Adam Smith: The Giant of Economics
By Leo Kee Chye
Counterintuitive, radical, deviant-that, I believe, will the many of us choose to greet the above quote. But what if that sum up the gist of The Wealth of Nations. Having second thought now?
Although not exactly accurate, it does crudely capture the spirit of Adam Smith’s most definitive work. Together with statistics, historical events and tightly knitted arguments, the ideas express in The Wealth of Nations are both timeless and timely. Timeless as in its relevance: it explains the economy of our world in the 21st century equally well as it explains his which was 200 years ago when the book first published. And timely as we are at a time witnessing how Russia, China and Eastern Bloc grappled with their economic transformation from collectivistic to capitalistic. Does that signal communism as an economy system is in its interment and Smith’s “natural liberty” capitalism is having its last laugh after all.
Who is this progenitor who left the scene well over 200 years ago yet his ideas live on till this day? And his name is often cited by liberals and conservatives alike. The latter condemned him the posthumous crimes of every social ills suffered by society: from pornography to cocaine; avarice to poverty. The liberals, on the other hand, exult him to be the protector of individual liberty. These are some of the issues that I seek to address in this essay. Before I begin, I’ve to profess that I’m no scholar in Smith’s lifetime accomplishments, but merely a dilettante dabbling in the history of economic thought. Some understanding of his life and his time will be useful to begin with.
Smith the man
“History of each great philosophy is it own age express in thought,” wrote Georg Wilhelm Friedrich Hegal, Philosophy of History. This sentence is clearly not the gospel truth but certainly befitting Smith’s undertaking. It was the Age of Enlightenment for the Europeans where the newly found faith in science, rationality and reason replaced religious fanaticism, superstitious and dogmatism. With this assuring outlook, human beings can, for the first time, peek into the workings of world and to elicit laws that govern its inherent mechanism. Similar to what Newton did for the physical world, Smith sought to discover the universal law governing the human world.
Smith was born in Kirkcaldy, on the east coast of Scotland near Edinburgh, in June 1723. The same year which saw the birth of Tai Chen, the Chinese philosopher who advocated the method of practical learning over metaphysic-the Chinese equivalence of an empiricist. Smith was also an “empiricist”, an empiricist of human behaviour, a moral philosopher; an economist; and, most of all, an epitome of an absentminded professor. Together with his nervous affliction which gave him fits and stutters, Smith came to be regarded as quirky but brilliant.
Smith was an apt student. Earning a scholarship to Oxford during his teens, he went on to secure the Chair of Logic, University of Glasglow, before turning 28; followed shortly by Chair of Moral Philosophy.
In 1759, at the age of 36, he published The Theory of Moral Sentiments, which quickly established him as a brilliant and original philosopher.
Then came an offer he could not refuse: Being a tutor to a young duke plus a grand tour in Europe. Like any good economist who gravitate to whoever offers the higher price, Smith promptly quitted his teaching career. It was this tour, 1974-1976, that gave Smith his inchoate idea of his subsequent magnum opus.
Finally, the year 1776 witnessed the publication of An Inquiry into the Nature and Causes of the Wealth of Nations. It was an instant success; it sold more copies than expected, much to the surprise of everyone. His publisher wrote, “…much more than I could have expected for a work that requires much thoughts and reflection, qualities that do not abound among modern readers.” (Inteliquest 1993) Within his lifetime, the book was translated in several languages. The Chinese readers did not have the fortune to read it until the late 19th century when Yen Fu’s translated version was made available.
What Smith sought to achieve
Smith believe government should create a conducive commercial environment for people to further their “Natural Liberty” which in turn provide an incentive to develop what he called “imperfect, but attainable virtues” thereby “provided the basis of a decent society: self-control, the ability to deter gratification, and the propensity to orient ones actions to the needs of others.” (Muller 8)
How did Smith come to this conclusion? Let’s start with his moral philosophy.
Smith on moral philosophy
Reading The Theory of Moral Sentiments can be a morally edifying experience. His inescapable moral tone and his goal of civilising society are stark contrast to what liberals championed him to be. Smith saw in man’s need for social approval a powerful force “sympathy” that will keep check his other not so desirable passions; hence rendering a more decent society. He based his hypothesis on the “impartial spectator”.
Inherent in us all, there is this “impartial spectator”. This mysterious being has the power of removing himself and placed himself into another person. Imagine this. Many a time while watching movie or soap opera, we can be easily moved to tears or indignant at the plight of our protagonist. Even the most callous of criminals can at times shed a few tears, empathising with his hero. All these are possible because our “impartial spectator” has the capability of removing himself from us and placed himself in the shoes of whoever we are empathising with. Take another example, do you often uncomfortable when seeing surgery being performed on another human body whose heart is still beating and blood, dripping? Again, Smith attributes that to your feeling through the “impartial spectator” the surgery being done on your body instead.
After establishing how sympathy is arisen from “impartial spectator”. Smith continues to show how this “impartial spectator” helps to keep check on our behaviour. Imagine yourself inside a lift alone. You feel an itchiness inside your nostril. You are tempted to “evacuate” it with your finger. There is no one around. The coast is clear. Your finger inserted. Suddenly, the lift door open and there stands a man. Immediately, you try to cover up by pretending to shove off some non-existing mosquitoes. Sounds familiar? This “impartial spectator” not only experiences what’s like to be in the shoes of another person but also what’s like for our actions to be judged by him. Likewise in the case of doing good. For instance, I did feel good when I gave up my seat to an old lady in a crowded bus. This good feeling stemmed from the fact that I imagined myself gaining the approval of other passengers. Will I continue my benevolent act when there is no one to judge my action. I might but the satisfaction won’t be as great as before.
Now the next question is how can this “sympathy” be encouraged.
Smith on the economics
Incidentally, the year which saw the publication of Wealth of Nations also saw the Declaration of Independent in America. While Thomas Jefferson proclaimed “life, liberty, and the pursuit of happiness” as inalienable rights of men, Smith believes “Natural Liberty”, the freedom of employing their stock and industry in the way that they judge most advantageous to themselves, is a “most sacred rights of mankind” (Smith 2000b 629). Every man should be left to pursue his own economic interest in anyway so long as he does not violate the law of justice.
Wealth of Nations is a stupendous piece of work that touches almost all areas of political economics at that time: from the microscopic examination of the price of wheat to broad philosophical generalisation, all within a book spanning 1153 pages-that the edition I owned. As Mark Twain, in his dry humour, wrote, “Classic-A book which people praise and don’t read”, I shall not pretend otherwise. Instead I shall examine how Natural Liberty can, according to Smith, eventually lead people to a more decent society.
The proper yardstick of the material wealth of the nation is not gold and sliver or economic resources of the Government or elites, but the purchasing power of the nation’s consumers. Smith maintains it is inconceivable a nation can be considered rich when the far greater part of its people are poor and miserable. In addition, the rising level of material comfort would make it possible to expand sympathy and concern for others.
Although wealth corrupts, voiced by some moralist, absolute poverty corrupts absolutely. In countries of severe poverty, cannibalism, the lowest of moral degradation, is not uncommon. Corruption from too much wealth, it seems, is the lesser of the two evils.
The role of the government should be reduced to the minimum that sees the basic justice is maintained. A well-regulated economy is superior to an unregulated one, but an unregulated is definitely more superior to a poorly regulated one. It is inconceivable for the government to have the ability to amass all market information efficiency and effectively, from next month demand of milk powders to the shares of listed companies the next second. The un-regulated market with its bargaining and bartering, although imperfect, is better than anything we have on hand. There is no philosopher-king let alone an omniscient government.
Smith also points out the importance of severing effects from intentions. Many planned actions of government or other institutions, despite whatever the best of intention they have, often resulted in consequences they scarcely intended. The last century witnessed some of the horrific consequences of planned economy. The Great Leap Forward initiated in the Chinese economy between 1958-1961 resulted the worst ever famine, where millions of Chinese were literately starved to death.
Smith asserts that most of the improvements in the society come about not through the deliberations of men but through unintentional and accidental outcomes of individuals following the guidance of their interest.
However a pessimistic last word from Georg Wilhelm Friedrich Hegal, Philosophy of History, Introduction:
What experience and history teach is this-that people and governments never have learned anything from history, or acted on principles deduced from it.
To be continued…
Leo Kee Chye
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