Influencers: Adam Smith
Where two or more economists are gathered together in the same room, a range of opinions is, as with the arguments over them, an inevitability. But one thing on which even economists can agree is that the founder of economics was Adam Smith, a Scot who lived from 1723 to 1790. His work, An Inquiry Into the Nature And Causes Of The Wealth Of Nations, generally abbreviated to The Wealth Of Nations, is considered the first major work on what we now know as Economics.
Smith is a hero of the New Conservatism: his name has been claimed by a Conservative lobby group, the Adam Smith Institute. Whatever the ASI champions do, they claim to do so in his name. This is an especially straightforward task when those championed have been dead for 225 years.
Smith’s assertion that rational self-interest, together with optimum allocation of scarce resources and free market competition, were beneficial to the economy and thus the wider society, is key to this status.
His idea of the “invisible hand”, foreshadowing the classical economic model where the economy reaches a state of equilibrium with all workers employed, and rewarded appropriately, is universally known. But what is not is that Smith’s work was on occasion ambiguous, and some of his more forthright claims have been airbrushed out by his economically orthodox followers.
Smith was especially severe on price-fixing, the presence of which, back in the eighteenth century, helps to prove that there are few, if any, new ideas in economics. “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”, he observed.
He was also suspicious of joint-stock companies, which at the time were a recent development. But the New Conservatism objects neither to the opportunist who fixes prices, nor to any form of corporatism.
The New Conservative experiencing, and then approving of, surge pricing from a rider-and driver matching app is unlikely to allow Smith’s observations on price-fixing and corporatism to enter.
Moreover, the New Conservatives complain bitterly at Government mandating a minimum wage, even if that Government is, as now, a nominally Conservative one. They might not have liked Smith’s observation “Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people”.
Nor, one suspects, as they seek ever-lower taxes for the well-off, would they take kindly to his conclusion that “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion”.
One might draw the conclusion that, were Smith to reappear today, those who claim his name for themselves might find him a formidable adversary. And there is one yet more important fact that should be borne in mind when debating his legacy.
Much of the fabric of today’s developed economies did not exist in Smith’s day, and therefore he was not able to pronounce upon it. Britain, in his time, was a mainly agricultural society; the Industrial Revolution was in the future, as were the mass transportation and communication systems that are now a part of everyday life. There was no steam power, very few metalled roads, and, indeed, no London Stock Exchange.
Moreover, the banking system had not developed into what we now take for granted: the Bank of England did not act as lender of last resort for the first time until more than 75 years after Smith’s death. Paper money was in its infancy.
All of the foregoing means that those who laud Smith, and practice in his name, take rather a lot for granted. Many assumptions have been made in his name. Adam Smith told only of the world as he saw it, and no more. This one fact has been lost on the New Conservatives.