Monday, May 01, 2006
Economical with the truth
Posted by David Smith at 01:45 PM
Category: David Smith's other articles

A review of Adam Smith and the Pursuit of Liberty, by James Buchan.

For a man whom generations of students have come to know as the father of modern economics, we know surprisingly little about Adam Smith. He was, of course, a product of the Scottish Enlightenment, who lived from 1723 to 1790. He was also, it seems, the perfect embodiment of the absent-minded professor, his obituaries recording an occasion when he was so absorbed in thought he fell into a tanning-pit. Alexander Carlyle described him as “the most absent man in company that I ever saw, moving his lips and talking to himself, and smiling”. Anybody who interrupted his reverie would be greeted with a harangue.

He never married, probably for good reason. A French friend noted his dreadful voice, sticking-out teeth and that he was “ugly as a devil”. He suffered from acute hypochondria, and some genuine ailments. He travelled to Europe, as tutor and companion to the young Duke of Buccleuch, but never visited America, China or India, despite often analysing them in his published works.

James Buchan (John Buchan’s grandson), who has immersed himself in the Scottish Enlightment, does not offer much more “colour” on his subject than we already knew, not least because his subject appears to have been an intensely private man who ordered most of his papers to be destroyed on his death. What Buchan does offer, in the same way that Gavin Kennedy did in Adam Smith’s Lost Legacy (published last year), is a reinterpretation of the great man.

He starts by castigating Alan Greenspan, the recently retired chairman of America’s Federal Reserve Board, for citing Smith’s “invisible hand” as the mechanism steering international financial markets. He lays into Gordon Brown for trying to claim that the invisible hand was really a “helping hand” for the poor, and that if Smith were alive today he would be a fully signed-up member of new Labour.

The problem for Smith, it appears, is that he has fallen among bad company. Brown has tried to claim him, and Margaret Thatcher was said to carry a copy of The Wealth of Nations in one of her famous handbags. The problem, according to Buchan, is his appeal for “economists and politicians, who constitute, even more than professional footballers, always the least-literate sections of English-speaking society”.

Despite the deliberately provocative language, there is some truth in what he says. Smith was ignored by all but economics and philosophy students for decades until he was rediscovered in the 1980s and wheeled out in support of everything from privatisation to tax cuts.

The “invisible hand”, or something like it, is a key concept in economics, guiding markets towards an equilibrium, but there is a debate about whether we should attribute it to Smith or not. The division of labour, the notion that, by splitting tasks and specialising, productivity gains will be the result, explains capitalist economic development. But Smith, while illustrating it well with his famous example of the pin factory, did not think of it first.

Buchan, however, goes too far. He paints a picture of Smith living in a Brigadoon-like Scotland, in a Britain with a national income of £100m, “less than the revenues of a large department store” (has he heard of inflation?), whose musings could have little relevance for modern economies and the billions sloshing round the world’s financial markets. That, however, was why The Wealth of Nations was such an important book. It was written at the dawn of the industrial revolution and published in 1776, the year of American independence. That it had anything to say about the development of modern economies was astonishing. That it had so much to say was a miracle.

As Buchan concedes: “The Wealth of Nations more or less defined the field of inquiry known as political economy until the late 19th century, and continued to influence thinking on taxation, freedom of trade and public education into the 21st.” The subtext of the book is that Smith’s biggest contribution was as a philosopher, not an economist. The Theory of Moral Sentiments, published when he was only 36, outsold The Wealth of Nations during his lifetime and was only eclipsed by it after his death. The Theory, which examined why we regard some actions as right and others as wrong, was as pioneering in its way as The Wealth of Nations. These days, however, most people think of Smith as economist first, philosopher second. And that, despite Buchan’s efforts, is the way it is likely to stay.

From The Sunday Times, April 30 2006

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