ADAM SMITH'S ERRORS ON 'JOINT STOCK COMPANIES
Andreas Martin Fleckner has written a thoroughly good piece of research into what he regards as a major error or oversight in Adam Smith’s Wealth of Nations in respect of Smith’s hostile views on the early joint stock forms of commercial oganisation:
“Adam Smith on the Joint Stock Company” published by the
Max Planck Institute for Tax Law and Public Finance Working Paper 2016 – 01.
I recommend the paper by Andreas Martin Fleckner to all readers of Lost Legacy as a model of the appropriate level of scholarly thorougness not always attained nowadays in most papers on Adam Smith. The author has certainly read Wealth of Nations and uses his knowledge to good effect.
Here is the Abstract:
“In 1784, Adam Smith released the third and definitive edition of the Wealth of Nations, the most influential work in economics ever written. Of the eighty pages he added, more than thirty deal with “joint stock companies” and other commercial organizations. While these additions caused many observers to praise Smith as the first to coin the governance problems in firms, a closer examination of his remarks reveals that Smith’s theory of the firm, or the lack thereof, is in fact one of his work’s weaker parts. Smith thought history had shown that joint stock companies cannot compete with smaller firms, attributed this fact to certain organizational deficits, and concluded that joint stock companies should be established only under rare circum- stances. Yet, in the following decades, exactly the opposite came to pass, with joint stock companies thriving in almost all fields and markets today. What made Smith so pessimistic about the joint stock company? The answer lies, this paper argues, in the sources Smith consulted, the companies he studied, and the general beliefs he held. Why did Smith’s pessimism turn out to be wrong? Smith probably overestimated the joint stock company’s weaknesses and underestimated developments that helped overcome them, such as technological progress, organizational innovations, and regulatory responses.”
Copies can be obtaned from:
Max Planck Institute for Tax Law and Public Finance Working Paper 2016 – 01, January 2016.
Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law, Department of Public Economics http://www.tax.mpg.de
While the paper is excellent and well worth reading, I have some criticisms, mainly regarding relevant biographical circumstances which Andreas Martin Fleckner does not discuss that were strikingly relevant to Smith’s scholarly work after 1778 up to his death in 1790.
I shall compose a short note on these influences shortly.