Thursday, July 06, 2006

John Kay on Buchan's and MacLean's book on Adam Smith

I have mentioned James Buchan’s excellent biographical essay, Adam Smith and the Pursuit of Perfect Liberty (Profile Books) here already more than once and have commented on a couple of articles by Iain MacLean whose book, Adam Smith, Radical and Egalitarian: an interpretation for the 21st century (Edinburgh University Press). John Kay, whom I knew when he was a student at the University of Edinburgh in the 1960s (we had a common friend in Robin Cook, former British Foreign Minister and Leader of the House of Commons, who died tragically last year), writes a review of both books for next Friday’s New Statesman (London), which is highly polished and as succinct as such reviews can get.

John Kay’s switched-on, as the saying goes, review about Adam Smith
and his treatment by modern scholars shows an excellent grasp of the truth about Smith’s legacy, worthy of the July Lost Legacy Prize (and as I have not seen John Kay for over thirty years, I cannot be accused of favouritism!).

John Kay summarises his case well:

These two books on Smith's life and work cover similar ground. Both examine his philosophical treatise The Theory of Moral Sentiments as well as The Wealth of Nations. Both dispel das Adam Smith problem - a preoccupation of 19th-century German critics - which questioned how one man could espouse such different positions in his most important works. Smith did not. The author who wrote in The Theory of Moral Sentiments that to restrain our selfish affections "constitutes the perfection of human nature" also wrote, in The Wealth of Nations, that "all for ourselves, and nothing for other people" was "a vile maxim". Both authors locate Smith as a central figure in the Scottish Enlightenment. James Buchan's elegant prose sparkles on the page; Iain McLean's wider scholarship enables him to relate his analysis more confidently to current debates.”

John Kay assaults the modern nonsense about the ‘invisible hand’ purveying the false economics of the ‘Chicago Adam Smith’ in a single sentence:

you can misinterpret what was said, as in Greenspan's applause for Smith's most famous metaphor, "the invisible hand". As is now well known, this remark reads differently if read in context, and certainly cannot be treated as an early formulation of the fundamental theorems of welfare economics.”

If I have a very slight quibble it is in John Kay’s presentation of the division of labour in Smith’s Wealth of Nations:

The Wealth of Nations begins with the division of labour, and while Smith was certainly not the first to observe its contribution to the progress of opulence, it was he who emphasised it as the founding principle of modern economic analysis. People who are self-sufficient, or are part of small self-sufficient communities, spend most of their day gathering food and fuel. Specialisation by individuals, organisations, regions and nations according to competitive and comparative advantage is the foundation of the prosperity of the rich world. Such specialisation creates opportunities for mutually beneficial exchange.’

Smith reversed the causation from ‘specialisation creates opportunities for mutually beneficial exchange’. He is explicit in Chapter 2, Book I, that it was the ’propensity to truck, barter and exchange’, which was the ‘necessary consequence of the faculties of reason and speech’, that created the division of labour or specialisation. This direction of causation makes it all the more significant that economists have almost totally ignored exchange and bargaining in presentations on markets. Nobody would (could) specialise unless they could exchange their surplus product over and above their own needs. If that propensity did not exist, no division of labour would occur.

Edwin Cannan, a major Smithian scholar of the first quarter of the last century (and the last quarter of the one before that) mocks this idea of Smith’s:

‘…its first origin he seems inclined to attribute to a sort of instinct which he calls ‘a trucking disposition’, ‘a propensity to truck, barter, and exchange.’ (E. Cannan, Theories of Production and Distribution, 3rd edition, p 44, 1924, King and Son, London)

However, the rest of Kay’s review is first class and my quibble is of limited importance.

I particularly like his last sentence (completely in line with my own views of Smith – and all politicians:

It is unlikely that Smith, whose most important characteristic was deep cynicism about contemporary institutions and the capacity of individuals to improve them, would have had much enthusiasm for any current politicians. That will not stop them from claiming him as inspiration.’

Could anyone put it better?


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