Conservative Economists Embrace Adam Smith as a Hero — But Many Scholars Say His Legacy Has Been Distorted

By Glory M. Liu, a postdoctoral research fellow at the Political Theory Project at Brown University with research interests in the history of political thought, American politics and political economy. She is currently working on a book project titled “Inventing the Invisible Hand: Adam Smith in American Thought and Politics, 1776-Present.” Cross-posted from Alternet.

People like to fight over Adam Smith. To some, the Scottish philosopher is the patron saint of capitalism who wrote that great bible of economics, The Wealth of Nations (1776). Its doctrine, his followers claim, is that unfettered markets lead to economic growth, making everyone better off. In Smith’s now-iconic phrase, it’s the ‘invisible hand’ of the market, not the heavy hand of government, that provides us with freedom, security and prosperity.

To others, such as the Nobel prizewinning economist Joseph Stiglitz, Smith is the embodiment of a ‘neoliberal fantasy’ that needs to be put to rest, or at least revised. They question whether economic growth should be the most important goal, point to the problems of inequality, and argue that Smith’s system would not have enabled massive accumulations of wealth in the first place. Whatever your political leanings, one thing is clear: Smith speaks on both sides of a longstanding debate about the fundamental values of modern market-oriented society.

But these arguments over Smith’s ideas and identity are not new. His complicated reputation today is the consequence of a long history of fighting to claim his intellectual authority.

Smith’s first biographer, Dugald Stewart, deliberately portrayed him in the 1790s as an introverted, awkward genius whose magnum opus was an apolitical handbook of sorts. Stewart downplayed Smith’s more politically subversive moments, such as his blistering criticism of merchants, his hostility towards established religion, and his contempt for ‘national prejudice’, or nationalism. Instead, Stewart shined a spotlight on what he believed was one of ‘the most important opinions in The Wealth of Nations’: that ‘Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.’

Stewart’s biography (first delivered as an eulogy in 1793, then published in 1794 and 1795) appeared in the wake of major events that terrified British audiences: the French Revolution of 1789, the Reign of Terror that followed and the sedition trials that followed in both England and Scotland. As the British historian Emma Rothschild has shown, Stewart’s depiction of Smith’s ideas cherrypicked in order to imbue political economy with scientific authority. She writes that he wanted to portray political economy as ‘an innocuous, technical sort of subject’, to help construct a politically ‘safe’ legacy for Smith during politically dangerous times. Stewart’s effort marked the beginning of Smith’s association with ‘conservative economics’.

Smith would soon earn a reputation as the father of the science of political economy – what we now know as economics. Initially, political economy was a branch of moral philosophy; studying political economy would equip future statesmen with the principles for making a nation wealthy and happy. From the 1780s to the mid-19th century, The Wealth of Nations was often used as a textbook in political economy courses in the US. Even when new textbooks and treatises on political economy were published, they were often compared with ‘the standard treatise on the Science of Political Economy’, in the words of one 19th-century American scholar.

That founding-father status took Smith’s ideas far. Politics became the arena in which his ideas – and economic ideas in general – were tried, tested and wielded. Politicians found much in Smith to support their beliefs, but the ‘invisible hand’ had yet to become a catchphrase of capitalism.

In the US, congressmen invoked Smith’s name to bolster their positions on the tariff. In 1824, George McDuffie of South Carolina defended his position on free trade ‘upon the authority of Adam Smith, who … has done more to enlighten the world of political economy than any man of modern times. He is the founder of the science.’ By the second half of the 19th century, Smith was being dubbed the ‘apostle of free trade’. Even those who championed protectionism appealed to his ideas, often only to delegitimise them. ‘The chief object of protection is to develop the home trade,’ one congressman declared in 1859, ‘and in this it has the sanction of the apostle of free trade, Adam Smith himself.’

This ‘sloganising’ of Smith’s name and ideas is perhaps most recognisable to us today in the phrase ‘the invisible hand’. Its popularity as a political catchphrase stems from the rising so-called Chicago School economists in the mid- to late-20th century, of whom Milton Friedman is a prominent example. Smith’s metaphor of the invisible hand was a central theme in much of Friedman’s public-facing works – op-eds, television shows, public debates, speeches and bestselling books. In 1977, Friedman described the invisible hand as representing the price system: ‘the way in which voluntary acts of millions of individuals each pursuing his own objectives could be coordinated, without central direction, through a price system’. This insight marked The Wealth of Nations ‘as the beginning of scientific economics’. What is more, Friedman also linked Smith with American founding values. Thomas Jefferson’s Declaration of Independence was the ‘political twin’ of Smith’s Wealth of Nations, according to Friedman in 1988, and economic freedom was a prerequisite for political freedom in America.

In popular imagination, Smith’s invisible hand has become so strongly associated with Friedman’s openly conservative economic agenda that people often take for granted that is what Smith meant. Many scholars have argued the contrary.

Indeed, it is easy to forget that Smith – who he was, is, and what he stands for – has been invented and reinvented by different people, writing and arguing in different times, for different purposes. It can be tempting to dismiss some past interpretations and uses of Smith as quaint, superficial, misleading or wrong. But they also reveal something about how and why we read him. Smith’s value has always been political, and it’s often politicised. But much of that value stems from assumptions about the neutrality and objectivity of the science he invented when, in fact, those assumptions are ones that his later readers projected onto him. Smith was a scientist, no doubt, but his ‘science of man’ (in David Hume’s phrasing) was not value-free. At the same time, we should be wary of reading his science through the lens of a single normative value – whether that is freedom, equality, growth or something else.

Adam Smith’s works remain vital because our need to identify and understand the values of a market society, to take advantage of its unique powers and temper its worst impulses, is as important as at any time in the previous two centuries. Economic ideas carry immense power. They have changed the world as much as armies and navies. The extraordinary breadth and sophistication of Smith’s thought reminds us that economic thinking can not – and should not – be separated from moral and political decisions. Aeon counter – do not remove

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

22 comments

  1. BrianM

    This has a lot of truth. I think reading Smith has parallels with reading the bible – there is so much in there and the thoughts are so wide that people can cherry pick according to their prejudices. My favourite example is how many cite the examples of how self-interest incentivises good production and conclude greed is good, whereas Smith was asking the question under what circumstances is gree good. Alas, the difference is too subtle for many.

    Reply
    1. Jesper

      +1
      From what I see then often the philosophical/religious texts are searched by the cynical to find support for an already pre-determined opinion/action. “Seek and you shall find” the answer that you want…. Whether or not the answer is relevant to the situation at hand is a matter of interpretation and debate. Or possibly not: Who are the lessers to question the interpretations done by the master-interpreters? Do not think, thinking is hard work so relax and just obey the interpreters…

      Reply
  2. Thomas P

    I once followed an economic debate where one person stated “As Marx wrote in das Kapital” followed by a long quite. He was immediately ridiculed by his opponent for the quoting something that was so obviously wrong, whereupon the first person replied, “Sorry, did I forget to mention that this was Marx quoting Adam Smith?” Smith was a complex person.

    Reply
    1. Amfortas the hippie

      aye.
      i obtained “Wealth…” and “Das Capital” at a library sale—$2 each— and read them one after another, in the truck, when i was early getting to work, on breaks and whatnot.
      I found them complimentary.
      and when you read Smith’s Theory of Moral Sentiments, the Friedmann version of Smith becomes even cloudier.
      wiki has a good summary of the various contradictory interpretations of this oft quoted half-sentence:https://en.wikipedia.org/wiki/Invisible_hand

      I’m partial to Chomsky’s.
      in long years of arguing with randian libertarian trolls, it often seemed that that partial paragraph is the only bit of Smith they had ever read.
      I comes nowhere near to summing up his body of thought.

      Reply
      1. Amfortas the hippie

        and here it is from links yesterday:
        http://nymag.com/intelligencer/2019/06/bernie-sanders-socialism-speech-gwu.html
        FTA:”America’s existing political economy is much easier to defend if one posits that the gross inequities it produces are ordained by an invisible hand. If some natural economic process dictates that wage growth must be tepid while corporations sit on cash, or that urban workers must be rent burdened while landlords live high off their labor, or that major financial institutions must be insulated from risk while underwater homeowners are left to drown, then one can plausibly argue that government action to alter such outcomes would be hubristic and self-defeating. Who is man to challenge the wisdom of the market gods? By contrast, if the electorate were to recognize that these outcomes are largely determined by public policy, then apologists for the existing order would have a much harder time rationalizing acquiescence.”

        this is the most pernicious usage of the phrase…placing what is really a choice(austerity, and such) into the realm of some Natural Law or Holy Mountain that cannot be challenged.
        “Deus Volt!”…”it’s not that we don’t care about inequality, the Market(holy, holy, world without end) made us do it”

        Reply
        1. juliania

          Thanks, Amfortas. I missed yesterday’s links, having had a shopping day therein. I was so excited by your quote, assuming it was from Bernie’s speech, that I went to find a transcript – but while it may be indirectly assumed to be also part of his vision, it is actually a quote from the author at NY Magazine, Eric Levitz. The first part of Bernie’s speech does indeed reference the sorrowful state of affairs this country is in, having applied socialism to the rich (a sort of tortuous application) but, oh dear, then he does mangle the message entirely:

          “…Across the globe, the movement toward oligarchy runs parallel to the growth of authoritarian regimes – like Putin in Russia, Xi in China, Mohamed Bin Salman in Saudi Arabia, Rodrigo Duterte in the Philippines, Jair Bolsonaro in Brazil, and Viktor Orbán in Hungary among others.

          These leaders meld corporatist economics with xenophobia and authoritarianism. They redirect popular anger about inequality and declining economic conditions into violent rage against minorities — whether they are immigrants, racial minorities, religious minorities or the LGBT community. And to suppress dissent, they are cracking down on democracy and human rights…”

          Sorry, Bernie, putting Putin and Xi at the head of that list (and even having a list at all) distorts your message into the very paranoia that accompanies and serves the military/industrial oligarchical complex you pretend to defy.

          Why are you doing this? I suspect because you seek to corral the upsurge that is terrifying your minders. I do not know if it is possible at this late day, but we need better. For if you again disappoint your followers, there may be hell to pay.

          Reply
          1. Synoia

            like Putin in Russia, Xi in China, Mohamed Bin Salman in Saudi Arabia, Rodrigo Duterte in the Philippines, Jair Bolsonaro in Brazil, and Viktor Orbán…and Donald Trump in the United States?

            Reply
  3. Abi

    Adam Smith, one of my favorite topics. I lean towards the Stieglitz school of thought re Smith and I’m of the firm opinion he wrote his thoughts on the subject and he wasn’t trying to be the law. I love to read theory of moral sentiments because I’m honestly asking the same questions he did. I quite like what Brian said about reading Smith is like reading the Bible. Takes me back to my sixth form law class on interpretations. I think out of the heart comes the issues of life and you can judge a persons character by the kind of theories they come up with. I still maintain Milton Friedman must have very questionable morals to advance such an idea. Just my thoughts.

    Reply
  4. Anonymous2

    The Wealth of Nations should be read after reading the Theory of Moral Sentiments. Smith knew that there needed to be a moral framework guiding human behaviour which has to be kept in mind at all times when considering questions of political economy. Those who read only ‘the Wealth’ will not understand this fully.

    Smith reportedly considered TMS his more important work.

    Reply
    1. L

      I agree. I think this is a general issue with philosophy or any “great thinker”. Real humans consider things and evolve and any serious philosophers will do much the same. Reading, or worse yet skimming, one work by “The Great Man” is like taking one person’s mood on one day and assuming that it is true for all time. Just as we also have a tendency to treat their thoughts without context. Smith was writing in a very specific world of small-scale manufacturing. To claim that he foresaw let alone would love our globalized hypercapitalism is idiotic.

      Reply
  5. Adam1

    I think you could almost copy Smith’s Wealth of Nations now and just update to be chronologically current. At the heart of his issues with economic society of his time was monopoly, corruption, abuse of power and the economic rent seeking that flowed from them.

    Reply
  6. Mael Colium

    There is no Nobel Prize for Economics. The economics science award was created by and donated in 1968 by the Bank of Sweden in memory of Alfred Nobel. It has nothing to do with the real Nobel Prize and it is dishonest to make that claim. Quite frankly it means bugger all in the scheme of things and is certainly not part of the Nobel Awards. The only connection can be made that it is administered by the Nobel Foundation and even that is pretty thin considering the foundation don’t make the selection. Basically it’s economists awarding economists – parasites!

    Reply
  7. David

    Smith was an 18th Century Deist, which is to say someone who saw God as a largely absent sort of chap who confined himself to winding up the Newtonian clockwork at the beginning of time and subsequently only getting involved when things seemed to be getting out of control. But he believed in a reasonable and just universe administered by a compassionate but efficient God. The ´invisible hand’ is precisely the Hand of God, intervening in the affairs of mortals to put things right. Smith was far too intelligent to believe that the market could manage optimum outcomes by itself.

    Reply
  8. WJ

    “As every individual, therefore, endeavours as much as he can both to *employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value*; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of *domestic* to that of *foreign* industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an *invisible hand* to promote an end which was no part of his intention.”

    Note the assumed relation between self-interested capital and domestic vs. foreign industry in Smith’s quote. Does that describe today’s reality at all?

    Reply
    1. WJ

      Put another way, the “invisible hand” was invoked to explain how private capital would benefit public resources by *preferring* the utilization of domestic industry over foreign industry for its own self-interested reasons. But when it no longer benefits private capital to reinvest in domestic infrastructure and industry, then it utilizes *foreign* industry. In this situation the “invisible hand” can’t be invoked at all, as it’s original intention was precisely to describe the non intentional confluence of the interests of private capital and domestic industry that would lead the one inevitably to prefer the other. But this no longer holds. Hence history has shown the “invisible hand” to be a temporary accident rather than an essential feature of the relationship between capital and public interest.

      Reply
  9. shinola

    ‘The Wealth of Nations’ was required reading when I took Econ 101 – what a slog. For some reason this snippet has stayed with me:

    “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….”

    So much for that “invisible” hand.

    Reply
  10. Devamitta

    Many videos of Chomsky debunking the false interpretations of Adam Smith by the Right are available. And he puts it all in context.

    Reply
  11. Oregoncharles

    “the science of political economy – what we now know as economics.” Adam Smith wasn’t a scientist, and economics isn’t a science. It IS political – political ideology, covered over with math.

    Reply
  12. Keith Calder

    Can today’s thinking have come from this Adam Smith?

    Adam Smith observed the reality of small state, unregulated capitalism in the world around him.

    Adam Smith on rent seeking:

    “The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”

    So, landlords, usurers and taxes all raise the cost of living and minimum wage. They suck purchasing power out of the real economy.

    Western housing booms have raised the cost of living and priced Western labour out of international markets leading to the rise of the populists.

    Trickledown, no it trickles up.

    Adam Smith on price gouging:

    “The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens.”

    So this is why hedge funds look for monopoly suppliers of drugs.
    Big is not beautiful in capitalism, it needs competition and lots of it.
    The interests of business and the public are not aligned.

    Adam Smith on lobbyists:

    “The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.”

    Not surprising TTIP and TPP didn’t go down well with the public.
    The interests of business and the public are not aligned.

    Adam Smith on the 1%:

    “All for ourselves, and nothing for other people seems, in every age of the world, to have been the vile maxim of the masters of mankind.”

    2017 – Richest 8 people as wealthy as half of world’s population
    They haven’t changed a bit.

    Adam Smith on Profit:

    “But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin.”

    Exactly the opposite of today’s thinking, what does he mean?

    When rates of profit are high, capitalism is cannibalising itself by:
    1) Not engaging in long term investment for the future
    2) Paying insufficient wages to maintain demand for its products and services

    Today’s problems with growth and demand.

    Amazon didn’t suck its profits out as dividends and look how big it’s grown (not so good on the wages).

    Reply
  13. Paul Hirshman

    “Adam Smith’s works remain vital because our need to identify and understand the values of a market society, to take advantage of its unique powers and temper its worst impulses, is as important as at any time in the previous two centuries.”

    No, reading Smith is not important to understand the values of market society–to do that one only need read THE GREAT TRANSFORMATION. Reading Smith is important to understand the values of the people who use Smith to argue for this or that agenda. Smith the cipher is what we’re talking about, not Smith the thinker.

    Reply
  14. Synoia

    Smith would soon earn a reputation as the father of the science of political economy – what we now know as economics. Initially, political economy was a branch of moral philosophy; studying political economy would equip future statesmen with the principles for making a nation wealthy and happy.

    1. Beg to differ, political economy is more a religion than science (Science requires repeatable experiments).

    2. We’ve increased our knowledge of science greatly since the 1780s. MMT springs to mind, especially the part about sovereign in one’s own currency, In 1780 gold was sovereign.

    3. Belief in invisible, all powerful, divine beings was a required core belief in 1790. Today, not “required.”

    This is as applicable as ever: (KJ Version)

    Beware of false prophets, which come to you in sheep’s clothing, but inwardly they are ravening wolves. Ye shall know them by their fruits. Do men gather grapes of thorns, or figs of thistles? Even so every good tree bringeth forth good fruit; but a corrupt tree bringeth forth evil fruit. A good tree cannot bring forth evil fruit, neither can a corrupt tree bring forth good fruit.

    Modern Version: (Al Franken)
    Lies and the Lying Liars Who Tell Them

    Reply

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