ and Rothbard questions the veracity of this statement and, by implication, adds to his charges that Smith was also a liar. However, Smith’s actual statement says that he saw: “a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in day; that is, certainly not the two hundred and fortieth, perhaps not four thousand eight hundred part of what they are at present capable of performing, in consequences of a proper division and combination of their different operations”.
The pin manufactory Smith describes in detail does not include anything about how many operations are involved, other than that among the ten men ‘some of them consequently performed two or three distinct operations.’ The ‘18’ operations cited by Rothbard as ‘evidence’ comes from an earlier sentence in the paragraph! So what is Rothbard’s ‘evidence’ for his gratuitous and false implication that there was something untoward in Smith’s account of what he saw? Rothbard’s assertion is that ‘the same number  is repeated by Smith in the 'Wealth of Nations’ which shows he claims that he has caught Smith out, because ‘in English pin factories 25 was the more common number of operations’.
Unfortunately, Rothbard didn’t catch out anybody but himself in his (careless) misreading of Adam Smith, and, er, by the way, I note that Rothbard gave no citation for this statement about ‘25’ operations being more common in ‘England’. Smith, incidentally, lived in Scotland and Rothbard, like many North Americans, made the usual, and somewhat irritating, mistake of talking about ‘England’, one of the four nations making-up the United Kingdom, as if what happened in ‘England’ was synonymous with what happened in Scotland and that Smith should have known about pin factories south of the border, in days, remember, when Edinburgh to London took a six-day coach journey. It is possible that Rothbard did not read Chapter 1 in “Wealth of Nations” with enough care (though he describes it has the book’s most ‘famous’ paragraph!) in pursuit of his intemperate accusation Smith’s falsehoods. His normal standards of scholarly accuracy on this occasion had slipped severely. 5
Murray Rothbard pounces of Adam Smith at the end of his extract on the differences between ‘productive’ and ‘unproductive labour’ and completely misses the point, as so many have, including Karl Marx (that is a strange combination – Rothbard sharing something in common with Karl Marx!). Many people confuse ‘unproductive’ in Smith’s sense with ‘useless’ or ‘unimportant’ labour, when Smith’s distinction had nothing to do with the merits or utility of labour. That the Physiocrats had similar nomenclature for productive labour from their ‘produit net’ is not relevant. Smith used the distinction in a different sense. The Physiocrats confined their meaning to products of agriculture from the biological fact that an amount of seed when planted and grown to maturity resulted in a physically greater amount of seeds or food. That this produit net was visible, obvious and beyond dispute (outside droughts) was too obvious to be contested.
Remember, Smith’s book was a report on his ‘Inquiry into the Nature and Causes of the Wealth of Nations’. It was not a textbook on political economy. It was a report on his applications of political economy, as the subject existed in the mid-18th century, plus whatever elements he added to his evolutionary model of man in society from his perspectives of moral sentiments, jurisprudence, and history. Its focus was on the wealth, the annual output of nations, but primarily Britain, and how in each country its capacity to produce the real wealth of a nation (and not the amount of gold, silver or paper money its citizens or its prince hoarded) would grow year by year with efficacious policies, gradually, continually and without direction.
An amount of raw material did not visibly result in a net product in the same quantitative manner – seeds bore fruit – because the physical product of raw materials was not visible in a larger amount of something tangible. Making a saddle out of leather, metal studs and stitching did not produce more leather. It produced a saddle. The notion that labour added to raw material produced a higher value and not a larger physical output required a different perspective, and if I may suggest it, a higher level of conceptual insight, which some French économistes approached, but the majority of Physiocrats did not. The latter treated manufactured products as ‘sterile’.
Tracing exegetically the origins of this conceptual insight that is now common place is not my purpose. I shall confine my remarks to the distinction as understood by Adam Smith.
Smith regarded labour as productive if it contributed to growth of the net product of wealth. It followed that labour that did not contribute to the growth of net wealth was unproductive. That this is a narrower definition than is common place nowadays, which now includes labour producing intangible services sold in markets, is accepted. Our understanding of productive labour has matured as the economy matured from Smith’s fairly simple commercial society of a majority of farmers, and a minority of journeymen, tradesmen, merchants and manufacturers, producing food, clothing, shelter, household goods, implements and trinkets typical of 18th-century living standards and implements of the 18th century carrying trade and of the implements of war. The mass consumer and service society of late capitalism and big government was far ahead of the conceptual horizons of Smith, his contemporaries and immediate successors. Rothbard’s penetrating 20th-century hindsight is hardly relevant when judging what Smith should have known, anticipated or been aware of (e.g., the ‘industrial revolution’), but which, like all his contemporaries, he did not. Smith was interested in what caused the growth of wealth. His identification of productive labour the cause of growth, and unproductive labour as labour not causing growth, is a simplification that was not in error for his purposes and its time. He saw the motivational causes of labour leading to growth as the result of the frugality of those (like journeyman manufacturers working in small forges, blacksmith’s shops, saddlers yards and weaving sheds attached to the labourers’ houses, and such like) whose savings from their revenues (incomes) from productive activities were re-invested into hiring productive labour to create tangible products to be sold in markets.
In contrast, those he called the ‘prodigals’ spent from their revenues to hire domestic hands and consumer goods, which did not produce output that was sold in markets. The output labour was consumed by the persons hiring their services in the form of domestic labour that produced a degree of comfort satisfying the hirers’ urge to indolence and the trinkets that flattered their egos. To the extent that people were frugal and investing their savings, the economy would grow; to the extent that they were prodigal and spent on their consumption the economy would grow more slowly.
That is all he meant by labour being either productive or unproductive. It was a distinction with a difference within terms that suited Smith’s purpose to inquire into the nature and causes of the wealth of nations. Rothbard concludes from his misunderstanding: “Clearly, Smith wanted far more investment towards future production and less present consumption than the market was willing to choose. One of the contradictions of this position, of course, is that accumulating more capital goods at the expense of present consumption will eventually result in a higher standard of living unless Smith prepared to counsel a perpetual and accelerated shift toward more and more never-to-be-consumed means of production.” Again Rothbard misunderstands Smith’s approach. He did not write a manifesto; he did not advocate, nor expect, that everybody should cease being prodigal and convert to being frugal, and certainly not that the state should enforce such a ludicrous proposition. He described what many people did and what a few did differently, and what the consequences were from their behaviours in terms of the effect of their actions on the growth in a nation’s wealth. What people did next, as a result of understanding the differences in the distinct behaviours, he left an open question. He always cautioned against ‘men of system’ and their fanaticism that tolerated no exceptions (a mood or manner of behaviour, if I may say so, that would incorporate much of the writing style of Murray Rothbard, based on the extract from his book). Smith noted that the frugality of income earners in contemporary 18th- century Britain was sufficient to bring about a gradual, persistent and steady rate of economic growth in real output (and real wages for common labourers), sufficiently encouraging for him to believe it could offset the ‘wasteful’ expenditures (in terms of growth, not civilised comforts) on the ‘dignity of the sovereign’ and the wars of governments. He did not advocate a kind of ‘Stalinist’ dash for growth through ‘heavy industry’ at the expense of consumption. He happily left to individuals the decision to spend all, or to save some, of their revenues; implicitly, he suggested the more that individuals chose to save out of their urge for frugality, the relatively faster the nation’s growth rate would be, a true proposition not a falsehood. Contrary to Rothbard’s ‘it’s either investment or consumption nightmare’ (not a choice in the 18th century), Smith considered that there was sufficient of each available type of labour to produce the desired outcome as a trend over time that would enrich the wealth of the nation. To this extent, I believe Murray Rothbard’s critique of his version of Adam Smith’s myths is more a demonstration of Murray Rothbard’s Myths about Adam Smith.
Murray Rothbard wrote his polemic against Adam Smith entirely based on his reputation as an Austrian economist, making charge after charge against his target without giving the kind of detailed evidence support his case expected from a younger economist yet to make a reputation among professionals peers. Rothbard apparently expected his Austrian colleagues and sympathisers (and others, such as myself, who admire their work without necessarily subscribing sufficiently to be an affiliate) to accept his, albeit intemperate, judgements uncritically. However, should his readers be familiar with Adam Smith’s life and work, they might recoil from his more extreme criticism, perhaps, as I do, by assessing Rothbard’s detailed points (on the few occasions where he gives any), which are clearly incorrect exegetically (as itemised in previous sections) and are bald generalisations suitable for opinionated journalists.
In this respect, consider Rothbard’s criticism of Adam Smith on what became known after his death in 1790 as the ‘Industrial Revolution’. “Smith's use of an example of a small French pin-factory rather than a larger British one highlights a curious fact about his celebrated Wealth of Nations: the renowned economist seems to have had no inkling of the Industrial Revolution going on all about him. Although he was a friend of Dr John Roebuck, the owner of the Carron iron works, whose opening in 1760 marked the beginning of the Industrial Revolution in Scotland, Smith showed no indication that he knew of its existence. Although he was at least an acquaintance of the great inventor James Watt, Smith displayed no knowledge whatever of some of Watt's leading inventions. He made no mention in his famous book of the canal boom which had begun in the early 1760s, of the very existence of the burgeoning cotton textile industry, or of pottery or of the new methods of making beer. There is no reference to the enormous drop in travel costs that the new turnpikes were bringing about.
In contrast, then, to those historians who praise Smith for his empirical grasp of contemporary economic and industrial affairs, Adam Smith was oblivious to the important economic events around him.” Was Rothbard aware of the conditions in which Smith wrote the bulk of “Wealth of Nations”, and certainly its first chapters? He was not writing in a well-endowed University library – he left Glasgow in January 1764. He wrote on the basis of whatever books he had acquired privately; he did not have a tenth of the books available to Rothbard in the last quarter of the 20th century, plus the 200 years of additional academic research published in journal articles.
Rothbard sneers: “the renowned economist seems to have had no inkling of the Industrial Revolution going on all about him.”
For a start, Rothbard should have elaborated on the details of the “the Industrial Revolution going on all about him” and identified whom among Smith’s contemporaries had an ‘inkling’ of the Industrial Revolution in the third quarter of the 18th century? That Smith knew Dr John Roebuck and James Watt is beyond doubt. That he should have grasped the significance of the Carron Ironworks for a pending industrial revolution is extravagant. What features of Roebuck’s investment were progenitors of the power-driven industry of the 19th century that became known as the Industrial Revolution? Carron was certainly large scale, but it was not power driven.
T. S. Ashton declared that the lighting of the furnace at Carron on 26 December 1760 was the day when the industrial revolution began, but from his well-documented hindsight, not his foresight, and the same hindsight is found in abundance among scholars, not in 1760, but after 1860 when the contours of industrial development taken together were visible to all who shared research-fed hindsight from privileged vantage points, including, of course, Murray Rothbard writing in the 1960s. James Watt was Glasgow University’s instrument maker and part-time dabbler in mechanics. Smith taught yards away from Watt’s workshop, but little of Watt’s future role in the power-driven industrial revolution was visible to Smith during 1751-1763. The early years of Watt’s experiments with steam power were related to the pumping of water out of coal mines (an ancient trade) and not the driving of large factory-based machinery in the next century. There has been a long-standing debate among economic historians about Smith’s awareness of the isolated, separate and dispersed changes slowly beginning to appear in the last quarter of the 18th century. I discuss this in more detail in ‘Adam Smith’s Lost Legacy’. I conclude broadly in favour of Charles Kindleberger’s assessment that Smith was not aware, nor had he good reason to be so, and that R. M. Hartwell’s assessment that he was aware is wrong in detail and in his assertions about the evidence, as were Rothbard’s assertions about Smith’s lack of foresight. As for Rothbard’s straws about ‘canals’, Smith discussed their suitability for public investment; of ‘turnpike roads’ he discussed their suitability for public or private management in “Wealth of Nations”, though there was a long way to go before they would reap large scale economies of scale. It still took two days to travel from Glasgow to Edinburgh, a distance of 40 miles, in the 1760s, and the state of most of Britain’s roads remained chronic well into the 1840s. Smith recognised importance of roads, for commercial prosperity and he discussed the advantages of better roads for commercial transport by six-horse pulled wagons. As with other details in Rothbard’s polemic, while there is room for debate about the conclusions we can draw from such details, and opinions may differ legitimately, I come back to my main charge that Rothbard on Smith is unfair where he is wrong and dubious when he says something with which reasonable people might be open minded. Rothbard and his sympathisers have few grounds for his expressed absolute certainties about Smith’s alleged myths, given that he created more than a few myths about Adam Smith himself.
 Edward Elgar, 1995; Mises Institute 2006, 2-vols.
 The original six Blog pieces are in the Archives (January/February, 2006) as they were written.
 Ludwig von Mises, Human Action,
 At the time I was writing companion web material for Strategic Negotiation (EBS, 2006)
 All references to Murray Rothbard’s chapter are from the von Mises Institute Blog, and appear in italics (see von Mises Institute’s blog or Chapter 5 of Rothbard’s 2-vol book
 Salim Rashid, The Myth of Adam Smith, 1995, which covers similar ground and identical arguments to Rothbard, but I am not sure in which direction the precedence flowed.
 Correspondence of Adam Smith: Smith to William Pulteney, 3 September 1772, no 133, pp. 163-4, Liberty Fund, 1987
 List, F. “National System of Political Economy” (1841)
 Correspondence of Adam Smith, Smith to William Pulteney, 3 September 1772, no 133, p. 164, Liberty Fund, 1987
 Brown, V. and Taylor, W. B. 1994. The Horner Papers, Edinburgh University Press.
 Adam Smith’s Lost Legacy, Palgrave Macmillan, p.
 Locke, J.  1988. To Treatises on Government, ed. Haslett, P. Cambridge, p. 343
 Adam Smith’s Lost Legacy, op cit, chapter 26
 Paragraph 2, Chapter 1 of “Wealth of Nations”
 WN I.i.2: p. 14
 Bonar, J.  1932. A Catalogue of the Library of Adam Smith,
 Plato, The Republic; Petty, W. 1683; Hutcheson, F. 1755. A System of Moral Philosophy;
 WN I.ii.4: pp28-29
 WN I.ii.1: page 25
 Smith, 1761.Considerations Concerning the First Formation of Languages and the Different Genius of original and compound languages’, The Philological Miscellany, May 1761, pp440-79
 Macbeth, 3:2
 WN IV.ii.9. p. 456
 I discuss these themes in my (unpublished) Pre-History of the Deal, 2000-2
 WN I.ii.1: page 25
 WN I.ii.2. p. 25
 Lectures in Jurisprudence, 1763, vi.56, p. 352
 WN I.i.3, pages 14-15
 WN I.i.4: page 15
 WN I.i.11, pages 22-24
 WN I.i.11: pages 22-4)
 Economica, August 1968, p. 253
 “Wealth of Nations”, p. 14-15
 WN V.i.f.50. pp 781-782
 Published in an accessible edition by Liberty Fund in 1982
 Marx, K. 1867. Capital, p. 123, n.1; p. 354; pp. 361-2
 Lectures, LJ[B]: 329, p. 539
 Carlyle, A. 1860, 2nd ed. Autobiography of Alexander Carlyle
 WN I.i. p.15
 WN I.i.3. p. 15
 Ashton, T. S. 1948. The Industrial revolution, 1760-1830, Oxford
 Adam Smith’s Lost Legacy, Chapter 29: Palgrave Macmillan, 2005
 WN Book V
Murray Rothbard’s Myths about Adam Smith, Gavin Kennedy, February 2006. © Gavin Kennedy, 2006.