Adam Smith was Innocent!

Dr Carlo Scodanibbio & Ing Joseph Micallef, post (4 April) on Di-Ve HERE

“Lean management: Culture change for less operational cost, improved value”

“The second industrial revolution started silently over two decades ago, but Malta still seems attached to the principles, strategies and philosophy of the first one, brought about by Adam Smith and Frederick Taylor a long time ago. This is a considerable problem, because the principles of the first industrial revolution are rather dated, to say the least.”

Comment
It is a gross exaggeration to say that the first industrial revolution was “brought about by Adam Smith and Frederick Taylor.”

Apart from Adam Smith (1723-90) living in the 18th century and Frederick Taylor (1856-1920) in the 19th-20th centuries, the first industrial revolution appears to have been purely coincidental to anything that Adam Smith wrote about the already existing forms of the commercial society he observed and its main affects were over by the time that Taylor was investigating “scientific management”. Adam Smith was criticised in the 20th century for not noticing - even ignoring - the technological changes going on around him (see Kennedy, Adam Smith's Lost Legacy, Palgrave, 2005, Chapter 29, especially on "Kindleberger versus Hartwell', pages 128-31).

Even the popular term of the industrial revolution began to be circulated in Britain, Germany, and France long after Smith and long before Frederick Taylor (see Anna Bezanson, “The Early Use of the Term Industrial Revolution”, Quarterly Journal of Economics, Notes and Memoranda, vol. 36, no 2, Feb, pp 343-349 – last accessed 4/4/12: http://www.jstor.org/stable/1883486?seq=1).

There is a more substantive point raised by Scodanibbio and Micallef’s paper: to what extent do underlying social processes owe their origins to named or unnamed philosophers and engineers? Deep social changes are seldom, if ever, the result of specific individuals who write about them.

Adam Smith did not bring about any ”industrial revolution”. The events that made up the industrial revolution were caused by deep underlying consequences of the division of labour that had lasted for many millennia (and nor was he the first philosopher to write about it). Nor did Smith “invent or cause “capitalism”, and neither was “capitalism”, however defined, in any way the result of his book “Wealth Of Nations”; both of which silly attributions in modern media appear regularly. The word 'capitalism' was invented in English in (Thackeray's novel 'The Newcomes", 1854)

Adam Smith observed and also studied history. He was not an advocate of the “human design” of utopia systems and held “men of system” in something just short of contempt for imagining that their new schemes for society would be implemented and would solve any problems faced by humanity (see Moral Sentiments, Part VI, Section 2, chapter 2, paragraph 17: pages 233-4).

The attribution of the 'division of labour', the 'first industrial revolution'. or 'capitalism' to Adam Smith is an avoidable error. Read Adam Smith; don't just third-hand quote reports of it.

A Useable Teaching Resource on the Division of Labour

Daniel Sichel, possibly a future professor of economics at Wellesley College, has written a paper of interest to those who know of (even if the have not yet read), Adam Smith on the division of labour in the production of pins and how the substantial increase in productivity was achieved in some 18th-century pin factories, when young labourers combined to increase production from one to twenty pins a day to forty-eight thousand pins a day (WNI.i.3: 14-15).

It was common to find nail factories even in small villages like Kirkcaldy in Fife, Scotland, where Adam Smith was born and brought up by his widowed mother, Margaret Douglas Smith. His pin factory arithmetic example possibly came from French sources, though Smith stated that “I have seen a small manufactory … where ten men only are employed, and where some of them consequently performed two or three distinct operations” (WN, 15).

Daniel Sichel has written a paper on nails and screws that is an associated product to pins:

“Everyday Products Weren't Always that Way: Prices of Nails and Screws Since about 1700.”

A downloadable copy is available HERE

Sichel’s paper is well worth reading. It documents the same process of increasing productivity and falling unit costs in “everyday products” that affected the living standards of the populations who benefitted directly from rising living standards, and, in time, the many of which had suffered with severe privations from the general poverty of pre-industrial societies, experienced since humans left the forests for agriculture and shepherding, from 11,000 years ago. The population benefitted both from falling unit prices for everyday items and from the general fall in the price of products for which nails and screws were relatively minor inputs, though progress to relative opulence was uneven for many decades to the 20th century for those without property, or skills and education, as was common throughout the millennia.

While non-market economies were in permanent poverty for the majority of populations, the gradual emergence of industrialisation lifted tens of millions out of abject poverty. Those economies still without modern markets continue to languish in poverty and remain vulnerable while it continues to the calamities of famine, floods, and disease, plus civil wars and domestic oppression.

Use Daniel Sichel's examples in economic class teaching. It follows the changes from the early division of labour and its affect on unit prices, and also brings it up to the 21st century as the '18 operations' have been mechanised, for even greater increases in output of nails and screws (as also for pins).

[Hat tip: to David Warsh: www.economicprincipals.com, an authoritative and regular author of an invaluable weekly resource on contributions to economics in the, mainly US, political order, and of some of the key people close to the key policy debates.]

A Suggestion on Smithian Growth and the Division of Labour

Patrick Legros, Andrew F. Newman, Eugenio Proto (ECARES, CEPR, Boston University and University of Warwick) post HERE

“Smithian Growth Through Creative Organization”

“We consider a model in which appropriate organization fosters innovation, but because of contractibility problems, this bene t cannot be internalized. The organizational design element we focus on is the division of labor, which as Adam Smith argued, facilitates invention by observers of the production process. However, entrepreneurs choose its level only to facilitate monitoring their workers. Whether there is innovation depends on the interaction of the markets for labor and for inventions. A high level of specialization is chosen when the wage share is low. But low wage shares arise only when there are few entrepreneurs, which limits the market for innovations therefore and discourages inventive activity. When there are many entrepreneurs, the innovation market is large, but the rate of invention is low because there is little specialization. Rapid technological progress therefore requires a balance between these opposing effects, which occurs with a moderate relative scarcity of entrepreneurs and workers. In a dynamic version of the model in which a credit constraint limits entry into entrepreneurship, this relative scarcity depends on the wealth distribution, which evolves endogenously. There is an inverted-U relation between growth rates driven by innovation and the level of inequality. Institutional improvements have ambiguous effects on growth. In light of the model, we offer a reassessment of the mechanism by which organizational innovations such as the factory may have spawned the industrial revolution.”

This argument could be interesting, it certainly is promising. However, based on the abstract, I offer an observation.

The source material for Adam Smith’s ‘pin-factory’ (WN I.i.) was from France, which reported a case example involving 18 distinct sub-operations as quoted by Smith. He also mentions that he visited a small pin-maker (he doesn’t say where) employing 10 employees making the pins, some doing more than one operation.

This suggests that the sub-division of labour in the factory that he visited was not as sub-divided than the main French example, which is indicative that the spread of the division of labour is an uneven, possibly, innovative process, not a once-only outcome. That process continued until the pin-makingg process was fully automated into two factories in the UK, down, steadily through the19th and 20th century from many hundreds across the UK, producing the total domestic output. Similarly, in the USA, with computer-run plants and with operators supervising batteries of machines undertaking all the former 18 operations.

In the labourer’s common woollen-coat example, as given by Adam Smith, the link between the “high-level of specialisation” and the “wage share” and “few entrepreneurs” may need some revision. The woollen coat is far more representative of the deeper impact of the ancient principles of the division of labour (since early gatherer, pre-herder, pre-agricultural societies, after 11,000 years ago), than the simple arithmetical example of the pin factory.

The crisscrossing of often long supply chains of commercial societies are the endemic feature of post 15th-century experience that was captured by Smith in this example, and, with the technological advances of the post-17th–18th centuries, the supply chains of the market economies changed everything.

The supply chains have many links and the many, not necessarily related nor directly connected to each other, innovations prompt small changes, as given by Smith in the philosopher, who improved the 'fire engine' (a domestic coal fire) in processes, materials and products in the individual links, and these may have unexpected consequences on more than one product in the multiple chains and products that use that firm’s inputs. These may have little to do with wage rates or the number of entrepreneurs in the same industry. For example, the dye chemicals used in the labourers woollen coat were imported from distant foreign lands, so any of the minor changes in any of the inputs in the ships that carry the chemicals could lower unit costs for all the users (safer ships, larger cargoes, shorter journeys from better navigation, and so on).

This, I suggest, is the motor of Smithian Growth (see Young, Economics Journal, 1928).

Worth A Look?

If you are interested in some work undertaken recently on applying some of Adam Smith’s ideas on political economy, using techniques familiar to modern economics graduates, a working paper may be of use to you.

The author is not listed (at least I did not find one), and they want $80 for it to subscribe (they probably have a long lis of other papers; might be worth a browse.

Follow the link HERE 14 February

“Complexity, competition and growth: Key ideas from Adam Smith, modeled using agent-based simulation

This dissertation uses agent-based simulation to study markets in ways that depart from the Walrasian tradition, and to vindicate Adam Smith’s beliefs about the power of the division of labor to enhance productivity, which mainstream economics has neglected because Walrasian equilibrium is incompatible with nonconvexities such as fixed costs.

The first article, “The Invisible Hand, Reloaded,” studies a market in which firms in a commodity market try to maximize profits by estimating demand via an OLS regression, while customers choose the lowest-price firm, but face random firm-specific transactions costs. I call this “empiricist competition.” Near perfect competition emerges with very few firms (e.g., n＝3), and the result cross-applies to the free entry case, to U-shaped average costs, and even to (gently) falling average costs, in which case empiricist competition gives rise to a downward-sloping supply curve .

The second article, “The Division of Labor is Limited by the Extent of the Market,” vindicates the thesis of Chapter 3 of The Wealth of Nations by building a market of decentralized retailers, following Howitt and Clower (2000), and then equips agents with avoidable-cost production functions, taste-for-variety utility functions, and techniques to sift through hundreds or thousands of corner solutions to find the optimum behavior when they face buy-sell price spreads and stockout and “jobout” constraints on what they can buy or sell at each price. This gives rise to endogenous specialization, which is compatible with competition yet causes GDP per capita to rise indefinitely with population growth or with the accumulation of “capital” (foregone consumption, subject to diminishing returns and depreciation, which augments labor). What emerges is an interpretation of technological change, not as new discoveries a la Romer (1990), but as the exploration of an already-known technology space which requires sufficient labor-cum-capital to explore. Unlike Romer (1990), this interpretation of technology is a candidate to explain the wealth and poverty of nations.

The third article, “Bayesian Skill Reputation Systems, presents a model where agents are endowed with skills whose quality is unobservable and opportunities arrive each turn which can only be exploited by certain skills, I show how agents can use Bayesian updating to derive pretty accurate knowledge about the quality of skills. However, the Bayesian skill reputation system quickly fails when agents can conceal past failures, which suggests a reason why, as Granovetter (1983) showed, networks of “weak ties” are so important for finding jobs, and why employers are suspicious of gaps in resumes.”

A Slip About the Division of Labour's Origins

"Andrew" contributes to a debate (13 August) in Swift Economics (HERE):

“It is true, as Adam Smith noted back in 1776, the division of labor is recent, but that doesn’t mean there was no specialization whatsoever (see artisan guilds) or that nobody traded with each other and everyone lived self sufficient lives or in some sort of co-op. Pogroms were launched against Jews for charging interest on loans while Christians found ways to cheat the system and charge interest anyways. The silk road flourished. Venice and Florence became hotspots of commerce. Double entry accounting started in the 12th century and in the 16th century, the School of Salamanca came out with a theory of prices and interest. Hell, even chimpanzees have been shown to exchange reciprocal services.”

Comment

But did Adam Smith note “back in 1776, the division of labor is recent”? I think I can see why Andrew might conclude thus, given that the first instance of the division of labour in Wealth Of Nations is the famous pin factory example. If Andrew reads on a few pages he will find the less famous (but as important) example of the day labourer’s woolen coat which involves the divided labour of many dozens of people, including some in other continents.

Indeed, Smith’s description of the possessions of the conveniences of day labourers (at the bottom of the social pile) show quite a few items beyond the basic minimal subsistence and which were made elsewhere by other labourers.

Moreover, his description of the emergence of the division of labour were all of earlier ages (arrows for hunters in the first age of mankind (hunting) in distant pre-history and his other examples of early trade between the countryside and traders in foreign goods were deep in feudal times (in fact, diverting agricultural products to pay for them eventually undermined the local power of the feudal barons).

Andrew makes up for his slip about Smith with recognition of some of these earlier examples of the division of labour. Smith also acknowledged that he did not discover the division of labour, though every now and again someone reports that he was the first (alongside nonsense claims that he “invented” capitalism, though it was a word he did not use and did not know – it was first used in English in 1854).

Such slips come from not reading Adam Smith for yourself.

Progress Yes, Equilibrium No!

Tim Harford (the undercover economist), writes, 21 May, (HERE):

‘A font of wisom on economies of scale’

‘Annoyingly, economies of scale are analytically inconvenient – if you want to build a textbook model of an industry with scale economies, the mathematics are messy – and yet Adam Smith’s famous example of the pin factory simply illustrated how fundamental economies of scale are to economic progress.’

Comment (not a criticism)
In practice, what actually happened in pin-making illustrates what happened across manufacturing in the nineteenth to twentieth centuries through the introduction of power-driven machinery which enabled fewer, not more, individual workers to complete the work of many men, and increase output substantially. In 1820, there were 11 pin factories in Gloucester employing 1,500 people, but by 1870, the pin industry in Gloucester was gone. By 1939, the number of pin manufacturers in the United Kingdom had shrunk to about 12, and by 1978 there were only 2, as a result of mergers, take-overs and firms leaving the trade (HERE).

Smith’s example of the constituent elements in the manufacture of the common labourer’s coat (WN I.i.11, 22–23) is probably significant than his more famous pin factory, but most readers do not turn the few extra pages to get to the more significant (for the 21st century) labourer’s coat example. The multiple instances of manufacturers simultaneously and serially improving the productivity of their production processes in response to the possibilities of the growing extent of their own markets constantly changes their supply chains forwards and backwards and increases the productivity of the entire set of producers along their supply chains. This happens among their customers and among their customers’ customers, most of whom have limited or no connections with each other.

Improvements in hand tools from an improved division of labour not only reduces the unit costs of making shears, say, for sheep shearing, but might also improve hammers for carpenters, and all manner of other metal tools for others to meet rising demand in their and ever more complex extended markets. As output rises in response to a growth in the extent of all the sub-markets, it separates the operations into more roundabout processes, adding to productivity across more than one industry (inputs into one industry may also be inputs into others).

The division of labour is not limited to one pin factory; it affects cumulatively all processes that use pins and nails, and, later, affects the productivity of nails and other attachments, plus changes in technology, materials, and processes. Thus, the ‘enlarging of the market for any one commodity, produced under conditions of increasing returns, generally has the net effect . . . of enlarging the market for other commodities’ (Young, Allyn (1928) (HERE).

Young gave interesting examples of the cumulative effect of these processes in the early printing industry that promoted producers of wood pulp, inks and their ingredients, metal type, technologies for producing illustrations, and the manufacturer of specialised tools and printing machines, plus suppliers to the printing trades and other industries (Young, 1928, 537).

He also advised that increasing returns are not ‘discerned adequately by observing the effects of variations in the size of an individual firm or of a particular industry’ because ‘the progressive division and specialisation of industries is an essential part of the process by which increasing returns are realised’ across ‘all industrial operations’ when ‘seen as an interrelated whole’. He identified increasing returns as dependent ‘upon the progressive division of labour, and the principal economies of the division of labour’, which cumulatively arise from ‘using labour in round-about or indirect ways’. Lastly, while Smith said ‘the division of labour depends upon the extent of the market’, the extent of the market ‘also depends upon the division of labour’, and in this ‘circumstance lay the possibility of economic progress, apart from the progress which comes as a result of the new knowledge’ (Young, 1928, 538; see also: Roger Sandilands HERE).

Smithian growth is an open, not closed, process driven by increasing, not diminishing, returns (Ricardo's error). The economy is not in a state of equilibrium (as 'proven' mathematically but nowhere has it applied; the mathematics are not just 'messy' - they are futile) because (in relatively free capitalist economies) many millions of individuals participate in it, normally without central control, quite independently of each other, with (for ‘better’ outcomes) few imposed constraints on imitation, innovation or invention, and without regulated setting of prices or costs and supervision of the process of their bargaining exchanges (attempts to impose such constraints normally have not been successful). Disequilibrium in an economy is endemic because there is plenty of scope for human error, for mistaken readings of market conditions, and for failures to innovate or adapt when maybe they should have, or possibly when they shouldn’t (as Adam Smith showed in relation to mercantile Britain). Interventions are also fraught with error for the same human proclivities to meddle to ‘improve’ outcomes.

It may be better to abandon theories of equilibrium in economics and the search for it, with the expectation of Nobel prizes for ‘proving’ it in theory (General Equilibrium), though clearly never finding it anywhere in practice.

Smith On the Political Risks of the Absence of Education on the Division of Labour

Kevin Quinn writes (6 April) on Econspeak Blog (HERE):

“Adam Smith on Education”

“I gave a talk last week at a local college called "What is living in the thought of Adam Smith and dead as a doornail in modern economics." One focus of the talk was this passage from Book V of WN:”

“In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it (WN V.i.f.50: 782)”.

Notice Smith’s rationale for government intervention here: this has nothing to do with correcting a market failure, nothing to do with efficiency; the argument is that the great body of the people produced by a commercial society with a refined division of labor would otherwise be, as he goes on to say, "deformed in an essential part of their humanity." And this is most emphatically not education as "human capital." Tellingly, when I ask my history of economic thought students to write about Smith on the Division of labor, after we have looked at the first three chapters and the passage from which the quote above is lifted, and I ask were they any qualifications Smith made to his enthusiasm for the DOL in the opening chapters, students will cite this passage and say that here Smith is saying that The DOL may in fact make people stupid and so less productive after all!!! Obviously they have completely misread this passage. Why? They have already been so indoctrinated by their study of economics that they cannot think about what Smith thought was crucial - the way in which economic institutions shape character and preferences, for ill (as in this passage) or for good (there is lots in Smith of course about the way markets promote the virtue of prudence, eg). The further implication that one cannot evaluate economic institutions without evaluating the preference they promote or hinder is again simply unthinkable for someone who has received the standard education in economics, where the idea of evaluating preferences is a veritable contradiction in terms - since the efficient satisfaction of exogenous preferences is the sole evaluative criterion countenanced, and anyone who thinks otherwise is committing the grave sin of paternalism.”

Comment
Kevin Quinn’s correction of the error in his student’s way of thinking is welcome as far as it goes. But I suggest a wider consideration may be appropriate. True, Smith is often quoted by many tutors in explanation of this paragraph along the lines of Quinn’s students (before they receive his explanation), but most tutors (I blame their tutors!) miss a more fundamental explanation lying dormant in Smith’s purpose of writing what he did about the division of labour at this precise position in his text (Book V instead of in Book I where he introduces the subject of the DOL).

Quinn notes that “one cannot evaluate economic institutions without evaluating the preference they promote or hinder”, to which I would add that the situation in 18th-century England was pretty dire, except for the better off children , but less dire in 18th-century Scotland with its longstanding ‘little schools’ in the Parishes mainly under the guidance of the Presbyterian Church and other benfactors and funded by donations, bequests, and charities for all children – though mainly for boys in common with the prejudices of the age. Most children of the poor majority of the population were not educated at all and were illiterate and innumerate from when they began working for a few pence a day (if their parents found work for them) to make ends meet – and a few shillings a day until they died closer to their 30s than to their 60s.

Smith used the basic education of the young in Book V in association with the political-moral consequences of the absence of any institutions of education in order to motivate middle and upper orders who read his work to support extending ‘little schools’ in every parish in England (60,000 of them) with fears of masses of subversive lower orders, led by dangerous and ‘enthusiastic’ fanatics. As the overwhelming majority of his readers were more than likely never to experience the actual division of labour, his rhetoric was likely to affect some of them.

Smith’s message in Book V was that it wasn’t that the division of labour caused ignorance and its consequent political or moral risks; it was the existing and longstanding habits of ignorance from a total lack of education among the poorer orders that caused its political and moral risks, unless (note well) “government takes some pains to prevent it”. (Smith did not expect the government to fund the little schools totally - they were to be locally funded, as many oF them were in Scotland).

Some of our finest scholars among historians of economic thought have not yet realized the simple point Smith was actually making (and ascribe to an ‘inconsistency’ to his WM), so it is no wonder that Jonathan’s students misread this passage to say that here Smith was saying that The DOL’ may in fact make people stupid and so less productive after all!!! Obviously they have completely misread this passage.”

Yes, indeed. Thank goodness then that Kevin’s students had Kevin on hand to gently lead them away from the normal ‘misreading’ of the passage – perhaps he might consider taking them just a little further, as above, to reinforce his timely correction?

Adam Smith on European (and Christian) Treatment of the Indigenous Peoples of the Americas

My heavy cold is slowly passing. Despite my listlessness and bouts of coughing, (plus the prompt home visit from a unfairly and much-maligned NHS General Practitioner system, resulting in a free prescription for antibiotic capsules, funded by taxation), I occasionally check the Internet for daily Google Alerts on references in the world media to Adam Smith, without the energy to reply or comment on several interesting pieces since last Monday (for which my apologies to regular readers).

Among these, I read what can only be described as an ignorant rant against Adam Smith’s of alleged discrediting, where not actually insulting, the indigenous people of the Americas in Wealth Of Nations. The ranter – some kind of Christian radical – opened with an attack on Smith for comparing the living standards of ‘savages’ with those of the poorest day labourers in Scotland in Chapter 1 of Wealth Of Nations.

I would quote directly from the ranter’s rant, or even give a reference, but I have ‘lost’ it, accidentally I can assure readers, to my regret. [Here it is: http://fathertheo.wordpress.com/2011/02/06/adam-smith-the-savages/]
The piece is hardly worth reading but it is Lost Legacy's policy to provide sources, and not just because it is clear that its author has never read Adam Smith’s Wealth Of Nations, nor does he understand the quotations he has read, but its author exposes an alarming ignorance of his subject.

Adam Smith was not mocking the poverty of the ‘savages’; he was contrasting the effects of the relative absence of the division of labour in hunter societies, the First Age of Man, which he makes clear was once the norm in Europe, until the division of labour was underway following the discovery of shepherding (the second Age of Man) and, eventually, farming (the 3rd Age of Man). This had absolutely nothing to do with the alleged ‘genius’ of humans in one Age or geographical location, or the ‘stupidity’ of people in earlier ‘Ages’ or locations. There were no racial imputations whatsoever in Adam Smith’s examples.

Moreover, Smith was never blind to the social injustices suffered by the ‘defenceless’ indigenous peoples in the Americas at the hands of Europeans. He showed an embarrassing honesty about the conduct of Europeans in all the discoveries of recent times - just 300 years, when Smith was writing in mid-18th century. Let me quote from Wealth Of Nations:

“The discovery of America, and that of passage to the East Indies by the Cape of Good Hope, are the two Greatest and most important events recorded in the history of mankind. Their consequences have already been very great: but, in the short period of between two and three centuries which has elapsed since these discoveries were made, it is impossible that the whole extent of their consequences can have been seen. What benefits, or what misfortunes to mankind may hereafter result from those great events no human wisdom can foresee” (WN IV.vii.c.80: 626).

This is a clear example of why Smith was not in the habit of forecasting because ‘no human wisdom can foresee’ the future. Smith, however, was industrious in looking at the past and at what had brought the present about. So he, then turns to examine the early effects of the present in the impact of European and Christian-driven behaviour on those primarily affected – the indigenous peoples – who shared none of the benefits of arrival of Europeans on their shores:

“By uniting, in some measure, the most distant parts of the world, by enabling them to relieve one another's wants, to increase one another's enjoyments, and to encourage one another's industry, their general tendency would seem to be beneficial. To the natives, however, both of the East and West Indies, all the commercial benefits which can have resulted from those events have been sunk and lost it the dreadful misfortunes which they have occasioned. These misfortunes, however, seem to have arisen rather from accident than from any thing in the nature of those events themselves. At the particular time when these discoveries were made, the superiority of force happened to be so great on the side of the Europeans, that they were enabled to commit with impunity every sort of injustice in those remote countries”
(WN IV.vii.c.80: 626).

That’s not too good an account of the blessings received from their introduction to Christianised Europeans, and shows no racial bias whatsoever. Would that the Church had spoken up for them as clearly as Smith (whose Wealth Of Nations was read at the highest levels in the British and the emerging Colonial, establishments on both sides of the Atlantic)?

However, he did warn, almost prophetically, of what might happen when the colonial subjects acquired in due course the accoutrements of knowledge – and the weapons – from the division of labour in an later age (that of the Age of Commerce, the 4th Age of Man). This episode is one that we may now be entering with the rise of the commercial power of India, China and Brazil.

“Hereafter, perhaps, the natives of those countries may grow stronger, or those of Europe may grow weaker, and the inhabitants of all the different quarters of the world may arrive at that equality of courage and force which, by inspiring mutual fear, can alone overawe the injustice of independent nations into some sort of respect for the rights of one another Nothing seems more likely to establish this equality of force than that mutual communication of knowledge and of all sorts of improvements which an extensive commerce from all countries to all countries naturally,
or rather necessarily, carries along with it” (WN IV.vii.c: 626-7).

Smith had no doubts about the motives of Europeans taking the extraordinary risks of trans-Atlantic voyages: it was greed for gold, sanctified by pious allusions to converting the indigenous peoples to Christianity to get their hands on what for them were mere trinkets:

“In consequence of the representations of Columbus, the council of Castile determined to take possession of countries of which the inhabitants were plainly incapable of defending themselves. The pious purpose of converting them to Christianity sanctified the injustice of the project.

But the hope of finding treasures of gold there, was the sole motive which prompted to undertake it; and to give this motive the greater weight, it was proposed by Columbus that the half of all the gold and silver that should be found there should belong to the crown. This proposal was approved of by the council” (WN IV.vii.a: 661; see also WN.xi.c.36: 192).

And so began the negative side of the consequences to the indigenous people of European colonialism:

“As long as the whole or the far greater part of the gold, which the first adventurers imported into Europe, was got by so very easy a method as the plundering of the defenceless natives, it was not perhaps very difficult to pay even this heavy tax. But when the natives were once fairly stript
of all that they had, which, in St. Domingo, and in all the other countries discovered by Columbus, was done compleatly in six or eight years…” (WN IV.vii.a.16: 561)

And:

“But though the judgment of sober reason and experience concerning such projects has always been extremely unfavourable, that of human avidity has commonly been quite otherwise. The same passion which has suggested to so many people the absurd idea of the philosopher's stone, has suggested to others the equally absurd one of immense rich mines of gold and silver. They did not consider that the value of those metals has, in all ages and nations, arisen chiefly from their scarcity, and that their scarcity has arisen from the very small quantities of them which nature has any where deposited in one place, from the hard and intractable substances with which she has almost every where surrounded those small quantities, and consequently from the labour and expence which are every where necessary in order to penetrate to and get at them. They flattered themselves that veins of those metals might in many places be found as large and as abundant as those which are commonly found of lead, or copper, or tin, or iron. The dream of Sir Walter Raleigh concerning the golden city and country of Eldorado, may satisfy us, that even wise men are not always exempt from such strange delusions. More than a hundred years after the death of that great man, the Jesuit Gumila was still convinced of the reality of that wonderful country, and expressed with great warmth, and I dare to say, with great sincerity, how happy he should be to carry the light of the gospel to a people who could so well reward the pious labours of their missionary” (WN IV.vii.a.19: 563).

Summary
Adam Smith was not an advocate of colonialism as practiced by Europeans on defenseless hunter-gatherers, early stone-built civilizations (Central America), or brutally-intimidated ancient civilisations (China), the price for which remains unpaid. He did not consider slavery was a benefit to either slaves or their cruel masters.

He did not consider that anything other than education and knowledge was the trigger for economic development, or that the division of labour was the cause of differences in the living standards of the Ages of Man, which included raising the levels of education and knowledge.

If people are to be critical of what Adam Smith observed about the world around him, and its history, they should at the very least read his Works in full and not just collect a few quotations.

A Critic Defending Adam Smith Gets It Wrong

Peter Foster writes in Financial Post, Canada (HERE) and makes a trenchant criticism of The IMF’s Dominique Strauss-Kahn's views on Adam Smith and inequality. (Follow the link to read further details -it's a bit ideologicaL, both ways).

However, one section refers to Adam Smith’s comparison in Wealth Of Nations between the living standards of the poor in the commercial societies and the subjects of an Indian Prince in Africa, who lorded it over 10,000 of his naked ‘savages’.

Peter Foster appears to fault Dominique Strauss-Kahn, who favours equality, with this observation, based partly on a misrepresentation (by Foster or Strauss-Kahn – it’s not clear to me which) of the example of the African Prince, cited above:

“Smith himself noted that even the poor people of his own day, thanks to the unacknowledged wonders of the Invisible Hand, lived better than had kings of previous times. That’s because they had access — via work — to coats, shoes, kitchen utensils and the odd sack of oatmeal.”

Now, Adam Smith never said any such thing, as a check in Wealth Of Nations shows: WN I.i.11: p 23-4. This is in the very first chapter of WN on the division of labour and the ‘assistance and cooperation’ consequent on the employment of ‘many thousands’ in commercial societies.

Nowhere does it say anything of ‘the unacknowledged wonders of the Invisible Hand’.

I am all for the defence and promotion of markets (‘Markets where possible, the State where necessary’), but I draw the line about ignoring Smith’s central reason for the acquisition of the 'necessaries and conveniences of life’, which Smith called real wealth, specifically the spread of the division of labour (which appeared about 11 millennia ago, even in a complex form in the relatively primitive societies of shepherding and farming that formed after the Ice and prior to the evolution of commercial societies) (See Smith’s Lectures on Jurisprudence [1762-63] 1978).

This had nothing to do with a so-called invisible hand of the market (the idea is patently absurd) and only discredits a legitimate challenge to Adam Smith on the existing inequalities that have featured in all societies since the earliest bands of hunter-scavenger-gatherers.

Jeff Weintraub Responds to the Debate

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Jeff Weintraub sent the following letter to me via Mark Thoma's "Economists View" (see my earlier post which was picked up by a couple of other Blogs. I am always pleased when other Blogs re-post from Lost Legacy - with acknowledgement, of course - and always relaxed about comments, critical or otherwise. This is an educational Blog, not a fount of fixed ideas - 'good reason must give way to better' (apologies to Shakespeare - though the character speaking thus, dies in the next Act).


"Dear Gavin Kennedy,

I just happened to notice your two-part response to my blog post about the theoretical puzzle posed by Adam Smith's theory of wages and "universal opulence":

• Jeff Weintraub Opens a Debate on Adam Smith's Theory of Natural and Market Wages

• Was Adam Smith Wrong on Rising Real Wages And the Spread of "Opulence"?

(Most of your second post was then re-posted, with a bit of further commentary, by Mark Thoma in his Economist's View blog... and someone forwarded that to me.)

I appreciate the friendly and gracious character of your response to my post, which includes many interesting and intelligent points.

On a number of these points we probably agree more than you may have realized—e.g., the richness and complexity of Smith's analysis of the division of labor, and its central role in his whole theory of society and socio-historical development, which certainly cannot be reduced to Smith's discussion of what I like to call the problem of "pinheadism" in Book V of The Wealth of Nations. I also share your evident exasperation with the fact that many people who talk & write about Smith, whether to cite him reverentially or to criticize him, have clearly never taken the trouble to actually understand his arguments in WN ... or even to read the book. Of course, I further agree that Ricardo is a far narrower, less profound, and infinitely less interesting and illuminating thinker than Smith, so that reducing Smith's economic theory to Ricardo's (intentionally or naively, explicitly or in effect) generally leads to confusion ... and that an ahistorical approach to Smith and the issues he addresses (an approach shared by Ricardo and by the vast majority of contemporary economists) distorts both Smith's arguments and socio-economic realities. (My P.S. about Ricardo may have inadvertently given you the wrong impression in that respect.) Smith was, among his other strengths, a brilliant and insightful historical sociologist (along with several of Scottish Enlightenment peers), and ignoring that dimension of Smith's work produces misleading caricatures of his perspective.

Having said all that, however, honesty compels me to add that in my (possibly fallible) opinion, your response fails to address the key theoretical issues raised by my discussion with those two students. Among other things, the central question that both the students and I were addressing in that particular exchange was not whether Smith was or wasn't right historically in expecting that economic growth in a market economy had produced and could continue to produce a broad-based improvement in most people's standard of living, but whether Smith has a satisfactory theoretical explanation for how and why this should happen. I may be wrong, but I don't think your response ever really confronts that question directly or effectively.
And in that connection, by the way, one point I tried to convey (tactfully) to my students was that the problem of pinheadism (which they emphasized, but which I didn't) is of secondary importance. As I said, if we accept Smith's warning in Book V that the "progress of the division of labor" means that the work performed by most workers, "the great body of the people," becomes increasingly narrow, specialized, simple, and mindless (WN pp. 781-782). then that would sharpen the conundrum. But as I also tried to indicate, the theoretical roots of the conundrum go deeper (which explains why Smith tries to address and resolve it in Book I of WN, in the manner I outlined). So even if we dismiss the problem of pinheadism completely (and I'm not sure we want to do that completely, for reasons that would require a separate discussion to explain, but let's assume for the sake of argument that we do), the conundrum wouldn't simply go away.

In short, my considered opinion (which may or may not be entirely fair or correct) is that your response (along with Thoma's additional commentary) largely misses, or talks past, the central theoretical issues I was raising in that particular discussion. Right now I don't have time to spell out my reasons for thinking that beyond the remarks I've already made ... but I'll try to do that more fully and systematically sometime soon.

Meanwhile, I wanted to acknowledge and thank you for your gracious, intelligent, interesting, and usefully thought-provoking response to the item I posted.

Yours for the republic of letters,

Jeff Weintraub

P.S. Speaking of the division of labor ... Smith's analysis of the division of labor is so rich and intellectually significant, and is so crucial to his whole theory of society and socio-historical development in The Wealth of Nations (which, of course, is far more than just a treatise in technical economics) ... that I have often felt that an equally appropriate title for the book might be The Division of Labor in Society (to borrow a title later used by Durkheim).

[GK: I shall probably respond to Jeff Weintraub's explanatory comments later today.]

Brad Delong Praises Matt Ridley on the Origins of Prosperity

From Brad Delong post in his excellent economics blog, “Grasping Reality With Both Hands”, which attracted the usual crowded comments (HERE):


“Seminar: Matt Ridley: How Prosperity Evolves

We are very happy to have Matt Ridley here, to talk about what I think is the foundational issue in economics. The very first paragraph of the second chapter of Adam Smith's Wealth of Nations says that economic prosperity rests on the:
division of labour... not originally the effect of any human wisdom... [but] the necessary... consequence of a certain propensity in human nature... to truck, barter, and exchange one thing for another...

The fact that human group sociability and solidarity is based on exchange rather than, as with chimpanzees, grooming each other or, as with dogs--well, I don't think I should go there--has, Adam Smith thought, extraordinary consequences. I think Smith was right. So does Matt Ridley. He is here to tell us about them.

Comment
It is always important when reading Adam Smith to avoid imputing meanings that are absent in his actual words. The relevant quotation refers to: ‘… truck, barter, and exchange one thing for another…”. Exchange, which is general in all aspects of life and all ages of humankind. “Trade” is often slipped in by people with modern agendas (supportive and hostile, e.g. Polyani, The Great Transformation, 1941).

Smith’s basic theme in all his works is “exchange”, which he applied in his History of Astronomy (1744-c.58 [1795]) and his essay on the origins of Language (1761), his Lectures on Jurisprudence (1762-63) and similarly in his two major works, Moral Sentiments (1759) and Wealth Of Nations (1776).

Exchange evolved into the driving force behind age of moral philosophy and the age of commerce - a kind of market place of ideas – and eventually into trade (see James Otteson, The Market Place of Life, 2001, Cambridge University Press).

Some of the expressions of incredulity about trade as a variety of exchange would be resolved by following Smith’s actual argument.”

I was prompted to offer my comment, in response to some of them:

Toil, the Foundation of Life

Robert King writes on Adam Smith’s alleged “Unwarranted assumptions” in Virtue Quest (‘exploring ways to grow in virtue and overcome vice’) (HERE):

“Smith makes a number of assertions at the beginning of his work, assertions that have been taken for granted by pretty much all economists since. The first of them is that labor is the source of wealth.
Now, there is no denying that labor is one of the sources of wealth; but Smith treats it as if it is the sole and entire source of wealth.”

Comment
Robert King does not identify the other definitions of ‘wealth’ that Smith is supposed to have missed and therefore he makes his own assumption about the “meaning” of “wealth".

For Smith, wealth was the annual output of “necessaries, [subsistence goods], conveniences [additional goods that are perceived to add small and great comforts to life], and amusements [relatively flippant possessions according to taste and income] of life” (WN I.v.1. 47).

These rich ideas were in contrast to the common (c.17th century) meaning of wealth being gold, silver, precious stones, and, later, paper currencies, which were a means of exchange in monetary societies, but which had no intrinsic value in themselves and for Smith they were not wealth as he understood it – and far from their being treated by Smith as ‘mere assertions’; their evolution and history are thoroughly explained in his opening chapters (he was ‘always willing to run some hazard of being tedious in order to be sure that I am perspicuous (WN I.iv.18: 46)

Robert King reverses Smith’s order in stating: “The first of them is that labor is the source of wealth.”

In a first reading through of Wealth Of Nations it is easy to miss Smith’s distinctive historical perspective, which dominated his thinking. He said that labour was the “first” and “original source” of all wealth in the ‘original state of things’, which in primitive societies, that ‘first age of man (scavenging, hunting and fishing)’ was clearly true; what humans did to subsist upon was achieved solely by their own labour, not by gold, etc. Without their labour (or somebody’s else’s), they starved to death. Toil was the foundation of life.

Indeed, I am sure that King (who appears to be religious) knows that in the Biblical story of the Garden of Eden, Adam and Eve were put there ‘to work it and take care of it” (Genesis 2). Abundant fruit has to be picked, berries have to be collected, game has to be chased, all had to be carried, cleaned and prepared. What they collected, in Smith’s terms, constituted their ‘wealth’.

King asserts that

“The abundance or scantiness of this supply [of goods], too, seems to depend” on the productivity of the laborers. While it is true that there is no wealth without labor, it is equally true that labor must have some thing to labor upon to generate a valuable product. Wealth, or value, is not disconnected from the real stuff of the world; it is not created ex nihilo.”

This seems to imply, at least to me, that the King believes that sources of food in nature are wealth and that before a valley is ever occupied or visited by humans that ‘wealth’ was present through the eons before humans arrived, even though no human knew anything about what they had never seen. Even in the short life span of humanity (400,000 years out of millions) King considers all unknown and unused resources to be ‘wealth’ presumably in some metaphysical and meaningless sense (it took 40,000 years for humans to reach what we know as Australia; it took Homo Erectus a million years to reach China. The real wealth of these territories only had meaning in the context of humanity’s labour in making it so.

“Wealth, or value, is not disconnected from the real stuff of the world; it is not created ex nihilo", declares King. In the beginning the “real stuff” had utility only when labour was applied to it; after tens of thousands of years that “real stuff” developed “exchange value”, but only when “exchange” was joined to its utility by human beings in societies.

Food in those days did not turn up ready caught and cooked, with humans only having to open their mouths to be fed. Somebody had to labour to transform the “stuff” into edible and nutritious food.

King writes, as a prelude to declaring himself a “a homebody”, who wants “something more than ‘one simple operation to fill up the ‘employment of my life’. I have no desire to be ‘reduced’ to such mechanical production (quoting Smith):

‘First, the improvement of the dexterity of the workman necessarily increases the quantity of work he can perform; and the division of labour, by reducing every man’s business to some one simple operation, and by making this operation the sole employment of his life, necessarily increases very much the dexterity of the workman’ (Wealth Of Nations, I.i).

Most of his readers may not notice that King has switched to a modern society, compared to when the ancestors of 18th-century labourers in Britain were in the forest, living off their labour alone.

The division of labour in the 18th century was not a life-choice, compared to the life-choices now available to King and his family. Here, note that Smith did not invent and nor was he the first to make a note of the division of labour (Plato noted it millennia ago). Smith was a moral philosopher who observed the world he lived in and analysed it consequences. The productivity of labour reached new levels with mechanization and the re-organisation of work. Those labourers, man and boys, no doubt woud have preferred “something more than ‘one simple operation to fill up the ‘employment of” their lives. They had no real choice but to work in the pin factories. (King does not have to, because even pin-making is now mechanised and a few banks of machines make all the pins that the US needs.)

But even in 1776, Smith describes a little further along in his opening chapter (WN I.i.11: 22-24), how the common day-labourer’s woollen coat was made in a long and complex supply-chain from home and abroad, involving scores of people, each contributing their bit to the final product. Expand Smith’s example across the whole of his 18th-century society (and Robert King’s) and see how the international division of labour produces the mass multitude of products and services now regularly consumed by billions of people (including Robert King’s) to provide their living standards.

That is what Adam Smith was writing about. We haven’t all turned into ‘pin-makers’ or single-tasked automatons.

I would conjecture that an audit of all the things owned and consumed by Robert King may surprise him out of his complacent dismissal of Smith’s “assertions” about the impact of the recognition of the historic role of labour and, from a few thousand years ago, the continuing impact that the nascent division of labour in modern societies.

He might well ask just how many individuals, most of them in their millions unknown to him, who, through the division of labour, contributed to the computer he writes upon and Internet that distributes his “labor of love”, so that we who are his readers may share his thoughts and judge them.

"Chomsky" Debate Concludes

There has been an exchange of posts between David Ruccio and myself on Chomsky’s assessment of the division of labour and its consequences. Chomsky, in my view, misread the references to the negative affects of the division of labour in Book V, seeing Smith’s comments on them as somehow so negative that the state had to intervene to prevent the awful ignorance arriving from them to justify Smith’s alleged call to end the further rounds of the division of labour.

In fact, Smith used the awful ignorance of the uneducated labouring poor as a rallying call for the spread of the long established practice of the Scottish ‘little schools’ to England. These locally-funded (by charitable donations, local Churches, and small affordable charges) one or two-roomed small buildings provided elementary schooling in ‘reading, writing, and account' (arithmetic) to all young boys in every parish, from 6 years old.

Parents often sent such children to work for a few pennies to add to their miserable living standards. In England, mainly, the absence of any education for the poor provided the ignorant adult labour Smith discussed in his alleged ‘critique’ of the effects of the division of labour. It was the failings of the cause of ignorance and its risks to public order, and not the division of labour that Smith warned about in Wealth Of Nations (WN Book V.i.f.48-61: 781-88).

David Ruccio, the author of the original post on his Anti-cap Blog (HERE) , has responded positively to my criticism of Chomsky’s views (in the following exchange (HERE):

“My apologies, Gavin, if I attributed to you political views you do not hold. I was merely responding to our previous exchange on the topic of Adam Smith.

I do think you underestimate the effects of the division of labor—in Smith’s writings and in general. Smith did, in my view, understand the stultifying effects on workers of the division of labor in capitalist factories. But, as you correctly note, he wasn’t willing to give up the division of labor, since it was key to the growth in the productivity of labor and, thus, in the wealth of nations. So, he proposed something else—public education—as an attempt to ameliorate the negative effects of the division of labor.

Now, we don’t even make that pretense: education (whether public or private) should be vocational education, in order to train more skilled workers for the existing division of labor. We have, indeed, backtracked from the enlightened views of Smith.”

My response:
David
I am glad we have sorted that out. Many people misread Smith on the division of labour and the education of future labourers. Britain did not sort the gap in education until the 1870 education act.

But Scotland also developed a different approach to the rest of the UK in developing the first ‘mechanics and arts’ schools movement, independent of government, for example, in my own former institution which started in 1821 as a one such school, which eventually become Heriot-Watt College in the late 19th century, and Heriot-Watt University University in 1967.
These schools trained mechanics, tradesmen and technicians in maths, physics, chemistry engineering and such like, part-time and evenings in Chamber Street, opposite the University of Edinburgh’s grand main buildings, with many of the tutors and professors of the University conducting the classes. It took sometime before England followed Scotland’s lead.

This is what I mean by the power of ‘bottom up’ innovation over many of the ‘top down’ attempts to impose ‘one-size’ fits all.
Gavin”

[I would add that I believe the appropriate summary of Adam Smith’s stance of the great divide between competitive markets and politically-directed States is: ‘markets where possible and states where necessary’, bearing in mind that markets are not always possible and states are not always necessary, as Smith showed in Wealth Of Nations.]

My Debate About Chomsky on Adam Smith Re-Opens

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I received a comment on a post I made, 5 May 2009, in relation to something posted in the Alerts about Professor Chomsky’s views (see the Archives on the right-hand column to find the original post – go to 2009, and then trawl through ‘May’). Here is the one of three posts from me at that time about Chomsky’s views on Smith:

The Original post:

“Not Sure About Chomsky's Version of Adam Smith”

“Noam Chomsky: I didn't do any research at all on Smith. I just read him. There's no research. Just read it. He's pre-capitalist, a figure of the Enlightenment. What we would call capitalism he despised. People read snippets of Adam Smith, the few phrases they teach in school. Everybody reads the first paragraph of The Wealth of Nations where he talks about how wonderful the division of labor is. But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be. And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits."

My initial Comment:
Let me say first that Noam Chomsky is respected as a formidable intellectual with a lot of ‘hinterland’ as we say in the UK, and he says quite a lot about Adam Smith that you won’t find from many modern economists, because, as he says, few of them actually read Smith’s books. But if you put up this line of argument it is best if you show that you have read Wealth Of Nations well.

That he confesses he ‘read him’ but didn’t do ‘research’ is revealing and perhaps explains why his interpretation, given with that certainty that comes from a certain kind of intellectual bully, is actually misleading on the issue of Adam Smith and the division of labour, a common enough error among most of the Left.

Smith was a moral philosopher; he observed everything but did nothing. He didn’t bring to his work a preconceived set of prescriptions and apply them to his study of commercial society in the context of 18th-century Britain. He described, taking the long-view of history, as well as his reading about and visiting fairly primitive work places to see how the division of labour increased labour productivity. And not just in the pin factory (‘a very trifling manufacture’; p14). He also, and perhaps of greater significance, he described the ‘accommodation of the most common artificer or day labourer in a civilised and thriving country’ (p 22). Here he described the long supply-chain, including its international dimensions that produced the common labourer’s ‘woollen coat’, the ‘produce of the joint labour of a great multitude of workmen’.

Yes, the national and international division of labour is ‘wonderful’. It operated in Smith’s day without ‘central planning’, ‘central direction’, and without the help of university professors from either Glasgow (1461) or Harvard (1636), or the sovereigns of any kingdom, or legislators and those who influenced them, in the few places where they existed.

Having discussed the division of labour and its commercial consequences in Book I of Wealth Of Nations (it created, among other things, the wealth that enabled Scotland and British colonies in North America to divert some portion of their ‘annual output of the necessities, conveniences, and amusements of life’ to the employment of professors to educate young men – no girls! – to add to the human capital of what were for many decades (in Scotland, for centuries) humans otherwise bereft of learning and sunk in ignorance.

Chomsky notes: ‘But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be.’

Now, some parts of this sentence are fine, some parts woefully wrong, and almost all of it out of historical context. I have no idea how a Harvard professor managed to attack those who ‘read the first paragraph of The Wealth of Nations’ but do not ‘get to the point hundreds of pages later’ (768 actually), and yet manifestly misleads his readers as if he hasn’t read Book V himself with the due care and attention we expect from Harvard undergraduates, let alone its senior faculty.

The relevant section reference is ‘Article ii’, ‘Of the Expense of the Institutions for the Education of Youth’, pages 758-88, of Book V of Wealth Of Nations, and the relevant page is 782 (from the Glasgow Edition, Oxford University Press):

“In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.” (WN V.i.f: 782)

The education of youth is a long and important part of Wealth Of Nations. In it Adam Smith presents a detailed description of the history of education from classical times to its then state in Britain. The first notable feature was that only boys were formally educated for a few years; girls were left to their parents to ‘home educate’, which for the majority meant no education at all (their parents were likely to illiterate and general ignorant).

Across Britain the picture was patchy. England was largely backward educationally. It had two universities, Oxford and Cambridge, but local schools were rare. In Scotland, there were four universities, Edinburgh, Glasgow, St Andrews and 'Aberdeen'. But local provision for education since the 17th century was managed by ‘little schools’ in most parishes, paid for by a mixture of charitable sources, local contributions and donations. Most male children spent a year or more, some ‘bright’ children up to age of 14. Middle class boys tended to stay longer than the children of the poor, most of whom were sent to work from about 8, their parents near destitute.

Smith describes this in Book V. In fact, he offers the ‘little school’ system in Scotland as suitable for England too (a much larger country in population and wealth than Scotland). He envisages all children spending some time learning the ‘read, write and account’ to extend literacy across the majority of children (he left open the question of education for girls, but clearly they could be accommodated in the ‘little school’ system).

Book V is about government expenditure and revenue. How was education to be funded? The government would have to play a serious role in such a project, which meant taxation of a relatively narrow taxation base. At the time taxation was a sensitive subject (it was ever thus) and the people who would have to consent to such an additional expense (‘little schools’ would need to be built, which with 60,000 parishes was no mean line item in a budget) were the legislators, mainly representative of the agricultural aristocracy and few ‘improving’ landlords.

If Chomsky re-reads the paragraph quoted above he will note two themes in his argument. The first, which Chomsky has focused upon, is that of the deleterious effects of the division of labour, which were of longstanding antiquity (the division of labour preceded commerce by many millennia back into pre-history).

Farm labourers were marginally ‘better off’ than the fewer primitive factory labourers, hauliers, seamen, servants and soldiers, and etc. But be clear, the outdoor farm labourers were not all dancing round May Poles and living as happy families on the prairy. Theirs was a hard life, short too, with infirmities and early deaths from disease, incapacity, accidents and starvation.

Into this background Smith raises the ‘man whose whole life is spent performing a few simple operations’ and the consequences in his stupidity and ignorance. He does not raise the spectre of millions living their awful rural lives in similar terms – his appeal is to support from the few rich men who owned the farms.

He also turns his argument neatly as his second theme. If the sources of finance for education (mainly the aristocrats) were not inclined to support the ‘little schools’ from their usual selfish inclinations to prodigality, then it would be useful to appeal to their fears of disturbances to their sheltered lives – the steady decline in martial prowess of the uneducated mass of poorer men (and Smith knew how to write well).

For the indigent labourer whose ‘torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life' could be written as a major threat lurking everywhere. Moreover, ‘Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war.’ If not inclined to rebellion, his services in defence of the island country could be useless.

These concerns were meant to strike a chord with that class of taxpayers who were fearful of weak armies and of easily misled labourers who might become rebellious (such rebel ‘mobs’ had forced the British army out of the colonies).

In short, Smith was 'spinning', as we say today, a case for increased taxation to pay for public institutions regarded as deficient in 18th-century Britain. That he was doing so 768 pages after the ‘pin factory’ was deliberate, Few of his readers would have the faintest idea of what went on in a factory and his prose was powerful because it pushed all the right buttons to rouse the rich readers from their complacency – and not a little hostility – about the plight of the children of labourers.

Chomsky has not considered this context. Hence, he can decry the division of labour and assert with conviction that it ‘will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be’, but not with much credibility. He apparently has no idea of how ignorant were the members of the majority of ordinary labouring families in the 17th and 18th centuries, let alone the millennia before then.

Empirical evidence beats speculation. Was the result of the division of labour, even through the horrors of the industrial revolution of the 19th century, a nation of people who were turned into ‘creatures as stupid and ignorant as it is possible for a human being to be?’

When Adam Smith wrote Wealth Of Nations (1764-1776) he did not have a vote under the existing franchise – in fact he never had a vote – but by the late 19th century, literacy levels were at unprecedented higher levels, ignorance was not the norm, and trade unions were beginning to exercise their functions, and were led by working men who could do a lot more than ‘read, write, and account’.

By exaggerating his case with colourful prose, few facts, and no history Chomsky undermines those parts of his case that are worthy of our attention.”

“J. Young’s” comment posted this week:

"Perhaps in not having read any previous or subsequent articles on this topic by you, I seem to have missed your point. 

Here's a portion of what Chomsky said:
… “But not many people get to the point hundreds of pages later, where he says that division of labor will destroy human beings and turn people into creatures as stupid and ignorant as it is possible for a human being to be. And therefore in any civilized society the government is going to have to take some measures to prevent division of labor from proceeding to its limits.”
 Smith's logic, similarly, was that the division of labor, if taken to the point of absurdity, would lead humans to become “as stupid and ignorant as it is possible for a human creature to become.” Smith then began to discuss the government's role in a semi-socialized educational system. 

I'm not too sure I understand that these points are in conflict. Chomsky never said anything about the abolishment of the division of labor; though, you're seemingly arguing that he had. Nor did Chomsky ever insinuate that Smith's logic was that of socialism. Nor did Chomsky say that capitalism should be abolished. He simply outlined the fact that his form of liberalism is similar to that of Smith. 

What Chomsky is arguing against, as he always does, is the illogical authoritarian-esque conclusions of what is currently referred to as neoliberalism—an ideology which Adam Smith is often propped up as a hero for. Chomsky, as he has done clearly and consistently throughout the years, is simply saying that the underpinnings of neoliberalism are more closely related to notions of empire and domination, than to the ideals expressed by Smith. And that Smith is only being used a a rhetorical device by neoliberalists to foster adherence to an illogical ideal that Smith would likely oppose. 

You're argument is that Chomsky misinterpreted Smith, though you never say why or how—you only provide a mental-gymnasium of literary deconstruction on Smith's work. I don't think anybody is arguing that the division of labor is anything besides an obvious feature of human-kind.”

My response:

The key to J. Young’s (and Chomsky) missing of Smith’s point comes from not reading Wealth Of Nations Book V properly. Chomsky paraphrases what Smith actually wrote as: “the government is going to have to take some measures to prevent division of labor from proceeding to its limits.”

Nowhere does Smith make such an absurd suggestion. His whole point in returning to the division of labour in Book V is make clear to his readers (mainly the well-off who could read and afford his book) that government should “takes some pains to prevent … the state into which the labouring poor… must necessarily fall”. From which Young in an absurd interpretation takes to mean that government should prevent the ‘division of labour’!

On the contrary, Smith’s argument in Book V is about the need to take specific (and, incidentally, expensive) steps to eradicate the deploring lack of education in 18th-century Britain among the labouring poor. It was not a fictitious wish for an end to the division of labour - from which people in improved commercial society had gained so much – Smith details how “industrial and frugal peasants” were so much better off as a direct consequence of the division of labour than “many an African king, the absolute master of the lives and liberties of ten thousand naked savages” (Wealth Of Nations, Book I, Chapter 1, pages 23-24).

Smith’s was a practical policy for thousands of ‘little schools’ in each parish (all 60,000 of them!) to ensure their intellectual development as the best antidote to “gross ignorance and stupidity” among the “inferior ranks of people”. He made his plea for education being supported by government and the taxes of richer citizens, and their charity, by raising fears they would likely to respond to, namely the fear of disorder occasioned by mobs of avoidable illiteracy and ignorance:

“the state, however, derives no inconsiderable advantage from their instruction. The more they are instructed, the less liable they are to the delusions of enthusiasm and superstition, which among ignorant nations, frequently occasion the most dreadful disorders. An instructed and intelligent people are always more decent and orderly than an ignorant and stupid one. … In free countries, where the safety of government depends very much upon the favourable judgement which the people may form from it conduct, it must surely be of the highest importance that hey should not be disposed to judge rashly or capriciously concerning it.’ (Wealth Of Nations, Book V.i.f.61: page 788).

I commend to J. Young that he read the original text by Smith and not a poorly paraphrased version of it by a highly politically-mind source such as Chomsky, who read “snippets of Adam Smith, the few phrases they teach in school”, and cannot even quote properly the ‘snippet’ he does read.

Review Commentary No. 3: Milgate and Stimson's "After Adam Smith":

Murray Milgate and Shannon C. Stimson, 2009. "After Adam Smith: a century of transformation in politics and political economy", Princeton University Press, Princeton, ISBN 978-0-691-14037-7

[I hope from now on to continue with my review/commentary of Milgate and Stimson’s excellent book, which was interrupted by domestic affairs (moving house, etc.,). To re-start my review commentary (Nos. 1 and 2 were posted in November and December)]

Introductory link reminder:

“There is no doubt that the popular (and academic) portrayal of the lifetime-works of Adam Smith is quite at odds with the actual contribution of the Adam Smith born in Kirkcaldy in 1723. It’s as if a completely new persona was invented bearing limited resemblance to him or his surviving works (sometimes referred to on Lost Legacy as the 'Chicago Adam Smith').

I sometimes wonder if anything similar happened to other historical figures from the ancient worlds of Greece and Rome, as it did spectacularly in the case of Jesus, and the thousands who stand out in the great Pantheon of those who are known to us today for their places in the history of human endeavour.

We have The Glasgow Edition of The Life and Correspondence of Adam Smith, from Oxford University Press (and the low cost Liberty Fund editions): The Theory of Moral Sentiments (1759) and An Inquiry into the Nature and Causes of the Wealth Of Nations, plus his extant essays, The History of Astronomy (1744-<1758) and Origins of Language (1761). To these we have surviving student notes of his lectures, Jurisprudence (1762-63) and Rhetoric and Belles Lettres (1763), plus the surviving Correspondence of Adam Smith, and, most important, the definitive biography, The Life of Adam Smith (1996, 2nd ed. 2010) by Ian S. Ross.

We ought, therefore, to be pretty sure as to what constitutes Adam Smith’s oeuvre, but instead of his works being a model of original scholarship, it is riven by contrary, incompatible, and mutually exclusive opinions as to what he wrote and what he meant, much of it advanced by scholars of indisputable integrity.

However, there is even considerable public doubt as to the exact words he used to express his ideas, despite the ready availability of all of his works to whomsoever wishes to consult them – sadly, many scholars pontificate with the certainties of the highly opinionated, who clearly have not read his works for themselves or have forgotten what they must have read years ago.

Now, something must have happened in the 219 years that separate Smith’s life from today. It’s not all down to scholarly slackness. Ideas about the past, and the people who lived through them, do not form in a vacuum. Adam Smith – contrary to trite media assertions – did not write his books as veritable bibles; he was not the ‘high priest’ of economics; he did not ‘invent’ capitalism; nor was he the manic believer in ‘laissez-faire’, and other similar nonsense (Smith neither of the words ‘capitalism’, nor ‘laissez-faire’).

Readers influence the accepted meanings of what an author writes (see, for instance, Willie Henderson, Evaluating Adam Smith: creating the wealth of nations’, 2006, Routledge). Smith's readers are no exception, and because Adam Smith’s name is often quoted (excessively so today) in support of, or as the problem of, current controversies in the (mis)management of economies, it adds to the intellectual – and popular – confusion as to what credence should be given to this or that declamation on one side of the other of those making the noise of interested faction in this first decade of the 21st century.

Lost Legacy readers will know that I am researching the origins of the spread of the notion of an actual (or metaphorical) “invisible hand” in the teaching of economics since the 1940s. From that teaching came forth consequential policies in business and government as students graduated and entered the “ordinary business of life”, and applied their teachers’ wisdom, either within society generally or in their own teaching careers, and inadvertently spreading a conceptual virus like the biological kind.

Earlier last year, I discussed Steven G. Medema’s excellent, The Hesitant Hand: taming self-interest in the history of economic ideas (Princeton University Press), which covered a slice through history from Adam Smith to 20th-century welfare economics. This fits well with the book by Murray Milgate and Shannon C. Stimson, which sweeps through the first hundred years from Adam Smith to the end of the 19th century.

It short, Milgate and Stimson have studied how the “grand ideas” that are attributed to Adam Smith are “as much the product of the gradual modifications and changes wrought by later writers”, such that we “are much the heirs of later images of Smith as we are of Smith himself”. I concur with Milgate and Stimson in this commentary on their book."

I, and many readers, living through the last half of the 20th century, during which “the gradual modifications and changes wrought by later writers” on the unchanged original exposition of the ideas of Adam Smith sleep in pristine innocence in his texts. Therefore, we can compare and contrast his original ideas with the “later images of Smith”, which are often a long way from those written by “Smith himself”.

How we got from what Adam Smith wrote to what modern economists assert about him is a study in the history of intellectual dilution and invented accretion. Murray Milgate and Shannon C. Stimson have written the first part of that history.

Commentary No. 3:

Milgate and Stimson provide an authoritative account of the distorted modern presentations of his thinking that claim him to express ideas and themes known today as a liberal capitalist perspective. It is worth the attention of readers to begin with what Milgate and Stimson say about the ‘rise and fall of civil society’ because this encompasses the basic differences between the way that societies were observed before Smith the 18th century (and earlier) and how they came to be observed from the 19th century (and later).

Society in the feudal (also in earlier allodial forms) and in the mercantile era was a top-down affair, at the head of which was the sovereign, with the feudal lords below him (and the disregarded lower orders below them). The ‘superior orders’ were given to continual unrest, specifically over dynastic issues and territory, including strategic alliances, marriages, and shifting family allegiances and the unavoidable strife they caused before the victors, settled the inheritance for generations of the ownership of vast physical properties, and the power that flowed from them.

These dynastic struggles affected neighbouring kingdoms in Europe in very long and bloody, wars that were fought across neighbouring domains (such as the 30-years and the 100-years wars). They required substantial physical resources and manpower and the means to maintain them. Hence the importance to kings, and those close to them, of mercantile notions of how to pay for and maintain sufficient resources to project their state powers.

Gold and silver were not sought for their own sake; kings did not just sit in their ‘counting houses, counting out their money’ like obsessed misers; money was the very essence of a king’s necessary self-defensive duty to protect his power and his inheritance against the regular violent challenges of rivals (among family kin, cousins, and distant opportunists). Hence, the king’s writ supported his claims on resources through enforcing feudal obligations in taxation and the provisions of armies, and through the ordering of civil society in ways that expressed his legitimate right to control his dominions as he saw fit, with everybody below him, secular and religious, obeying him as if he was ordained by an invisible God. (‘Treason never prospers because if it prospers none dare call it Treason.’)

The re-emergence of despised commerce (regularly condemned as impious by theologists) from around the 15th century, after the so-called ‘dark ages’ since the fall of Rome in the 5th century, was crude, rude and none too genteel, and its participants were liable to be audaciously robbed and bullied by Lords and local disorders, and none too fussy about morals themselves. Despite these unpromising beginnings, merchants and their customers slowly transformed the meaning of traditional civil society by creating, unintentionally, an alternative means to relative wealth from within it. Commerce did not require a revolution; it just needs to find customers.

Milgate and Stimson capture the broad sweep of these changes in Chapter 3 (‘Rise and Fall of Civil Society) by writing a brilliant, intellectual account of the transformation towards a different society, identified by the questions asked by Adam Smith, and others, of the shibboleths of the mercantile state and the associated government regulations that enforced local Incorporated Guilds and international royal-chartered monopolies, of which the East India Company was the most morally disgusting.

Much wringing of hands among philosophers and divines - did it enhance the values of civil society or cause their degeneration? - began with the first appearance of commerce. James Steuart, the last of the traditional mercantilists, equivocated in his Principles of Political Economy (1767), as did another author, Adam Ferguson, the first of what became the new discipline of sociology, in the same year.

Ferguson had an on-off relationship with Smith and an almost romantic vision of the Roman Republic and the civic potential for morality in human society. He saw the progress of commerce, in particular that of the division of labour, as a dual-headed benign blessing, and a not so benign monster.

Karl Marx in Capital mistakenly praised Ferguson, the “tutor”, to Smith, ‘his pupil” from prior publication of his Essay on Civil Society (1767) before Smith’s Wealth Of Nations (1776).

In fact, Smith’s famous references to the productivity of the division of labour, were taken verbatim from Smith’s Glasgow Lectures on Jurisprudence (1762-63), which circulated (as was the norm) as students notes in Glasgow and Edinburgh, where Ferguson probably read them. Ferguson certainly quarrelled with Smith about his allegations of ‘plagiarism’, though how original Smith’s reporting was on the role of the division of labour is questioned today by J-L Peaucelle: ‘Adam Smith’s use of multiple references for his pin making examples’, European Journal of the History of Economic Thought, 13:4, pp480-512.).

Milgate and Stimson’s treatment of these episodic events among the literati are thorough and stimulating, and readers unfamiliar with these debates can glean a great deal from them. The civil-society debate continued in Smith’s work, and in those who like Mandeville preceded him, and those who followed later, such as Ricardo, Mill and Marx, though, as the decades slipped past, the issues matured and their content changed.

Smith is quoted (p 48) from his History of Astronomy (named, by Milgate and Stimson, for an unstated reason, as his ‘lectures’, and date them ‘ca. 1750’); as viewing society as resembling an invented ‘system’ connecting the different movements and effects of reality. They quote from Wealth Of Nations; I quote the whole reference:

“It is thus that every system which endeavours, either by extraordinary encouragements to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it, or, by extraordinary restraints, force from a particular species of industry some share of the capital which would otherwise be employed in it, is in reality subversive of the great purpose which it means to promote. It retards, instead of accelerating, the progress of the society towards real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour.

All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society. According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expence to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.” (WN IV.ix.50-52: 687-89)

Clearly, Smith is not talking about the system that exists (has it ever existed?), but of an imagined system, which if it did exist, then society in practice would be better off than the existing distorted systems of ‘preference and restraint’ will ever be, as long as the ‘preferences and restraints’ continued.

However, the existing mercantile system, despite its drawbacks, of which it had many and against which Smith made a “very violent attack” in Wealth Of Nations, could not stop all ‘progress to opulence”, nor stop it prospering (WN IV.ix.28: 674).

Milgate and Stimson (p 48) assert that “the obvious and simple system of natural liberty” lies at the centre of Smith’s account of the market mechanism” and, further, that “it displaces the centrality of both the state and the direct influence of statesmen” from the market “space”.

In essence, this is the main challenge of market forces to the old verities of civil society; the king, if not dead, is made redundant.

I shall return to this evocative idea and place some caveats upon it in my next review/commentary post on Milgate and Stimson’s excellent book.