In the spirit of my teacher Robert Heilbroner, I would clarify that Adam Smith was quite conscious that the unbridled free market would lead to a dumbing down of humankind, were the state not to intervene: ““The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. ”

I am much bothered by Jerry Evensky's reflection here on Adam Smith. His piece reminds me of arguments made by many a market interventionist in the Third World who have claimed that "unbridled competition" or free enterprise could not be relied upon to advance their economies' growth. 

 

 

A BRIEF REFLECTION ON THE LEGACY OF ADAM SMITH 

ON THE OCCASION OF HIS 300^TH BIRTHDAY

 

Adam Smith is all about laissez faire.  Let the markets have an unbridled opportunity to work their magic. Our self-interest, the desire to better our condition, will motivate each of us to exert our energy and our imagination to win in market competition.  This alignment of incentives leads to optimal production and ever greater productivity and thus the greatest wealth for the nation.  This is the shared understanding of Smith among those in the mainstream of the economics profession.  It is the foundation for research, textbooks, and teaching.  George Stigler, Nobel Prize winning economist from the Chicago School, writes that Smith’s “construct of the self-interested individual in a competitive environment is Newtonian in its universality.”  This self-interested individual is called homo economicus.  

 

This is not Smith’s story.  Homo economicus does not do Adam Smith’s moral philosophy justice. 

Self-interest is indeed the motive force for human progress in Smith’s story, but it must be bridled if it to lead to this constructive outcome.  Unbridled self-interest leads to a Hobbesian war of all against all as individuals seek to get ahead by exploiting advantages in the race for wealth.  In Smith’s Britain the mercantilists were the destructive players.  Having accumulated wealth by winning at fair competition, they reinvested that wealth in pressuring the Parliament to codify their monopoly in colonial trade and to spend a fortune protecting that advantage.

Justice must bridal self-interest.  The rules of the race must be fair to everyone and everyone must play by the rules.  The closer the rules are to this ideal, the more productive the race for wealth will be because it will reward effort and imagination, not inherited or acquired advantage.   

 

In Smith’s story justice is “the main pillar that upholds the whole edifice” of society.  Homo economicus is not committed to justice.  He is only committed to himself.  His behavior, like a “vile rust,” corrupts society and grinds progress to a halt.

 

How can we know what the ideal principles of justice are?  Smith looks to history for insight.  

 

Messy as history is Smith sees in his reading of history a pattern of progress. While individual societies rise and fall, humankind has progressed in stages as various societies more closely approximate the principles of justice. 

 

How have these progressive principles of justice emerged?  

 

There is a natural selection process among societies giving those that more closely approximate the ideal a selection bias.  These societies are more cohesive and productive, and thus they have more of the means necessary to defend themselves.  

 

No society has an unencumbered path to progress.  Unbridled self-interest can corrupt even that most advanced society.  Smith believed that this is what the mercantilists were doing in his day to Britain.

 

Institutions play an instrumental role in this evolutionary process.  They codify and inculcate a hierarchy of place in a society.  That hierarchy can be unjust.  Place can limit one’s opportunity to participate equally in the race for wealth.  (For example, consider these assertions: “A woman’s place is in the home.”  “Colored people should know their place.” These were very familiar expressions in the empowered Southern white male discourse of the 1950s.) The deeper the history of institutions the more this hierarchy of place takes on the character of the natural order of things.  

 

However, institutions are contestable.  

 

In his Wealth of Nations Smith took on the mercantilists because their self-serving control of Parliament was corrupting the most advanced society of his day – his own Great Britain.  The mercantilists wrapped principles that served their interest in grand visions and presented them as a gift of golden prospects for all.  But what they delivered was a large bill, the cost of their corruption.  

 

The closing words of The Wealth of Nations (1776) reflect Smith’s despair over the mercantilists’ monopoly and its corruption of the British experiment:

 

The rulers of Great Britain have, for more than a century past, amused the people with the imagination that they possessed a great empire on the west side of the Atlantic. This empire, however, has hitherto existed in imagination only. It has hitherto been, not an empire, but the project of an empire; not a gold mine, but the project of a gold mine; a project which has cost, which continues to cost, and which, if pursued in the same way as it has been hitherto, is likely to cost, immense expense, without being likely to bring any profit; for the effects of the monopoly of the colony trade, it has been shewn, are to the great body of the people, mere loss instead of profit. It is surely now time that our rulers should either realize this golden dream, in which they have been indulging themselves, perhaps, as well as the people; or that they should awake from it themselves, and endeavour to awaken the people. If the project cannot be completed, it ought to be given up. If any of the provinces of the British empire cannot be made to contribute towards the support of the whole empire, it is surely time that Great Britain should free herself from the expense of defending those provinces in time of war, and of supporting any part of their civil or military establishment in time of peace; and endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.

 

Smith sees the trajectory of any given society as driven by chance, circumstance, and the intended and unintended choices of the people of that society.  The intended choices of active citizens matter.  Smith was an active citizen.  His work is his contribution to the realization of progress.  His lesson is that sustainable peace and prosperity depends on the realization of justice.

 

                                                Jerry Evensky