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Adam Smith Notes

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*Cross-reference - PO230 David Ricardo // PO219 Marxism; Postcolonialism // PO107 Liberalism

ADAM SMITH
QUESTIONS

1. Is Smith's market 'natural' or 'socially constructed'?

2. What is the myth of Smith and why does it prevail?
'Is Adam Smith best understood as a champion of free market capitalism or as a critic of its moral consequences' [2017,
2015]
Is Smith's account of sympathy convincing? Answer in relation to his account of self-interest. [2016]
Does Smith's political economy successfully reconcile the self-interested and other-directed instincts?
'Adam Smith argues that self-interest leads to social benefit'. Discuss. [2013]

3. Assess the significance of the 'Impartial Spectator' to Adam Smith's thought. [2013]
Evaluate the significance of Adam Smith's concept of the 'Invisible Hand' within his thought and/or for contemporary
IPE. [2014]
Are Adam Smith's ideas important for understanding the contemporary world?

4. Is Adam Smith's liberal political economy euro-centric?
Does Adam Smith's work provide a foundation for anti-colonial thought?
What, if anything, is gained by situating IPE analysis in the context of a broader disciplinary history of political economy?
[2015]

CONTEXT

Mercantilism was the dominant school of economic thought in Europe from the 16th-18th century. It asserts that wealth is finite and proposes a policy aimed at amassing stores of precious metals (gold, silver) by manipulating the balance of trade through protectionist policies and punitive tariffs. Wealth is accumulated for the sole purpose of augmenting state power at the expense of rival nations*. Economic actors perceived personal grandeur through national grandeur and thus felt obligated to endorse Empire (e.g. British East India Company).

The prevailing anxieties of 19th century Europe include:

1. Where does 'value' come from?

2. How does a society with no overarching ruler maintain some semblance of order? How can people, predisposed to egocentricity, nonetheless consider the good of others and cooperate in orderly, mutually productive ways?

MYTH VS. REALITY [Sagar]

If you've heard of one economist, it's likely to be Adam Smith. In fact, few have been more maligned than the Scottish
Enlightenment figure. In life, a somewhat reclusive professor of moral philosophy (encompassing ethics, politics, law and rhetoric) at the University of Glasgow. In death, the 'Father of Modern Economics' and ideologue for the political
Right. 'Adam Smith ties' were flaunted as a badge of honor in the upper echelons of the Regan and Thatcher
Administrations, and by global financial institutions like the Lehman Brothers.

If we dig below the surface, what unfolds most strikingly are the differences between Smith's subtle, skeptical view of market processes and modern 'Greed is Good' caricatures depicting him as an early champion of private capitalist endeavor. Indeed, one suspects that those quickest to sing his praises have failed to understand the crux of his arguments.
˃
Hence, it is imperative that one reclaims Smith's legacy from selective quoting, glorification and assertions of clairvoyance - 'Not only did Smith fail to predict the Industrial Revolution, but he did so while being friends with James Watt, the inventor of the steam engine' [O'Rourke]

The Wealth of Nations, 1776
Anti-mercantilist

stance
(see: CONTEXT)

WoN is a 900-page assault on mercantilism; a fault system predicated on the 'popular folly of confusing wealth with money' [WoN]. While mercantilists believed that national wealth was linked to the accumulation of precious metals, Smith located national wealth in individual economic activity (esp. commodity manufacturing and exchange) under conditions of free trade.
˃
For Smith, mercantilism was characterized by an insidious network of monopolies.
Private companies lobbied governments for the right to operate exclusive trade routes, or to become primary importers/exports of goods, while closed guilds *Cross-reference - PO230 David Ricardo // PO219 Marxism; Postcolonialism // PO107 Liberalism

controlled the flow of products and employment within domestic markets.

'People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public,
or in some contrivance to raise prices' [WoN]
˃

Merchants encouraged what David Hume called, 'jealousy of trade', whereby commerce was transformed into an instrument of war/domination, as opposed to a bond of 'union and friendship' between states as it ought to be. By playing on jingoistic sentiments, the merchants inflamed aggressive nationalism, blinding domestic populations to the fact that their true interests law in peaceful economic interdependence.

˃

The 'invisible hand', then, was aimed not at drawing attention to the problem of state intervention, but of state capture by merchant elites seeking to promote their own sectional advantage.

The 'Invisible Hand'

Smith claims that the human propensity to engage in self-interested transactions, exchange and respond innovatively to market signals had culminated into a spontaneous order which provided a more efficient allocation of resources for maximal national prosperity than any deliberate design could achieve. Smith attributes this to the mechanism of the 'invisible hand', which produces socially beneficial results from the unintended consequences of interactions between profit-driven actors.
˃
Selfishness was not a vice like greed or gluttony, to be condemned for dissolving moral/civic virtue. On the contrary, Smith argued that self-interest would contain its own excesses in a free market system and promote public welfare without intending to do so. (see: SYMPATHY)

Non-interventionism

Politicians, according to Smith, were much poorer judges of resource allocation than the aggregated outcome of individuals spontaneously undertaking free exchange. As such,
merchants (or merchant 'mentality') were a pernicious but necessary component of largescale economies
˃
Political actors were liable to being swept up by a 'spirit of system' which infects policy-makers with a messianic moral certainty in the benefits of sweeping reform.
Although the motivations behind such policies are usually benign (a genuine desire to improve society), the 'spirit of system' blinded individuals to the harsh complexities of real-world change.

'The man of system... seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard. He does not consider that the pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great chessboard of human society, every single piece has a principle of motion of its own,
altogether different from that which the legislature might choose to impress upon it.' [TMS]

Smith prescribed a 'system of natural liberty' whereby the proper function of government was to stabilize market conditions by maintaining a standing army (for defense against invasion), and system of justice; understood commutatively as the protection of property,
rather than distributively/beneficently, as the provision of goods and services.

Smith's insights cuts across party/ideological lines in that it characterizes a pathological attitude which politicians of all stripes are prone to. If left unchecked, this reverence for abstraction could become a source, not just of disruption and inefficiency, but of tyranny and suffering.

Thus, Smith was by no means an apologist for ruthless, self-seeking profiteers. As Watson notes, his discussion of market society and its potentially dehumanizing properties, highlights how the division of labor is infused with relations of power and powerlessness; yet these insights were reduced (at best) to a footnote by his contemporaries.

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