is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

Adam’s Fallacy: A Guide to Economic Theology

Author(s):Foley, Duncan K.
Reviewer(s):Waterman, A. M. C.

Published by EH.NET (November 2007)

Duncan K. Foley, Adam’s Fallacy: A Guide to Economic Theology. Cambridge MA: Harvard University Press, 2006. xvii + 265 pp. $26 (cloth), ISBN: 978-0-674-02729-9.

Reviewed for EH.NET by A. M. C. Waterman, St John’s College, Winnipeg.

Presumably this book was sent to me for review because of its sub-title. I am sorry to report, therefore, that it contains no theology whatsoever. Its author, who is Leo Model Professor of Economics at the New School for Social Research, uses the word pejoratively to label a way of thinking about economics that he finds objectionable on moral grounds. That way of thinking is “the idea that is it possible to separate an economic sphere of life, in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome, from the rest of social life, in which the pursuit of self-interest is morally problematic” (p. xiii). Seemingly unaware of the work of Gilbert Faccarello (1999) on Boisguilbert and the latter’s background in Jansensist theology, Duncan Foley attributes this doctrine to Adam Smith and calls it “Adam’s Fallacy.”

After a Preface which states the theme, the book contains six chapters: “Adam’s Vision” on Smith and Wealth of Nations (45 pages); “Gloomy Science” which treats Malthus and Ricardo (41 pages); “The Severest Critic” on Marx (69 pages); “On the Margins,” chiefly about Jevons, Menger and J. B. Clark, with an endnote on Veblen (22 pages); “Voices in the Air” on Keynes with brief mention of Hayek and Schumpeter (34 pages); and “Grand Illusions,” which is a summing up (18 pages). These are followed by 14 pages of appendices on technical matters. It is apparent that two-thirds of this text concerns four canonical authors of the so-called “English School” ? Smith, Malthus, Ricardo and Marx ? followed by a mere 9 percent on what now constitutes the core of economic theory, and another 15 percent on Keynes and two of his contemporaries. The book might almost be called “Political Economy of the English School with an Epilogue” ? except that it totally ignores the most influential single author of that “school,” John Stuart Mill. The dust-jacket calls this “The Intelligent Person’s Guide to Economics”: which implies that the intelligent person will skip almost everything of importance that has happened in our discipline over the past one hundred years.

Foley’s favorite chapter, upon which he lavishes most care and in which he exhibits most scholarship, is that on Marx. With one exception to be noted below, the exposition is careful, lucid and balanced, and this chapter could be recommended to anyone wanting a readable introduction to what Marx’s political economy was about.

The same can hardly be said for chapters 1 and 2. For though these too contain many valuable insights it is all too obvious that Foley has not kept up his reading of the vast and expanding secondary literature on Smith, Malthus and Ricardo. This is most evident in his treatment of Smith and Malthus. There is no understanding of the relation between “labor-embodied” and “labor-commanded” prices; no awareness that Smith’s “natural wages” are dynamic equilibrium outcomes determined by the rate of accumulation; no recognition that the primitive supply-and-demand apparatus of Smith and Malthus is what eventually “won out” (as Schumpeter put it) over the labor theory of value (LTV); and no acknowledgement that this happened because it eventually became clear that Smith’s “natural prices” were the equivalent of Marshall’s long-run equilibrium prices. The fact that Malthus took all of his population theory from the Wealth of Nations (WN) is ignored, as is the fact that what distinguishes the analysis of WN from that of the Essay is that the former abstracts from land scarcity and the diminishing returns implied by Malthus’s “ratios,” which Samuelson, Stigler and many others have noted. The latter means that “Ricardo’s theory of Rent” (p. 74) is actually Malthus’s as Ricardo acknowledged, though Torrens and West also got there at the same time in 1815. Much more contentious is Foley’s account of Ricardo’s value theory. By ignoring the importance of capital costs in determining relative prices he misses the point that Ricardo’s LTV is nothing but a rough and ready approximation ? Stigler’s (1958) “93%” LTV ? brilliantly deployed in the theory of comparative international advantage but now subsumed by Hecksher and Ohlin. Foley’s fixation on the archaic and operationally useless LTV also slightly mars his chapter on Marx. For Marx, like Ricardo, well understood that capital costs enter into prices: but tried unsuccessfully to evade this unwelcome result in the hideous contortions of volume III, chapter IX of Capital.

Rather than appraising the analytical content of the relatively unimportant chapters 4 and 5, which like the curate’s egg are good in parts, we ought rather to turn to what Foley is really interested in, which is ethics. Is the pursuit of self-interest “morally problematic”? And did Smith and his successors create a distinction between an “economic sphere” in which self-interest may have socially beneficent outcomes and “the rest of social life” in which it may not?

It is undoubtedly the case that for Smith and Malthus, eighteenth-century “political economy” was a branch of “Christian moral science” (Winch 1996), for which these were vitally important questions. From the standpoint of intellectual history, however, Foley has chosen to enter the debate some time in 1723, after the public outcry at a new edition of Mandeville’s Fable but before the first of Joseph Butler’s Rolls Sermons preached in response, which showed that “self-love” is morally acceptable in a wide variety of cases and is actually a duty taught by Christ. There is no necessary link between Private Vices and Publick Benefits. Bishop Butler’s doctrine was explicitly incorporated into the analysis of economic behavior by his chaplain Josiah Tucker; and Smith followed Butler and Tucker in Theory of Moral Sentiments which provided a satisfactory account of the part played by self-love in a general theory of conscience, duty and virtue. It is certainly true that in WN Smith separated the public sphere, in which self-love may safely rule, from the private sphere of the family and other intimate relations, in which mutual altruism is important (Folbre 2001). It is also the case that he explicitly acknowledged that “justice,” by which he meant a willingness on the part of agents to obey the rules of the game even when the umpire is not looking, is necessary in order that economic freedom might lead to socially beneficent outcomes. But these imply no distinction between the “economic” and “the rest of social life.”

Malthus, Smith’s most faithful disciple, seems to have accepted this account of self-love, and had no hesitation in describing at as “the main-spring of the great machine.” As for Ricardo and Marx, there is no evidence that they were at all interested in the question. Like all subsequent economists they viewed political economy as a positive science. If we assume that most human beings consistently pursue a set of privately formulated goals most of the time, what will be the unintended social consequences? There is no automatic expectation that these will be socially beneficent. Ricardo’s stationary state, with wages at bare subsistence and rents at an all-time high, is almost certainly not. Whether Marx’s own invisible-hand theorem (“what the bourgeoisie … produces, above all, are its own grave-diggers”) is socially beneficent or not is a matter of taste. As for present-day economics, Samuelson’s theory of public goods, Buchanan’s “public choice” analysis of the actions of bureaucrats and politicians, Chicago theory of marriage and the family, Stiglitz’s investigations of the relative efficiency of public and private sectors, the economics of environmental degradation ? to mention only a few ? provide innumerable examples of the unintended consequences of private, self-regarding acts which are almost certainly maleficent.

I therefore conclude that Duncan Foley’s charges against our profession are without foundation, and ought to be dismissed.


Gilbert Faccarello, 1999. The Foundations of Laissez-faire: The Economics of Pierre de Boisguilbert. London: Routledge.

Nancy Folbre, 2001. The Invisible Heart: Economics and Family Values. New York: The New Press.

George J. Stigler, 1958. “Ricardo and the 93% Labor Theory of Value,” American Economic Review 48: 357-67.

Donald N. Winch, 1996. Riches and Poverty: An Intellectual History of Political Economy in Britain, 1750-1834. Cambridge: Cambridge University Press.

A. M. C. Waterman is Fellow of St John’s College, Winnipeg, and Emeritus Professor of Economics in the University of Manitoba. His most recent book is Political Economy and Christian Theology since the Enlightenment (Palgrave Macmillan 2004). For more information, see

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII