Religion & Liberty Online

The Adam Smith We Need

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Scholars’ tendency to read the great economist through the lens of their own philosophical and political commitments is neither unexpected nor helpful. One book helps us identify some of those biases and also something closer to Smith’s true legacy.

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There are two reasons to read Glory M. Liu’s new comprehensive book, Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism. The first is that if you are a student of economics or history, there is a remarkable amount of well-documented information packaged into a logically sequential analysis that is well worth your time. But the second is profoundly important for students of economics and advocates of a free society: the very questions history is seeking to answer about Smith are the questions that must animate our study of economics and a free society today.

Put differently, the reason for modern debate about Smith and his legacy is essentially the fundamental debate of our time: How are we to “lay the epistemic foundations for a social theory of markets and how they promote freedom”? How do we defend our “vision of a prosperous, free, and flourishing society, embedded in, rather than liberated from, traditional moral values?”

Historians would not be debating the real legacy of Adam Smith as moral philosopher or laissez-faire ideologue if those substantive issues had been resolved today. Throughout Liu’s careful and impressive effort, one thing is abundantly clear: a lot of people who do not agree with each other want Adam Smith on their side. In reading this work, you’ll be exposed to the tremendous reality that even the most reputable of scholars “bring their own set of beliefs and preoccupations to bear on his ideas.” And while I believe a harmonization of Smith’s vast contributions to the subjects of commercial society, political economic, and moral philosophy is quite achievable, I am struck by Liu’s success in portraying much of the 19th, 20th, and now 21st centuries’ analyses of Smith to be devoid of harmonization and heavy on selectivity.

Liu does a masterful job showing that all the varying schools of thought in 19th and 20th century applications of political economy are “talking their book” in making the case for Smith as a free trade zealot versus a workers’ rights evangelist versus a laissez-faire crusader versus a great inquisitor of matters ethical and moral. Some “selective” Smith is more defensible than others. To her credit, she waited until the epilogue to raise the laughable proposition that Smith was influenced by Rousseau in concerns about markets. Richard Ely and Edwin Seligman, writing in the late 19th century, are more selective than they are revisionist, and the same is probably true of Milton Friedman and George Stigler in the next century (though with different agendas in each case). I am more sympathetic to some of Frank Knight’s and Jacob Viner’s reading of things, but they also suffer from incompletion. The most recent trend of full-blown left-wing adoption of Smith as some kind of social justice crusader is the most obvious gnat in search of a windshield. Through the sequence of post-Smith treatments of Smith (embodied in the various scholars and movements I just listed, and many others dealt with in the book), we see not merely historical treatments at odds with one another but the greater divide we continue to face in economic and ethical study today.

“Das Adam Smith Problem” is the name 19th century German scholars gave to alleged tensions between The Theory of Moral Sentiments and his Wealth of Nations magnum opus. This “problem” is, for some, an excuse to dismiss Smith (for alleged inconsistency), an excuse to embrace him (because he allegedly got one or the other right), or a straw man that further obfuscates the subjects at hand. One need not agree with all the specific conclusions Smith draws in either work to appreciate the driving force behind both, and to seek a fundamental unity in the combined subjects. Reconciling the Adam Smith of Theory of Moral Sentiments (which posits restraint and sympathy as necessary preconditions to virtuous cooperation) with the Adam Smith of Wealth of Nations (which looks at the productive power of mankind’s labor as opposed to his moral sentiments, and posits self-interest and a commercial society as the tools to drive economic growth) is not nearly as hard a historical task as we may believe it to be. The challenge is not in exegeting Smith; the challenge has always been and continues to be harmonizing economics as social science and moral philosophy, and making application to policy. This process is paramount, and its complexity explains the fighting over ownership rights of the ideas of Adam Smith.

This book can be extremely useful for those who admire Adam Smith, who are torn as to what to believe about Adam Smith, and for those who are new to him. At one point Liu states:

Multiple Smiths coexisted. There was the textbook Adam Smith: the one who founded political economy, who proposed an incorrect theory of value, and who made inferences from close observations of everyday life. That version of Smith served as a pedagogical tool for illustrating the basic method and tools of economic science, especially in constructing Chicago Price Theory. On the other hand, there existed a more disembodied Smith that served a broader intellectual purpose. Characterizing Smith’s works as balancing clear scientific insights with social policy, while questioning the ethics of a version of liberalism often attributed to his thought, was part of an ongoing effort to not only resuscitate the basic principles of markets, but also identify their limits.

This captures not only what I believe to be a right understanding of Smith but also the categories of epistemological error in those misappropriating his work. Adam Smith’s labor theory of value was wrong, yet at the same time his doctrines of self-interest and the invisible hand are indisputably useful in formulating the price mechanism, free exchange of goods and services, limited need for central planning, and spontaneous order. That Smith was not just influential but indispensable for Hayek, Friedman, and Stigler (Austrian and Chicago market theories) is clear. Yet just as the massive contributions of Milton Friedman and other 20th century giants misses the normative and philosophical underpinnings desperately needed in a robust understanding of economics, so does their historical treatment of Adam Smith. No, the Chicago school and other market purists of the 20th century were not wrong to claim Smith as one of their own regarding the key classical contributions to the social science of economics. But by omission, a failure to interact with Smith’s moral philosophy, a willingness to present economics as a value-free science, added to the same selectivity weakness that many on the other side of the economic divide are guilty of themselves. There is an Adam Smith for everyone, indeed.

I am sympathetic to Liu’s allusions to the idea that 20th century market advocates often use Adam Smith “ornamentally.” What sometimes may seem like an incomplete treatment of Smith may really be the device of implementing him as a “slogan, logo, or symbolic figure.” Liu is fair to Friedman to point out that he did not believe Smith’s doctrine of the invisible hand was “selfish or narrow,” and that the market mechanism Friedman extracted from Smith’s work would “foster conditions for virtuous behavior and an ethic of capitalism centered around individual responsibility, self-reliance, and innovation.” Nevertheless, late 20th century depictions of Smith, in line with late 20th century market philosophy itself, became increasingly positivistic, rationalist, individualistic, and scientific, and removed from the moral prerequisites that are the hallmark of a holistic understanding of Adam Smith.

I would have been content if Liu had merely concluded the book having demonstrated the irresistible tendency for ideologues of all eras to create the Adam Smith most convenient for their point of view as opposed to wrestling with his vast contributions to multiple integrated disciplines. But whether it was intended to be anecdotal or not, I can’t help but point out how perhaps the closest accuracy in reading Smith was found in the late 20th century intellectuals Irving Kristol and Gertrude Himmelfarb, who strike the right chord for the very reason that they fully appreciate the burden that others do not. Kristol connected to the “moral presuppositions for capitalism” so important to Smith. In Smith’s moral philosophy, Kristol saw that markets “could not be indifferent to traditional and distinctly bourgeois virtues, especially those that were instilled and reinforced in the family and organized religion.” Kristol’s reading of Smith pleaded for a rejection of the view that saw man as the “ultimate atom with measurable desires.” Ultimately, Kristol found in Smith the “philosophical underpinnings and intellectual authority” for the real possibilities of market capitalism—“the embeddedness of economic self-interest within wholesome institutions and bourgeois virtues, and the idea that capitalism needed moral, not just economic, advocates.”

This is the contribution of Adam Smith, and 250 years of debate over his legacy and work are testimony to his influence and longevity. What we see in Liu’s book is not multigenerational scholarship compromised as its purveyors assess Smith by their own presuppositions and commitments, but rather the unavoidable reality of all scholarship and intellectual endeavor. We all want our own Adam Smith.

I want Irving Kristol’s Adam Smith for the same reason, though I am prepared to defend that record of Smith empirically and historically. But the real task in front of us may be more solvable than the exact discernment of Adam Smith’s legacy, and it is certainly more consequential. How do we “lay the epistemic foundations for a social theory of markets that promotes freedom”? How do we defend our “vision of a prosperous, free, and flourishing society, embedded in traditional moral values?”

David L. Bahnsen

David L. Bahnsen is the chief investment officer of The Bahnsen Group, a $4 billion national wealth management firm, and the author of There’s No Free Lunch: 250 Economic Truths.