Opinion Can Market Economics Claim Smith? Yes

Even a lay reader knew after finishing Ross’s lovely biography of Smith that the biographer must have gathered together all publishable facts about Smith’s life,a life,as we noted,that left behind relatively few facts. How does Phillipson’s account of Smith’s “enlightened life” clear this bar? It doesn’t. It walks around the challenge — this book is really about Adam Smith’s mind,and the minds that shaped and challenged his mind; an interesting subset of this is Smith’s intellectual contests with great French thinkers of his time. In its investigation of Smith’s mind,this book is deeply serious — Phillipson is an enormously reputed historian of Scottish Enlightenment — and incredibly interesting,but Ross’s is the better standard biography. Assume the subtitle of Phillipson’s book is “An Enlightened Mind”.

What a mind. Enlightenment thinkers,those dead white men who should be thanked by thinking men and women of all colours and subsequent ages,were so gifted that contemplating their abilities can make you dizzy. Smith became what we would today call an intellectual star at 25,yes,just 25,when he gave his Edinburgh Lectures. He was reading Epictetus when he was 13. As Phillipson shows,Smith’s big intellectual ideas were all pretty much formed in his 20s. And those ideas were,of course,not only “free commerce”,“division of labour” and “invisible hand”,but also bigger ideas on society and philosophy. Phillipson argues convincingly that what Smith was working on was the “Science of Man” — how society works and evolves,how the rulers and the ruled work out the governance arrangement,how science advances and why art forms flourish,in short,pretty much everything. We,of course,know that a comprehensive Science of Man thesis is almost impossible to write. But those 18th century Europeans who tried their hand at this and similar grand themes,Smith is at the very top of that list,were not naive — they were sublimely brilliant minds. Phillipson’s biggest achievement is how lucidly he brings Smith’s gifts across to the readers.

One long-running modern argument has been that this polymath of a Scotsman,friend of the other great 18th century Scottish thinker,David Hume,has been hijacked by “free market” economists who are,or so it is said,vulgar academics happiest when they can play with their models and prove the triumph of the invisible hand; actual human affairs apparently bear little relation to the games these economists play. From this,these days,references are made to the financial crisis,as in,look those economists who told us to love and trust the market not only had no idea what was happening but they have sullied Smith’s name further. This is a caricature argument,and it is not as invulnerable to scrutiny as post-crisis critics of “mainstream economists” think. But there’s a kernel of truth — Smith can’t be pigeon-holed only as an intellectual parent to free-market economists. But there’s another truth as well — Smith can’t be understood well if he is not seen primarily as the man who gave economics its substance as a discipline.

Phillipson,a historian,doesn’t directly dwell on this question much. But it merits a mention in any review of a Smith biography. There’s a beautiful paragraph in this book summing up Smith’s work that is relevant in this context. Here’s a part of it (from page 276): “… a modest man who set out to reflect on a simple … characteristic of human nature — our desire … to improve our own lot,that of our families and that of the civil society to which we belong.” That’s economics. Would that all economists were as modest as Smith was. But the investigation of how,at individual and social levels,the desire to improve our lot works out (or doesn’t work out) is economics. And Smith believed in free commerce — modest he might have been,and he was far less ready than Hume in advertising himself as a radical thinker,but he railed against 18th century Britain’s mercantilism. Therefore his million times quoted words about the self-interested butcher,baker and brewer are and always will be a building block of market economics. For market economics to claim him may therefore be a partial appreciation of this polymath,but it’s not a vulgarisation of Smith’s intellectual legacy. Many scholars have noted that Smith didn’t postulate that division of labour and free commerce will work everything out for everyone. Neither should any economist claiming to learn from Smith. But Smith was for a market- and incentive-based economic system and he explained that an economy is a sum of many parts that influence each other. That’s what we call mainstream economics. And that it has fallen victim in part to mad maths doesn’t rob mainstream economics of the richness that was first contributed by Smith.

Smith is better described,in today’s terms,as a political economist. But did he give the idea of linear progress (economic and political liberty finding full expression at some,not too distant,point of time in a commercially mature society) too much credence? Maybe. Many mainstream economists of today favour a similar idea. Maybe they,too,underestimate the complexity of human affairs. But,really,the jury is out on that. Western capitalist democracies are examples that favour the optimistic school. India and China may be the big test cases for this question in the near future. Will democratic India deliver prosperity to its people? Will increasingly prosperous China make political liberty redundant?

We might know the answers to these questions some decades later. Smith’s intellectual legacy will be at the heart of those future debates and discussions. Economists will take his name and claim him for themselves. Hopefully,by then no one will call that vulgar.