------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (November 2007)

Duncan K. Foley, _Adam's Fallacy: A Guide to Economic Theology_. 
Cambridge MA: Harvard University Press, 2006. xvii + 265 pp. $26 
(cloth), ISBN: 978-0-674-02729-9.

Reviewed for EH.NET by A. M. C. Waterman, St John's College, Winnipeg.


Presumably this book was sent to me for review because of its 
sub-title. I am sorry to report, therefore, that it contains no 
theology whatsoever. Its author, who is Leo Model Professor of 
Economics at the New School for Social Research, uses the word 
pejoratively to label a way of thinking about economics that he finds 
objectionable on moral grounds. That way of thinking is "the idea 
that is it possible to separate an economic sphere of life, in which 
the pursuit of self-interest is guided by objective laws to a 
socially beneficent outcome, from the rest of social life, in which 
the pursuit of self-interest is morally problematic" (p. xiii). 
Seemingly unaware of the work of Gilbert Faccarello (1999) on 
Boisguilbert and the latter's background in Jansensist theology, 
Duncan Foley attributes this doctrine to Adam Smith and calls it 
"Adam's Fallacy."

After a Preface which states the theme, the book contains six 
chapters: "Adam's Vision" on Smith and _Wealth of Nations_ (45 
pages); "Gloomy Science" which treats Malthus and Ricardo (41 pages); 
"The Severest Critic" on Marx (69 pages); "On the Margins," chiefly 
about Jevons, Menger and J. B. Clark, with an endnote on Veblen (22 
pages); "Voices in the Air" on Keynes with brief mention of Hayek and 
Schumpeter (34 pages); and "Grand Illusions," which is a summing up 
(18 pages). These are followed by 14 pages of appendices on technical 
matters. It is apparent that two-thirds of this text concerns four 
canonical authors of the so-called "English School" -- Smith, 
Malthus, Ricardo and Marx -- followed by a mere 9 percent on what now 
constitutes the core of economic theory, and another 15 percent on 
Keynes and two of his contemporaries. The book might almost be called 
"Political Economy of the English School with an Epilogue" -- except 
that it totally ignores the most influential single author of that 
"school," John Stuart Mill. The dust-jacket calls this "The 
Intelligent Person's Guide to Economics": which implies that the 
intelligent person will skip almost everything of importance that has 
happened in our discipline over the past one hundred years.

Foley's favorite chapter, upon which he lavishes most care and in 
which he exhibits most scholarship, is that on Marx. With one 
exception to be noted below, the exposition is careful, lucid and 
balanced, and this chapter could be recommended to anyone wanting a 
readable introduction to what Marx's political economy was about.

The same can hardly be said for chapters 1 and 2. For though these 
too contain many valuable insights it is all too obvious that Foley 
has not kept up his reading of the vast and expanding secondary 
literature on Smith, Malthus and Ricardo. This is most evident in his 
treatment of Smith and Malthus. There is no understanding of the 
relation between "labor-embodied" and "labor-commanded" prices; no 
awareness that Smith's "natural wages" are dynamic equilibrium 
outcomes determined by the rate of accumulation; no recognition that 
the primitive supply-and-demand apparatus of Smith and Malthus is 
what eventually "won out" (as Schumpeter put it) over the labor 
theory of value (LTV); and no acknowledgement that this happened 
because it eventually became clear that Smith's "natural prices" were 
the equivalent of Marshall's long-run equilibrium prices. The fact 
that Malthus took all of his population theory from the _Wealth of 
Nations_ (WN) is ignored, as is the fact that what distinguishes the 
analysis of WN from that of the _Essay_ is that the former abstracts 
from land scarcity and the diminishing returns implied by Malthus's 
"ratios," which Samuelson, Stigler and many others have noted. The 
latter means that "Ricardo's theory of Rent" (p. 74) is actually 
Malthus's as Ricardo acknowledged, though Torrens and West also got 
there at the same time in 1815. Much more contentious is Foley's 
account of Ricardo's value theory. By ignoring the importance of 
capital costs in determining relative prices he misses the point that 
Ricardo's LTV is nothing but a rough and ready approximation -- 
Stigler's (1958) "93%" LTV -- brilliantly deployed in the theory of 
comparative international advantage but now subsumed by Hecksher and 
Ohlin. Foley's fixation on the archaic and operationally useless LTV 
also slightly mars his chapter on Marx. For Marx, like Ricardo, well 
understood that capital costs enter into prices: but tried 
unsuccessfully to evade this unwelcome result in the hideous 
contortions of volume III, chapter IX of _Capital_.

Rather than appraising the analytical content of the relatively 
unimportant chapters 4 and 5, which like the curate's egg are good in 
parts, we ought rather to turn to what Foley is really interested in, 
which is ethics. Is the pursuit of self-interest "morally 
problematic"? And did Smith and his successors create a distinction 
between an "economic sphere" in which self-interest may have socially 
beneficent outcomes and "the rest of social life" in which it may not?

It is undoubtedly the case that for Smith and Malthus, 
eighteenth-century "political economy" was a branch of "Christian 
moral science" (Winch 1996), for which these were vitally important 
questions. From the standpoint of intellectual history, however, 
Foley has chosen to enter the debate some time in 1723, after the 
public outcry at a new edition of Mandeville's _Fable_ but before the 
first of Joseph Butler's Rolls Sermons preached in response, which 
showed that "self-love" is morally acceptable in a wide variety of 
cases and is actually a duty taught by Christ. There is no necessary 
link between Private Vices and Publick Benefits. Bishop Butler's 
doctrine was explicitly incorporated into the analysis of economic 
behavior by his chaplain Josiah Tucker; and Smith followed Butler and 
Tucker in _Theory of Moral Sentiments_ which provided a satisfactory 
account of the part played by self-love in a general theory of 
conscience, duty and virtue. It is certainly true that in WN Smith 
separated the _public_ sphere, in which self-love may safely rule, 
from the _private_ sphere of the family and other intimate relations, 
in which mutual altruism is important (Folbre 2001). It is also the 
case that he explicitly acknowledged that "justice," by which he 
meant a willingness on the part of agents to obey the rules of the 
game even when the umpire is not looking, is necessary in order that 
economic freedom might lead to socially beneficent outcomes. But 
these imply no distinction between the "economic" and "the rest of 
social life."

Malthus, Smith's most faithful disciple, seems to have accepted this 
account of self-love, and had no hesitation in describing at as "the 
main-spring of the great machine." As for Ricardo and Marx, there is 
no evidence that they were at all interested in the question. Like 
all subsequent economists they viewed political economy as a positive 
science. _If we assume that most human beings consistently pursue a 
set of privately formulated goals most of the time, what will be the 
unintended social consequences?_ There is no automatic expectation 
that these will be socially beneficent. Ricardo's stationary state, 
with wages at bare subsistence and rents at an all-time high, is 
almost certainly not. Whether Marx's own invisible-hand theorem 
("what the bourgeoisie ... produces, above all, are its own 
grave-diggers") is socially beneficent or not is a matter of taste. 
As for present-day economics, Samuelson's theory of public goods, 
Buchanan's "public choice" analysis of the actions of bureaucrats and 
politicians, Chicago theory of marriage and the family, Stiglitz's 
investigations of the relative efficiency of public and private 
sectors, the economics of environmental degradation -- to mention 
only a few -- provide innumerable examples of the unintended 
consequences of private, self-regarding acts which are almost 
certainly maleficent.

I therefore conclude that Duncan Foley's charges against our 
profession are without foundation, and ought to be dismissed.

References:

Gilbert Faccarello, 1999. _The Foundations of Laissez-faire: The 
Economics of Pierre de Boisguilbert_. London: Routledge.

Nancy Folbre, 2001. _The Invisible Heart: Economics and Family 
Values_. New York: The New Press.

George J. Stigler, 1958. "Ricardo and the 93% Labor Theory of Value," 
_American Economic Review_ 48: 357-67.

Donald N. Winch, 1996. _Riches and Poverty: An Intellectual History 
of Political Economy in Britain, 1750-1834_. Cambridge: Cambridge 
University Press.


A. M. C. Waterman is Fellow of St John's College, Winnipeg, and 
Emeritus Professor of Economics in the University of Manitoba. His 
most recent book is _Political Economy and Christian Theology since 
the Enlightenment_ (Palgrave Macmillan 2004). 
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