Adam Smith:
Science and Human Nature
EMERITUS ADAM SMITH PROFESSOR
ANDREW SKINNER1
Abstract: The paper opens with a quotation from Professor Muhammad
Yunus objecting to the one-dimensional
representation of human
nature which is common in modern economics.
The bulk of the paper
is concerned with Adam Smith and his system
of social science which
consists of three major parts, mainly –
ethics, history and economics.
Implications of Smith’s position on human
nature are indeed multidimensional.
In conclusion, it is pointed out that Smith’s
separation
of ethics, history and economics made it
possible through later
generations to regard economics as a separate
autonomous discipline.
This paved the way for the kind of development
of which Prof Yunus
was the critic.
Keywords: system of social science, human nature, jurisprudence,
moral philosophy, economic liberalism,
allocative mechanism
1 Prof Skinner is a Fellow of the British Academy
articles, mainly concerned with 18th century
topics. He has edited Sir James Steuart’s
Principles (1966, 1998) and Smith’s Wealth of Nations 1970, 1999 (Penguin Books).
He has co-edited the Wealth of Nations 1975 (with R H Campbell and W B Todd)
published by Oxford
Science: Papers Relating to Adam Smith (1979, 1996). The substance of Sections II
– VI in this paper has appeared in a number
of locations, most recently in The Royal
Bank of Scotland
IN a notable passage, Nobel Peace Laureate Muhammad Yunus once
remarked that the economists’ view of ‘human
nature’ was ‘one
dimensional’. Yunus contended that ‘People
are not one-dimensional
entities; they are exceedingly
multi-dimensional. Their emotions, beliefs,
priorities and behaviour patterns can best be
compared to the millions
of shades we can produce from the three
primary colours.’ (Yunus 2007,
p19; cf Pp21 and 290) This article is about
Adam Smith, but it is hoped
that in expounding the elements of his system
it will be possible to
illustrate the point that Smith would have
had every sympathy with
Professor Yunus’s rejection.
In what follows, Smith’s system will be
expounded in terms of the
order of argument which he is known to have
employed as a lecturer;
namely, ethics, jurisprudence and economics.
But it will be convenient
to begin with his treatment and knowledge of
the literature of science.
Section I: The Literature of Science
It should be recalled that each separate
component of Smith’s system
represents scientific work in the style of Newton
whole which was conceived in the same image.
Smith’s scientific
aspirations were real, as was his
consciousness of the methodological
tensions which may arise in the course of
such work.
Smith’s interest in mathematics dates from
his time as a student in
Glasgow (Stewart, 1.7). He also appears to
have maintained a general
interest in the natural and biological
sciences, facts which are attested
by his purchases for the University Library
(Scott 1937, p182) and for his
own collection (Mizuta 2000). Smith’s ‘Letter
to the Authors of Edinburgh
Review’(1756), where he warned against any undue
preoccupation with
Scottish literature, affords evidence of wide
reading in the physical
sciences, and also contains references to
contemporary work in the
French Encyclopedie as
well as to the productions of Buffon, Daubenton
and Reaumur. DD Raphael has argued that the
Letter owes much to
Hume. (TMS, 10, 11)
The essay on astronomy, which dates from the
same period (it is
known to have been written before 1758 and
may well date from the
with more modern sources, such as Galileo,
Kepler and Tycho Brahe, a
salutary reminder that an eighteenth century
philosopher could work
close to the frontiers of knowledge in a
number of fields.
But Smith was also interested in science as a
form of communication,
arguing in the LRBL (see Abbreviations) that
the way in which this type
of discourse is organised should reflect its
purpose as well as a judgement
as to the psychological characteristics of
the audience to be addressed.
In a Lecture delivered on 24 January 1763 Smith noted that didactic
or scientific writing could have one of two
aims: either to ‘lay down a
proposition and prove this, by the different
arguments that lead to that
conclusion’ or to deliver a system in any
science. In the latter case Smith
advocated what he called the Newtonian
method, whereby we ‘lay down
certain principles known or proved in the
beginning, from whence we
account for the several phenomena, connecting
all together by the same
Chain’. (LRBL, ii.133) Two points are to be
noted. First, Smith makes it
clear that Descartes rather than Newton
of exposition, even although the former was
now perceived to be the
author of ‘one of the most entertaining
Romances that have ever been
wrote’. (LRBL, ii.134; Letter 5) Secondly,
his reference to the pleasure to
be derived from the ‘Newtonian method’ (LRBL,
ii, 134) draws attention
to the problem of scientific motivation, a
theme which was to be
developed in the ‘Astronomy’ where Smith
considered those principles
‘which lead and direct philosophical
enquiry’.
Smith made extensive use of mechanistic
analogies, sometimes
derived from Newton
we may observe ‘means adjusted with the
nicest artifice to the ends which
they are intended to produce’. (TMS, II.ii.3.5)
In the same way he noted
that ‘Human society, when we contemplate it
in a certain abstract and
philosophical light, appears like a great, an
immense machine’, (TMS,
VII.ii.1.2) a position which leads quite
naturally to a distinction between
efficient and final causes, (TMS, II.ii.3.5)
which is not inconsistent with
the form of Deism associated with Newton
so sympathetic a thinker as Smith should have
extended the mechanistic
analogy to systems of thought.
Systems in many respects resemble machines, a
machine is a little
system created to perform, as well as to
connect together, in reality,
those different movements and effects which
the artist has occasion
for. A system is an Imaginary machine
invented to connect together in
the fancy those different movements and
effects which are already in
reality performed. (Astronomy, IV.19)
Each part of Smith’s contribution is in
effect an ‘imaginary’ machine
which conforms closely to his own stated
rules for the organisation of
scientific discourse. All disclose Smith’s
perception of the ‘beauty of a
systematical arrangement of different
observations connected by a few
common principles’. (WN, V.i.f.25) The whole
reveals much as to Smith’s
drives as a thinker, and throws an important
light on his own marked
(subjective) preference for system, coherence
and order.
Section II: Ethics, Jurisprudence and Economics
Smith’s teaching from the Chair of Moral
Philosophy (1752-64) was
divided into four parts. It is known that he
lectured on natural theology,
ethics, jurisprudence, and economics in that
order and in a style which
confirms his debt to his old teacher, Francis
Hutcheson, under whom he
studied between 1737 and 1740. It is also
clear that the lectures on ethics
formed the basis of The Theory of Moral Sentiments (TMS) and that the
subjects covered in the last part of the
course were further to be developed
in The Wealth of Nations (WN).
Adam Smith had a very definite research
programme in mind from
an early date; a point to which he made
reference in the concluding
passages of the first edition of the Theory of Moral Sentiments (TMS). The point
was also repeated in the advertisement to the
sixth and last edition of
the work (1790) where Smith indicated that
his two great works were
two parts of a plan which he hoped to
complete by giving ‘an account of
the general principles of law and government,
and of the different
revolutions which they had undergone in the
different ages and periods
of society.’
Smith did not live to complete his plan
partly as a result of his
appointment, in 1778, as Commissioner of
Customs. But the shape of
the study may well be reflected in the Lectures on Jurisprudence (1896,
1978).
The three parts of Smith’s great plan are
highly systematic; each
discloses a debt to contemporary scientific
work especially in the fields
of biology and Newtonian physics, all are
interdependent.
The TMS, which builds upon the analyses of
Hutcheson and David
Hume is primarily concerned with the way in
which we form moral
judgements. It was also designed to explain
the emergence, by natural
as district from artificial means, of those
barriers which control our selfregarding
and un-social passions. The argument gives
prominence to
the emergence of general rules of conduct,
based upon experience, which
include the rules of law. The analysis also
confirms that accepted standards
of behaviour are related to environment and
that they may vary in different
societies at the same point in time and in a
given society over time.
The lectures on jurisprudence on the other
hand, help to explain
the emergence of government and its changing
structure in terms of an
analysis which features the use of four
distinct types of socio-economic
environment; the celebrated stages of
hunting, pasture, agriculture and
commerce. Smith’s work on ethics was closely
linked with the economic
analysis which was to follow. For example, if
Smith gave prominence to
the role of self-interest in this context,
auditors of his lecture course and
readers of the TMS would be aware that the
basic drive to better our
condition was subject to a process of moral
scrutiny. It would also be
appreciated that economic aspirations had a
social reference in the sense
that it is chiefly from a regard ‘to the
sentiments of mankind, that we
pursue riches and avoid poverty’. (TMS,
I.iii.2.1) Later in the book the
position was further clarified when Smith
noted that we tend to approve
the means as well as the ends of ambition:
‘Hence . . . that eminent
esteem with which all men naturally regard a
steady perseverance in the
practice of frugality, industry, and
application’. (TMS, IV.2.8)
The lectures on jurisprudence helped Smith to
specify the nature of
the system of positive law which might be
expected in the stage of
commerce and also threw some light on the
form of government which
might conform to it together with the
political pressures to which it may
be subject.
The treatment of jurisprudence is also
important in that it helps to
explain the origins of the modern economy and
the emergence of an
institutional structure where all goods and
services command a price. It
is in this context that ‘Every man . . .
Lives by exchanging, or becomes in
some measure a merchant’ (WN,’I.iv.1); a
position which leads to Smith’s
famous judgement that:
‘It is not from the benevolence of the
butcher, the brewer, or the baker
that we expect our dinner, but from their
regard to their own interest.
We address ourselves, not to their humanity
but to their self-love, and
never talk to them of our own necessities but
of their advantages.
Nobody but a beggar chooses to depend chiefly
upon the benevolence
of his fellow Citizens. Even the beggar does
not depend upon it
entirely.’ (WN, I.ii.2)
Economic Analysis and Economic Liberalism
As far as the purely economic analysis is
concerned, it is sufficient to be
reminded that in The Wealth of Nations the theory of price and allocation
was developed in terms of a model which made
due allowance for distinct
factors of production (land, labour, capital)
and for the appropriate forms
of return (rent, wages, profit). This point,
now so obvious, was an
innovation of genius by Smith and permitted
him to develop an analysis
of the allocative mechanism which ran in
terms of inter-related
adjustments in both factor and commodity
markets. The resulting version
of general interdependence also allowed Smith
to move from the
discussion of ‘micro’ to that of ‘macro’
economic issues, and to develop
a model of the ‘circular flow’ which relies
heavily on the distinction,
already established by the contemporary
French economists, between
fixed and circulating capital.
But these terms, which were applied to the
activities of individual
undertakers, were transformed in their
meaning by their application to
society at large. Working in terms of period
analysis where all magnitudes
are dated, Smith in effect represented the
working of the economic
process as series of activities and
transactions which linked the main
socio-economic groups (proprietors,
capitalists, and wage-labour) and
productive sectors. In Smith’s terms, current
purchases in effect withdrew
consumption and investment goods from the
circulating capital of society;
goods which were in turn replaced by virtue
of productive activity in the
same time period.
We should note in this context that Smith was
greatly influenced by
a specific model of the economy which he came
across during a visit to
economic system treated as an organism. It
was first produced by Francois
Quesnay, a medical doctor, and developed by A
R J Turgot. (Meek 1962,
1973) The significance of the analogy of the
circulation of the blood
would not be lost on Smith – and nor would be
the link with William
Harvey, a distinguished member of the medical
school of Padua
notable exponent of a methodological approach
which held that ‘the
way to understand something is to take it
apart, in deed or in thought,
ascertain the nature of its parts and then
re-assemble it – resolve and
recompose it.’ (Watkins 1965, p52)
Looked at from one point of view, the
analysis taken as a whole
provides one of the most dramatic examples of
the doctrine of
‘unintended social outcomes’, or the working
of the ‘invisible hand’.
Adam Smith: Science and Human Nature – EMERITUS PROF
ANDREW SKINNER
The individual entrepreneur, seeking the most
efficient allocation of
resources, contributes to overall economic
efficiency; the merchant’s
reaction to price signals helps to ensure
that the allocation of resources
accurately reflects the structure of consumer
preferences; the drive to
better our condition contributes to economic
growth. Looked at from
another perspective, the work can be seen to
have resulted in a great
conceptual system linking together logically
separate, yet inter-related,
problems such as price, allocation,
distribution, macro-statics and macrodynamics.
If such a theory enabled Smith to isolate the
causes of economic
growth with the emphasis now on the supply
side, it was also informed
throughout by what Terence Hutchison has
described as the ‘powerfully
fascinating idea and assumption of beneficent
self-adjustments and selfequilibration’.
(Hutchison 1988, p68)
Smith’s prescriptions, with regard to
economic policy, followed
directly on this analysis. In a system which
depended on the efforts of
individuals, if it was to function
efficiently, Smith argued that the sovereign
should discharge himself from a duty:
‘in the attempting to perform which he must
always be exposed to
innumerable delusions, and for the proper
performance of which
no‘human wisdom or knowledge could ever be
sufficient, the duty of
superintending the industry of private
people, and of directing it
towards the employments most suitable to the
interest of the society.’
(WN, IV.ix.51)
In a further passage Smith drew attention to
that ‘security which the
laws in Great Britain
his own labour’ and attributed the country’s
contemporary performance
to the fact that the ‘natural effort to every
individual to better his own
condition, when suffered to exert itself with
freedom and security, is so
powerful a principle, that it is alone, and
without any assistance, not
only capable of carrying on the society to
wealth and prosperity, but of
surmounting a hundred impertinent
obstructions with which the folly
of human laws too often encumbers its
operations’. (WN,’IV.v.b.43) But
within this general frame, Smith’s views on
economic and social policy
were often subtle, surprising and
illuminating.
Section III: Mercantilism and America
It will come as no surprise to find so much
of The Wealth of
Nations
devoted to a very violent attack on what
Smith called the mercantile
system, ‘a system which was best understood
in our own country and in
our own times.’ (WN, IV.2) As Smith describes
it, the system was based
upon regulation in the interests of a
positive balance of trade. In intention
such a policy was restrictive and therefore
liable to that ‘general objection
which may be made to all the different
expedients of the mercantile
system; the objection of forcing some part of
the industry of the country
into a channel less advantageous than that in
which it would run of its
own accord.’ (WN, IV,v.a.24)
Smith’s treatment of the Colonial
relationship with America
centrepiece of British policy, provides an
interesting and often topical
example.
On Smith’s account, the Regulating Acts of
Trade and Navigation in
effect confined the American Colonies to
primary products while Great
on in British ships. The net result was a
subtle system of complementary
markets which benefited both parties. Smith
perceived, however, that
the policy was fundamentally flawed in the
sense that the relationship
could not in the long-run be sustained.
The problem as Smith saw it lay in the fact
that the rates of growth in
the two countries would be different. Such
differences could be explained
in a number of ways. As Smith argued, there
were differences in
institutional arrangements, factor endowments
and in the degree of
maturity of the two economies. But in
practice he placed most emphasis
on the fact that the Regulating Acts would
themselves cause significant
variations in performance.
In the case of America
was confined to primary products created the
optimal conditions for
growth in an undeveloped economy. While he
believed that these
restrictions were a ‘manifest violation of
one of the most sacred rights of
mankind’ he also pointed out that the
restrictions were unlikely to be
burdensome in the ‘present state of
improvement’ of the colonies. (WN,
IV.vii.b.44) But in the longer run, the
potential for economic growth in
a change.
In the case of Great Britain
was attributable to Britain
and on the fact that she had become
increasingly dependent on the distant
trade with America
all else he emphasised the point that the
whole burden of the costs of
maintaining the Empire fell upon the British
economy with consequent
effects on public debt and on the level of
taxation.
Smith’s solution was dramatic but entirely
consistent with the general
tenor of his critique of the mercantile
system. He recommended that
and create a single, gigantic, free trade area – an Atlantic Economic
Community. Smith advocated the creation of a
single state with a
harmonised system of taxation possessing all
the advantages, as he saw
them, of a common language and culture.
In passages which remind us of Smith’s
interest in constitutional
and political issues, he pointed out that
such a solution would require
prompting the thought that:
‘in the course of little or more than a
century, perhaps, the produce of
American might exceed that of British
taxation. The seat of empire
would then naturally remove itself to that
part of the empire which
contributed most to the general defence and
support of the whole’
(WN, IV.vii.c.70): Philadelphia London
By 1776 the opportunity, as he saw it, had
been lost and military
defeat was the most likely outcome:
‘The plan which, if it would be executed,
would certainly tend most to
the prosperity, to the splendour, and to the
duration of the empire, if
you except here and there a solitary
philosopher like myself, seem
scarce to have a single advocate.’ (Corr,
382.)
But even here Smith contemplated the loss of America
equanimity, believing as he did that Great Britain
exploit in Europe – and that trade with America
course, provided always that a more liberal
policy was adopted.
Domestic Policy
Smith’s treatment of domestic policy shows
evidence of the same preoccupation
with an environment which would best release
individual
effort and maximise both incentive and
efficiency. For example, he
recommended that the statutes of
apprenticeship and the privileges of
corporations be repealed on the ground that
they adversely affect the
working of the allocative mechanism. In the
same chapter Smith pointed
to barriers to the movement of labour
represented by the Poor Laws and
Laws of Settlement. (cf WN, I.x.c; IV.ii.42)
Smith’s basic objection was to positions of
privilege, such as
monopoly powers, as being both unjust and
impolitic; unjust in that a
position of monopoly is a position of unfair
advantage and impolitic in
that the prices of goods so controlled are
‘upon every occasion the highest
that can be got’. But at the same time Smith
advocated a series of policies
– all catalogued by Jacob Viner (1927) –
which range from government
control of the coinage to regulation of
mortgages and the legal
enforcement of contracts.
Four broad areas of intervention recommended
by Smith are of
particular interest, in the sense that they
involve issues of general
principle. First, he advised governments
that, where they were faced
with taxes imposed by their competitors in
trade, retaliation could be in
order especially if such an action had the
effect of ensuring the ‘repeal
of the high duties or prohibitions complained
of ’. (cf Winch 1983, p509)
Secondly, Smith advocated the use of
taxation, not simply as a means of
raising revenue, but as a means of
controlling certain activities, and of
compensating for what would now be known as a
defective telescopic
faculty, i.e. a failure to perceive our
long-run interest, (cf WN, V.ii.g.4;
V.ii.k.50; V/ii.g.12) commonly now referred
to as ‘short-termism’.
Smith was also well aware that the modern
version of the ‘circular
flow’ depended on paper money and on credit;
in effect a system of
‘dual circulation’ involving a complex of
transactions linking producers
and merchants, dealers and consumers; (WN,
II.ii.88) transactions that
would involve cash (at the level of the
household) and credit (at the
level of the firm). It is in this context
that Smith advocated control over
the rate of interest, set in such a way as to
ensure that ‘sober people are
universally preferred, as borrowers, to
prodigals and projectors’. (WN,
II.iv.15) He was also willing to regulate the
small note issue in the interests
of a stable banking system.
Although Smith’s monetary analysis is not
regarded as amongst the
Adam Smith: Science and Human Nature – EMERITUS PROF
ANDREW SKINNER
strongest of his contributions, it should be
remembered that he witnessed
the collapse of major banks in the 1770s (may
even have been personally
a victim of one such) and was acutely aware
of the problems generated
by a sophisticated credit structure. It was
in this context that he articulated
a very general principle, namely, that ‘those
exertions of the natural liberty
of a few individuals, which might endanger
the security of the whole
society, are, and ought to be restrained by
the laws of all governments;
of the most free, as well as of the most
despotical’. (WN, II.ii.94)
Emphasis should be given, finally, to Smith’s
contention that a major
responsibility of government must be the
provision of certain public
works and institutions for facilitating the
commerce of the society which
were ‘of such a nature, that the profit could
never repay the expence to
any individual or small number of
individuals, and which it, therefore,
cannot be expected that any individual or
small number of individuals
should erect or maintain’ (WN,’V,i.c.1). In
short, he was concerned to
point out that the state would have to
organise services or public works
which the profit motive alone could not
guarantee.
The examples of public works which Smith
provided include such
items as roads, bridges, canals and harbours
– all thoroughly in keeping
with the conditions of the time and with
Smith’s emphasis on the
importance of transport as a contribution to
the effective operation of
the market and to the process of economic
growth.
The theme is continued in his treatment of
another important service,
namely education; a subject which is
developed in the course of Smith’s
discussion of the social and psychological
costs of economic growth.
Section IV: Education – The Costs of Economic Growth
It will be recalled that for Smith moral
judgement depends on our capacity
for acts of imaginative sympathy and that
such acts can only take place
within the context of some social group.
(TMS, III.i.3) However, Smith
also observed that these mechanisms might
break down in the context
of the modern economy, due in part to the
size of some manufacturing
units and of the cities which housed them.
If the problems of solitude and isolation
consequent on the growth
of cities explain Smith’s first group of
points, a related trend in the shape
of the division of labour helps to account
for the second. In discussing
this important source of economic benefit
(which is emphasised to an
extraordinary degree in The Wealth of Nations) Smith noticed that it
could involve costs. Or, as Smith put it in
one of the most famous passages
in his major work:
‘In the progress of the division of labour,
the employment of the far
greater part of those who live by labour,
that is, of the great body of the
people, comes to be confined to a few very
simple operations; frequently
to one or two. But the understandings of the
greater part of men are
necessarily formed by their ordinary
employments. The man whose whole
life is spent in performing a few simple
operations, of which the effects
too 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.’ (WN,
V.i.f.50)
It is the fact that the ‘labouring poor, that
is the great body of the
people’ must necessarily fall into the state
outlined that makes it necessary
for government to intervene.
Smith’s justification for intervention is, as
before, market failure, in
that the labouring poor, unlike those of rank
and fortune, lack the leisure,
means, or (by virtue of their occupations)
the inclination to provide
education for their children. (WN, V.i.f.53)
In view of the nature and
scale of the problem, Smith’s programme seems
rather limited, but he
did argue that the poor could be taught ‘the
most essential parts of
education. . . to read, write, and account’
together with the ‘elementary
parts of geometry and mechanics’. (WN,
V.i.f.54,55)
It is interesting to observe in this context
that Smith was prepared to
go so far as to infringe the natural liberty
of the subject, at least where
the latter is narrowly defined, in
recommending that the ‘public can
impose upon almost the whole body of the
people the necessity of
acquiring those most essential parts of
education, by obliging every man
to undergo an examination or probation in
them before he can obtain
the freedom in any corporation, or be allowed
to set up any trade either
in a village or town corporate.’
(WN,V.i.f.57)
Distinct from the above, although connected
with it, is Smith’s
concern with the decline of martial spirit
which is the consequence of
the nature of the fourth, or commercial
stage. In The Wealth of
Nations
Smith seems to have had in mind the provision
of some kind of military
education which he supported as a
contribution to the well-being of the
individual. (WN, V,i.f.60)
Smith also sought to encourage an informed ‘middling
rank’ and
suggested that government should act ‘by
instituting some sort of
probation, even in the higher and more
difficult sciences, to be undergone
by every person before he was permitted to
exercise any liberal
profession, or before he could be received as
a candidate for any
honourable office of trust or profit.’ (WN,
V.i.g.14)
The Organisation of Public Services
Smith not only identified the various
services which the state was expected
to provide; he also gave a great deal of
attention to the forms of
organisation which would be needed to ensure
and to induce efficient
delivery.
In the discussion of defence, for example, he
expressed a preference
for a standing army to a militia because the
former would be more
specialised and therefore more efficient.
(WN, V.i.a.14)
In the case of justice, Smith contended that
the sovereign has the
duty ‘of protecting, as far as possible,
every member of the society from
the injustice or oppression of every other
member of it’. (WN,V.i.b.1)
Here he argued that effective provision of so
central a service depended
crucially on a clear separation of the
judicial from the executive power.
(WN, V.i.b.23)
As Alan Peacock (1975) has pointed out,
Smith’s efficiency criteria
are distinguished from this basic issue of
organisation, the argument
being, in effect, that the services provided
by attorneys, clerks, or judges
should be paid for in such a way as to
encourage productivity. Smith also
ascribed the ‘present admirable constitution
of the courts of justice in
encourage competition between the courts of
King’s of King’s Bench,
Chancery and Exchequer. (WN, V.i.b.20.21)
The theme was continued in the discussion of
public works where
he suggested that the main problems to be
addressed were those of
equity and efficiency.
With regard to equity, Smith argued that public works such as
highways, bridges, and canals should be paid
for by those who use them
and in proportion to the wear and tear
occasioned. He also defended
the principle of direct payment on the ground
of efficiency. Only by this
means, he argued in a section of powerful
present relevance, would it
be possible to ensure that services are
provided where there is a
recognisable need; only in this way would it
be possible to avoid building
roads through a desert for the sake of some
private interest; or a great
bridge ‘thrown over a river at a place where
nobody passes, or merely to
embellish the view from the windows of a
neighbouring palace: things
which sometimes happen, in countries where
works of this kind are
carried on by any other revenue than that
which they themselves are
capable of affording.’ (WN, V.i.d.6)
Smith also tirelessly emphasised the point,
already noticed in the
discussion of justice, namely, that in every
trade and profession ‘the
exertion of the greater part of those who
exercise it, is always in proportion
to the necessity they are under of making
that exertion.’ (WN, V.i.f.4)
On this ground, for example, he approved of the
expedient used in
a canal for which he had been responsible,
thus ensuring that it was in
his interest to keep the canal in good
repair.
The ‘incentive’ argument is also eloquently
developed in Smith’s
treatment of universities where he argued,
notably in correspondence
with his old friend and colleague William
Cullen, that degrees can be
likened to the statutes of apprenticeship
(Corr, 177) and protested against
the idea of universities having a monopoly of
higher education (Corr,
174) on the ground that this would inhibit
private teachers (eg of
medicine) such as the Hunters, William Hewson
and Sir William Fordyce.
In particular Smith objected to a situation
where professors enjoyed
high incomes irrespective of competence or
industry (WN, V.i.f.7): the
in favour of free movement of students
between teachers and institutions
(WN, V.i.f.12,13) as a means of inducing teachers
to provide appropriate
services.
While it is impossible adequately to do
justice to Smith’s treatment
of public finance in these few pages, some
general principles do emerge
which may be of interest to the modern
reader. In general, Smith believed
that the state should ensure that services
are provided indirectly, rather
than centrally, that such services should be
self-financing wherever
possible and especially that they should be
so ‘structured as to engage
the motives and interests of those concerned’.
(Rosenberg
Ricketts 1978) Once again, the fundamental
appeal is to self-love, even if
Smith did recognise that many services would
be adequately performed
as much from a sense of moral obligation as
monetary reward.
Section V: Liberty
Lord Robbins once remarked that Smith
bequeathed to his successors in
the classical school an opposition to
conscious paternalism; a belief that
‘central authority was incompetent to decide
on a proper distribution of
resources’. Above all Smith developed an
important argument to the
effect that economic freedom ‘rested on a
two-fold basis: belief in the
desirability of freedom of choice for the
consumer and belief in the
effectiveness, in meeting this choice, of
freedom on the part of producers’.
(1953, p12) If we add a dynamic dimension to
this theme we have a true
reflection of Smith’s position; a position
which helps to explain the
world’s continuing interest in his work.
Yet even given this, the list of government
functions is, as we have
seen, quite impressive. It is also important
to recall the need to distinguish
between the principles which
justify intervention (which may be of
universal validity) and the specific agenda which Smith offered (and
which may reflect his understanding of the
situation which he actually
confronted at the time of writing).
The principles which justify intervention
are, after all, wide-ranging
in their implications. On Smith’s argument,
the state should regulate
activity to compensate for the imperfect
knowledge of individuals; it is
the state which must continuously scrutinise
the relevance of particular
laws and institutions; the state which has a
duty to regulate and control
the activities of individuals which might
otherwise prove damaging to
the interests of society at large; it is the
state which must make adequate
provision for public works and services
(including education) in cases
where the profit motive is likely to prove
inadequate. Such basic principles
are open to wide application notably in the
circumstances of a modern
society.
It is not difficult to find in Smith a
liberal thinker: what is much more
difficult is to determine where a man of his
principles would be found
today in the broad spectrum of opinion which
the term embraces. On
the other hand it is ironically true that
those modern authorities who
make use of his work in the context of policy may find themselves on
stronger ground. Smith did after all insist
that where possible public
services should be responsive to need and
that they should be so
structured as to induce people to deliver
them efficiently. What is
unambiguously true is that Smith sought to
establish an economic
environment or environments within which
individual initiative would
flourish and by which it would be harnessed.
The last reference serves to remind us that
there is a further dimension
to his work which is essentially moral and which is illustrated by his
concern with the social costs of economic
growth. As we have seen, Smith
made much of the point that the division of
labour could induce a form
of mental mutilation; a degree of ‘torpor’
which could render the
individual ‘incapable of bearing a part in
any rational conversation’ or of
conceiving ‘any just judgement concerning
many even of the ordinary
duties of private life.’ (WN, V.i.f.50)
Smith identified the possibility that
measurable increases in economic
welfare might be offset by the psychological
damage which they entail –
unless steps are taken to avoid this outcome
through a programme of
compulsory education and the cultivation of
the arts. (WN, V.i.g.15)
The implicit distinction is between negative
and positive freedom
where the former may be described as freedom
from restraint and the
latter as a ‘power of capacity of doing or
enjoying something‘worth doing
or enjoying.’ (Green 1906, iii.370-71)
In passages which also recall his wider
interests Smith drew attention
to the issue of education in a context which
was essentially political. As
he put it, an ‘instructed and intelligent
people‘. . . are always more decent
and orderly than an ignorant and stupid one.
. . They are more disposed
to examine, and more capable of seeing
through, the interested
complaints of faction and sedition.’ (WN,
V.i.f.61)
This is not idle rhetoric. Smith’s historical
analysis made him well
aware of the significance of the form of
Government which had emerged
in Great Britain
scope to political ambition’– another
competitive game with, as its object,
the ‘prizes which sometimes come from the
wheel of the great state
lottery of British politics’.
(WN,’IV.vii.c.75) He also recognised that the
same economic forces which had raised the
House of Commons to what
he called a superior degree of influence (as
compared to the House of
Lords) also made it a focal point for
business and commercial interests.
He noted that such power could be used to
disadvantage particular
groups (cf WN, I.x.c.61) and made the general
point that the legislative
proposals emanating from commercial interests.
. .
‘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 the 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.’
(WN, I.xi.10)
As Donald Winch has recently pointed out in
an unpublished paper,
if Smith emphasised the importance of the
pursuit of self interest within
the law, he was acutely aware of the problems
presented by the pursuit
of collective self-interest
and less confident of the result.
In this context he complained that Britain America
had been dictated by the ‘sneaking arts of
underling tradesmen’ (Section
III) and noted, in a passage which may have
caught the attention of
Napoleon, that:
‘To found a great empire for the sole purpose
of raising up a people of
customers, may at first sight appear a
project fit only for a nation of
shopkeepers. It is, however, a project
altogether unfit for a nation of
shopkeepers; but extremely fit for a nation
whose government is
influenced by shopkeepers.’ (WN, IV.vii.c.63)
In Smith’s view, the tragic (but sustainable)
loss of opportunity in
self-interest on the part of mercantile
groups and political prejudice on
the part of the state and its citizens. Smith
thus identified yet another
problem of modern relevance: that of
government (as distinct from
market) failure.
Section VI: Some Observations
J S Mill, the archetypal economist, of a
later period, is known to have
remarked that The Wealth of Nations is in many parts obsolete and in
all, imperfect’. Writing in 1926, Edwin
Cannan observed:
Very little of Adam Smith’s scheme of
economics has been left standing
by subsequent enquirers. No one now holds his
theory of value, his
account of capital is seen to be hopelessly
confused, and his theory of
distribution is explained as an ill-assorted
union between his own
theory of prices and the Physiocratic
fanciful Economic Table’. (1926,
123)
In view of authoritative judgements such as
these, it is perhaps
appropriate to ask what elements in his story
should command the
attention of the modern historian or
economist. A number of points
might be suggested.
First, there is the issue of scope. As we have seen, Smith’s approach
to the study of political economy was through
the examination of history
and ethics. The historical analysis is
important in that he set out to explain
the origins of the commercial stage. The
ethical analysis is important to
the economist because it is here that Smith
identifies the human values
which are appropriate to the modern
situation. It is here that we confront
the emphasis on the desire for status (which
is essentially Veblenesque)
and the qualities of mind which are necessary
to attain this end: industry,
frugality, prudence.
But the TMS also reminds us that the pursuit
of economic ends takes
place with a social context, and that men maximise their chances
of
success by respecting the rights of others.
In Smith’s sense of the term,
‘prudence’ is essentially rational self-love.
In a famous passage from the
TMS (II.ii.2.1) Smith noted, with regard to
the competitive individual,
that:
‘In the race for wealth, and honours, and
preferments, he may run as
hard as he can, and strain every nerve and
muscle, in order to outstrip
all his competitors. But if he should justle,
or throw down any of them,
the indulgence of the spectators is entirely
at an end. It is a violation
of fair play, which they cannot admit of.’
Smith’s emphasis upon the fact that self-interested
actions take place
within a social setting and that men are
motivated (generally) by a desire
to be approved of by their fellows, raises
some interesting questions of
continuing relevance. For example, in an
argument which bears upon
the analysis of the TMS, Smith noted in
effect that the rational individual
may be constrained in respect of economic
activity or choices by the
reaction of the spectator of his conduct – a
much more complex case
than that which more modern approaches may
suggest. Smith made much
of the point in his discussion of
Mandeville’s ‘licentious system’ which
supported the view that private vices were
public benefits, in suggesting
that the gratification of desire should be
consistent with observance of
the rules of propriety – as defined by the
spectator, i.e. by an external
agency. In an interesting variant on this
theme, Etzioni has recently noted
that we need to recognise ‘at least two
irreducible sources of valuation
or utility: pleasure and morality’. (1988,
21-4; cf Oakley 2002)
Secondly, there is a series of issues which
arise from Smith’s interest
in political economy as a system. The idea of
a single all-embracing
conceptual system, whose parts should be
mutually consistent, is not
easily attainable in an age where the
division of labour has increased the
quantity of science through specialisation.
Smith was aware of the division
of labour in different areas of sciences, and
of the fact that specialisation
often led to systems of thought which were
inconsistent with each other.
(Astronomy, IV, 35, 52, 67) But the division
of labour within a branch of
science, eg economics, has led to a situation
where sub-branches of a
single subject may be inconsistent with one
another.
To take a third point, it may be noted that one
of the most significant
features of Smith’s vision of the economic
process lies in the fact that it
has a significant time dimension. For
example, in dealing with the
problem of value in exchange, Smith made due
allowance for the fact
that the process involves judgements with
regard to the utility of the
commodities to be acquired, and the
disutility involved in creasing the
goods to be exchanged. In the manner of his
predecessors – Hutcheson,
Carmichael and Pufendorf – Smith was aware of
the distinction between
utility (and disutility) anticipated and
realised, and, therefore, of the
process of adjustment which would inevitably
take place through time.
Smith’s theory of price, which allows for a
wide range of changes in
taste, is also distinctive in that it allows
for competition among and
between buyers and sellers, while presenting the
allocative mechanism
as one which involves simultaneous and
inter-related adjustments in both
factor and commodity markets.
As befits a writer who was concerned to address
the problems of
change, and adjustment to change, Smith’s
position was also distinctive
in that he was not directly concerned with
the phenomenon of
equilibrium. For Smith the (supply) price was, as it
were:
‘The central price, to which the prices of all
commodities are
continually gravitating whatever may be the
obstacles which hinder
them from settling in this centre of response
and continuance, they
are constantly tending towards it.’ (WN,
I.viii.15)
But perhaps the most intriguing feature of
the macro model is to be
found in the way in which it was linked to
the analytics of Book 1 and in
the way in which it was specified. As noted
earlier, Smith argued that
incomes were generated as a result of
productive activity, thus making it
possible for commodities to be withdrawn from
the ‘circulating’ capital
of society. As he pointed out, the
consumption goods withdrawn from
the existing stock may be used up in the
present period, or added to the
stock reserved for immediate consumption; or
used to replace more
durable goods which had reached the end of
their lives in the current
period. In a similar manner, entrepreneurs
and merchants may also add
to their stocks of materials, or to their
holding of fixed capital, while
replacing the plant which had reached the end
of its operational life. It
is equally obvious that entrepreneurs and
merchants may add to, or
reduce their inventories in ways which will reflect the changed
patterns
of demand for consumption and investment
goods, and their past and
current levels of production. Variation in
the level of inventories has
profound implications for the conventional
theory of the allocative
mechanism.
Smith’s emphasis upon the point that
different ‘goods’ have different
life-cycles also means that the pattern of
purchase and replacement may
vary continuously as the economy moves
through different time periods,
and in ways which reflect the various age
profiles of particular products
as well as the pattern of demand for them. If
Smith’s model of the circular
flow is to be seen as a spiral, rather than a
circle, it soon becomes evident
that this spiral is likely to expand (and
possibly contract) through time
at variable rates. This point does not seem
to have attracted much
attention.
Conclusions
Mark Blaug has commented on Smith’s
distinctive and sophisticated grasp
of the economic process and the need to distinguish this from his
contribution to particular areas of economic analysis. It has been argued
above that Smith’s approach to the study of
political economy has some
distinctive features which deserve the
attention of the modern student
of the discipline, but which do not seem to
loom large in modern
teaching. But nor can it be said that the
classical system which was to
follow Smith, adequately addressed his wider
concerns. Indeed, it has
been pointed out that the early part of the
nineteenth century saw the
emergence of political economy as a separate,
autonomous discipline,
free of the earlier association with ethics
and history. As Terence Hutchison
once remarked, Smith was led as if by an invisible hand to promote a
result which was no part of the original
intention, thus paving the way
for the development which Professor Muhammad
Yunus deplored.
Finally, Adam Smith would have had every
happy feeling over Prof
Yunus’s untiring engagement in practically
addressing the welfare of the
Adam Smith: Science and Human Nature – EMERITUS PROF
ANDREW SKINNER
poorest. As Adam Smith said, ‘What improves
the circumstances of the
greater part can never be regarded as an inconveniency
to the whole.
No society can surely be flourishing and
happy, of which by far the greater
part of the numbers are poor and miserable.’
(The Wealth of
Nations
1776)
Abbreviations
References to Smith’s works employ the usages
of the Glasgow
edition:’WN =’The Wealth of Nations; TMS = Theory of Moral
Sentiments; Astronomy = ‘The History of Astronomy’;’Essays on
Philosophical Subjects (EPS); Stewart = Dugald Stewart, ‘Account of
the Life and Writings of Adam Smith’; LJ (A)
= Lectures on
Jurisprudence, Report dated 1762-63; LRBL = Lectures on Rhetoric
and Belles Letters; Corr = Correspondence of Adam Smith; EAS =
Essays on Adam Smith, ed A S Skinner and T Wilson (1975).
In the Glasgow
and W B Todd (1976); TMS by D D Raphael and A
L Macfie (1976);
Corr, by E C Mossner and I S Ross (1977);
EPS, by W P D Wightman
(1980); LJ (A) and LJ (B) by R L Meek, D D
Raphael and P G Stein
(1978), and LRBL by J C Bryce (1983), Oxford University
References to LJ and LRBL give volume and
page number from the
MS. All other references provide section,
chapter, and paragraph
number in order to facilitate the use of
different editions. For example:
Stewart, I.12 = Dugald Stewart ‘Account’,
Section I, Para 12.
TMS, I.i.5.5 = TMS, Part I, Section I,
Chapter 5, Para 5.
WN, V. i.f.26 = WN, Book V, Chapter I,
Section 6, Para 26.
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