A WIDE CANVAS
ADAM SMITH & ADAM SMITH
Most of us are likely to have heard of this name 'Adam Smith'. Educated people, with the habit of reading newspapers, would have come across this name since the nineties when India is supposed to have launched on liberalisation, Both its votaries and opponents invoke his name either as the hero- author of free enterprise, advocate of laissez-faire economics, or as the villain who paved the way for capitalist exploitation. And , as usual in such cases, both are wrong; neither have read, or understood Adam Smith.
Adam Smith, the moral philosopher
Adam Smith was not an economist, in the sense that word is understood today: a professional idler, inventing airy theories which explain nothing , help no country- a set of people covering their ignorance with high jargon and even higher mathematics,so that no one would understand and call their bluff! Rightly did John Kenneth Galbraith say that economics was useful as a source of employment for economists! The more miserable the economy, the more prosperous are the economists! They multiply and flourish where the economy flounders and sinks! Half of them create the problems which the other half pretends to solve. The problems keep growing or showing up in new guises, and so does their tribe! They are so creative that where they do not understand a problem, and cannot solve it, they create new games and invent new names. Churchill once quipped that the word 'deflation' had become unpopular and so they called it 'disinflation'. When this word also became unpopular, the Chancellor of the Exchequer would call it 'nonundisinflation'. Unfortunately today, neither our equivalents of the Chancellor of the Exchequer nor his lorry-loads of economic advisers and the bureaucratic henchmen are capable of even such invention! It is nice entertainment- where the economist will propose and the babu will dispose- they don't need a god or devil for this!
Gem from Scotland.
No, Smith was not an economist at all. He was human, and sensible. He was Professor of Moral Philosophy at Glasgow.He belonged to an extraordinary band of Scottish thinkers who grappled with human problems and tried to find solutions outside the framework of religious theology, adopting empirical methods.
David Hume and Adam Smith.
National Portraits Gallery of Scotland.
By Kim Traynor, (Own work)CC BY -SA 3.0 creativecommons via wikimedia commons.
18th century Scotland was a heady place to be in- the intellectual climate was so dazzling, with philosophers like Francis Hutcheson, David Hume, George Turnbull, Thomas Reid, Henry Home, Adam Ferguson, and Dugald Stewart stirring the mind. Adam Smith cannot be understood except in this background. Horace Walpole said in 1758: "Scotland is the most accomplished nation in Europe". And Voltaire declared: "It is to Scotland that we look for our idea of civilization".
Smith stumbled on to economics through his preoccupation with moral or social philosophy. His basic interest was how to make human life better- " that great purpose of human life which we call bettering our condition". He did not regard man as an economic animal, as subsequent economists did, and still do.
The Theory of Moral Sentiments
He found it necessary to first understand human nature as the key to betterment of their condition, and the economic element was an important factor, but not the sole element. His fundamental ideas are stated in his first book "The Theory of Moral Sentiments" (1759). His name got established on this publication, seventeen years before he published the more famous " The Wealth of Nations". 'The Wealth of Nations' is not a stand-alone, and cannot be understood except in the light of the former.
Cover of the publication by Filiquarian Publishing,Llc., 2007.
Smith found that human beings are endowed by Nature with certain tendencies and propensities. Most human beings have a natural sympathy for others- to be happy when others are happy, and to feel sad when others are so. This is a sort of fellow-feeling. Yet, this feeling is not as though he is himself having the real happiness or pain of the others. At the same time, there is also a tendency to regard the self above the others, and make its interests the main concern- this is where self-interest is converted into pure selfishness. This can lead man to hurt himself, and hurt others. Religion, morality, ethics teach man to keep self -interest within limits, so that they would not harm themselves. Justice and law are there to ensure that one's preoccupation with self does not result in harm to others. It is because man is thus endowed with some natural sympathy that social life is possible; but a strong base of law and justice is required to keep undesirable tendencies in check. As man develops his moral character, he is able to follow self- imposed discipline.A cultured person obeys the traffic rules not because there is a policeman. Thus fundamental to a good life is the cultivation of moral character. Man seeks approval of his fellowmen, but he also realises that he has to become worthy of such approval. Says Smith:
Nature, when she formed man for society , endowed him with an original desire to please, and an original aversion to offend his brethren. She taught him to feel pleasure in their favourable, and pain in the unfavourable regard. She rendered their approbation most flattering and most agreeable to him for its own sake; and their disapprobation most mortifying and most offensive, (III.2.6.)
This desire of the approbation, and this aversion to the disapprobation of his brethren, would not alone have rendered him fit for that society for which he was made. Nature, accordingly, has endowed him not only with a desire of being approved of, but with a desire of being what ought to be approved of; or what he himself approves of in other men. (III.2.7)
(The Theory of Moral Sentiments.)
Thus, as man grows in his moral being, he develops a conscience. As people develop on these lines, it results in general morality or rules of social behaviour.One may say this is what religion ultimately aims at teaching man: Do unto others what you would like others to do unto you. The systems of our law and justice seek to maintain and reinforce.such a framework.
Economic life based on deception!
One aspect of this "better life" certainly has to do with our livelihood- the economic life. We seek to increase our possessions and material comforts. Here Smith pointed out a basic paradox: such quest for continuous increase in our material comforts was not likely to be realised, but it is this deceptive quest that keeps the economy going!
......it is well that nature imposes upon us in this manner. It is this deception which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and prove all the sciences and arts, which ennoble and embellish human life, which have entirely changed the whole face of the globe. (IV.1.10)
It is thus man's nature to work for his betterment. It is here that Smith entered into the economic realm which he developed fully in 'The Wealth of Nations'. (We will call it WN) His economics is thus an aspect of his moral or social philosophy.
An Inquiry into the Nature and Causes of
The Wealth of Nations!
WN is a BIG book, running into a thousand pages. But his basic propositions are simple. The bulk is because of his analytical skills, historical analysis, and his eagerness to explain himself clearly and fully. And then account for the language and usage of the 18th century. The result is a masterpiece of social philosophy, economic analysis, economic and social history and literary genius.
Smith found the key to human prosperity in human industry. He begins WN with this:
The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes,and which consists always either in the immediate produce of that labour, or in what is purchased with that labour from other nations.
(Introduction and plan)
The picture is from National Portraits Gallery, London....the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather precisely the same thing with that exchangeable value. (WN, Book IV, Chap.II)
These are tremendous sentences which at once lay the foundation of a theory of value, theory of annual national accounting, international trade, etc.
Self-interest and public good
Smith found the key to productivity in the division of labour and the resulting specialisation. But human industry can flourish only when it is given freedom. Accordingly Smith advocated freedom for enterprise. Govt runs through bureaucrats and they cannot do better than what people themselves can do. When there are many players in the market, and there is competition, it will ensure that the common interest is served.
Here, Smith revealed himself as a social philosopher. He understood that man seeks his own satisfaction; but in society this is not possible unless he also contributes to the satisfaction of others! In a paragraph of great beauty, he said:
In civilised society he stands at all times in need of the cooperation and assistance of great multitudes , while his whole life is scarce sufficient to gain the friendship of a few persons.....man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour.....It is not from the benevolence of the butcher, the brewer, the baker that we expect our dinner, but from their regard for their own interest. (Book I, chap.II)
Man no doubt begins with self-love, but there is something in society which somehow converts this self-love (care: not selfishness) into mutual satisfaction of desires. It is my very regard for my interests which makes me cater to the other person,without whom my interests remain unfulfilled. Later, Smith made a more daring statement.
The Invisible Hand
As every individual....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.....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. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. (Book IV, chap.II)
Many people have quoted this phrase "invisible hand" out of context, without understanding it, perhaps without having even read it. It is not as though he intended the gods to correct the greed of men; it is that in a decent society, no one can live for himself and his own good is possible only when he serves the good of others and there is indeed such a mechanism operating in nature. On the contrary we have seen how the public sector organisations start with the grand intention of contributing to welfare, and end up swallowing tax money and feeding bureaucrats and as the pocket borough of some politicians. We see here Smith asserting himself as the social philosopher that he really is, with confidence in the decency of man in civilised societies. He did not regard man as primarily a utility enhancing animal, into which modern economists have converted him.
Leftist lies
Adam Smith is painted by the leftists as the patron saint of the die-hard capitalists. In this, the leftists are totally deranged and dishonest. Smith lived in an age of mercantilists, where a group of wealthy merchants and industry owners controlled the govt and dictated the policies. He was strongly reacting against this: he pleaded that the economy is best served by making people free, so that their natural propensity to work for their interests would result in prosperity. He wanted a large number of small players, not a small group of influential merchants and manufactures to corner and control the economy. He unequivocally said that :
"the oppression of the poor must establish the monopoly of the rich".; and "profit is always highest in the countries which are going fastest to ruin".
He said that people of the same industry or trade seldom met together but the meeting always ended in a conspiracy against the public! Smith made a distinction between the profits of honest enterprise, and 'pernicious gain'. The way to control enterprises was not through more laws or regulation, but through freedom and competition.
Duties of the govt.
Smith was very clear that the govt (Sovereign) was not endowed with the wisdom or knowledge to discharge the "duty of superintending the industry of private people".
Regarding the overall objects of the economic system,he said:
Political economy, considered as a branch of the science of a statesman or legislator, proposes two distinct objects: first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services. It proposes to enrich both the people and the sovereign. (Introduction, Book IV)
He clearly said that the govt had only three duties:
- the duty of protecting the society from the violence and invasion of other independent societies
- the duty of protecting every member of the society from the injustice and oppression of every other member.
- the duty of erecting and maintaining certain public utilities and public institutions, which individuals could not do.
But those who run the govt are not the best of people. About politicians (and, we may add, bureaucrats-their side-kicks), he said:
They have little modesty; are often assuming, arrogant,and presumptuous; great admirers of themselves, and great contemners of other people....how easily the multitude are imposed upon by the most extravagant and groundless pretensions.
But the philosopher that he is, he states::
What institution of government could tend so much to promote the happiness of mankind as the general prevalence of wisdom and virtue? All government is but an imperfect remedy for the deficiency of these.
Wisdom and virtue! These words immediately remind us of Socrates and Plato!
Philosophers: Smith and others
In a sense, Socrates and Plato were not practical. And philosophers ever since have been even less wise and less practical. Smith is merciless about them. In 'The Moral Sentiments', he said that thinkers :
reduced their doctrine into... a technical system of artificial definitions, divisions and subdivisions.
In Smith's view, this is:
"one of the most effectual expedients, perhaps, for extinguishing whatever degree of good sense there may be in any moral or metaphysical doctrine.
Echoing these thoughts in WN, he says:
There is nothing so absurd....which has not sometimes been asserted by some philosophers.
Philosophers are apt to cultivate with a peculiar fondness, as the great means of displaying their ingenuity, the propensity to account for all appearances from as few principles as possible.
This is where Smith scores over all philosophers. Most of them build systems, are lost in their ideology, confuse their opinions for reality, and end up hopeless idealists or utter pessimists. Smith avoided all these dangers. He had his ideals, but never lost touch with reality. There are two sides to his work. On the one hand , he knew how the good economy should be; but he also knew human nature. He knew he had to work with people as they are, and did not try to mould them into an ideal. He identified their strength ( regard for self-interest, for example); instead of condemning it and trying to eradicate it, he tried to see how it could be used to further society's interests and he did identify such a principle. He knew merchants and manufacturers had their interests first; but instead of finishing them off as leftists claim to do, he found a way to check them: freedom and mutual competition. He knew the govt was necessary, but he laid down what it was necessary for it to do. He was for free trade, even between countries and laboured to show how it was always beneficial for both; but he did work as the commissioner of customs! He knew that people in general had a fellow-feeling,but he also knew that it was not strong enough to check wrong tendencies. Freedom, Competition and Justice- these are the three elements of his economic prescriptions.
Adam Smith, the Man
National Portraits Gallery, London.
Perhaps, the greatest aspect of Smith was as a Man- more than a philosopher and economist. He led a clean life. He began as a professor in Glasgow, and he was such a popular teacher that people came from even Russia to sit in his classes. He was highly principled. He got appointed as tutor to some Duke and had to accompany him to France. So he gave up his post. But since it was mid-term, he did not want to retain the full fees that the students had paid, He tried to refund them. But he was so highly regarded, that the students would not accept it! But he caught hold of the nearest fellow and thrust the money in his pocket!
Some incidents bring out his sterling character. He was given a life-pension by the duke for his tutoring; the duke had high regard for him. Later, the duke got him appointment as commissioner of customs- a post his father had held! Immediately, he wanted to return the pension. But the duke would not hear of it- for , he did not want to give the impression that he got him the post to save the pension! And as commissioner of customs, Smith realised that all his clothes were of smuggled fabric- including his handkerchief!- which was against customs regulations! He burned all his clothes!
Once unfulfilled in love, he remained unmarried, devoted to his mother and sister and the family. He spent most of his income on charity, which people came to know only incidentally,or later. That he gave a distant relative 200 pounds ( nine months' pension) to save him from selling his army commission to meet his upkeep, we came to know only when his letter was auctioned in 1963!
We read nice words -very nice words- uttered by philosophers; but what we learn about them is not always edifying.
Most people who are studied in the history of philosophy are known for their ideas, not for personal contribution.( ie character or conduct.) What one knows about people like John Locke,Kant and others would not inspire any admiration. What we know of figures like Descartes, Hume, Hegel, and Russel is not always commendable.
(Richard Popkin: Spinoza, p.124 Oneworld Publication)
What a pleasant contrast it is to read about Adam Smith, besides reading his works! He is one we can admire not only for the nature of his thoughts and contribution but also for the quality of his life. We can proclaim with Shakespeare:
His life was gentle, and the elements
So mixed in him that Nature might stand up
And say to all the world, "This was a man".
(Julius Caesar)
When comes another such,
In whom qualities of head and heart match?
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