Elgar Companion to Adam Smith

Published by EH.NET (August 2010)

Jeffrey T. Young, editor, Elgar Companion to Adam Smith. Cheltenham, UK: Edward Elgar, 2009.? xxv + 374 pp. $215 (hardcover), ISBN: 978-1-84542-019-2.

Reviewed for EH.Net by Jonathan B. Wight, Department of Economics, University of Richmond.

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The Elgar Companion to Adam Smith contains a set of papers by outstanding scholars, many of whom have made a career of studying Smith and have separately written book-length treatises on him. The reader is thus treated to a mature and nuanced treatment of Smith throughout. While the steep price will preclude many individuals from owning it, it is an essential work for research libraries to own.

The volume contains an introduction by the editor, Jeffrey Young, and nineteen papers mostly by economists, all but two of which are original for this collection. The articles ?give testimony to the richness and enduring appeal of Smith’s principles and wisdom? (p. xi).? The editor notes that he allowed contributors to write on topics they selected. This approach is an attractive feature of the book when you have high quality sources and it provides the reader with a window onto the issues of current importance for Smith scholars.

This volume is distinguished from the Companion to Adam Smith (Cambridge 2006) by its focus on questions of interest to economists and historians of economic thought, rather than mainly philosophical issues.? A theme of the book is the growing importance of The Theory of Moral Sentiments (TMS) to economists seeking to understand the role and evolution of institutions in society (e.g., systems of justice) and behavioral economics.?

The Elgar Companion has three sections.? Part one consists of six essays that address the philosophical antecedents that influenced Adam Smith’s thinking.? Part two consists of four essays on analytics, that is, on Smith’s economic model.? Part three consists of nine essays on applications and policy analysis.? This review deals with a subset of papers.?

The leadoff paper is a reprint of Deirdre McCloskey?s “Adam Smith, The Last of the Former Virtue Ethicists,” which appeared in History of Political Economy in 2008.? This is a classic and erudite exposition of an important idea that should be discussed among a wider audience of economists — namely, that in Smith the initial or ultimate judgment of what is good (or bad) cannot derive simply from a utilitarian construct.? Hence, McCloskey demonstrates for a variety of reasons that Smith?s Enlightenment project cannot be pigeonholed into modern economics.? The most compelling reason (not addressed in this chapter) has to do with the hardwiring of the human brain. Humans make intuitive judgments within a psychological context; logic follows but does not lead. This generates enormous implications for socialization.? Character involves the internalization of ideals of virtuous conduct that derive from exemplars in history, literature, and the arts (e.g., see Wight 2006).?

The virtue of McCloskey’s essay is that it places Smith’s ethics within the wider context of classical philosophy and Christian theology. It is interesting because the eighteenth-century Enlightenment produced two other ways of approaching ethical issues, one through Bentham?s utility and another through Kant?s logical rules and duties.? Economists have almost all fallen into the trap of putting Smith into the utilitarian camp.? As many of the other articles in this compendium show, there is much to learn from understanding Smith?s more behavioral approach.

Brendan Long in ?Adam Smith’s Theism? addresses an issue that has vexed readers since the eighteenth century.? Did Smith believe in God, and if so, what role did God play in the workings of Smith’s system? Long addresses three theories, that Smith was an atheist, that he was a Christian, and that he was a lapsed Christian.? Long puts forward evidence from Smith’s life experiences and writings to argue that Smith held to a ?moderate Christian theism? (p. 92).? This is a defensible position, but not likely to resolve the debate, since Smith himself left so many contradictory clues.? The compelling biographical evidence relies on Smith?s relationship with Hutcheson (who was certainly a Christian).? Smith’s beliefs would have been thoroughly vetted when he went up for the chair in logic at Glasgow University in 1751.? Smith?s religious views could also have changed over time, as reflected in his continued edits of religious materials in TMS.?

To most economists, it is not clear why Smith’s theology matters at all to his economic model; however, it may be quite important for the overarching system on which his economic model builds. If behind the invisible hand there is an omnipotent God, this could imply that the unintended consequences of market interactions are always positive or at least generally positive over a long period of time.? Jerry Evensky (in a later chapter) argues that Smith’s plan for a liberal society ?reflects Smith’s faith in a deity and his belief that the deity has made this liberal plan the human prospect? (p. 114).

Not all the authors see Smith’s contributions as positive. Salim Rashid, who has previously questioned Smith?s appeal, does so again here by addressing Smith’s contributions — or lack thereof — to economic development. Rashid aims to show that the main questions of development addressed by Smith had been dealt with in a better way by his predecessors and contemporaries. Moreover, Smith’s approach is so ?ethereal? that the Wealth of Nations is an ?unhappy landmark in the history of economic development? (p. 212).

While Smith was partial to the interests of the poor, particularly the working poor, Rashid argues that Smith’s sympathy does not translate into his policy recommendations.? Rashid?s rebuke boils down to several key criticisms.? First, Smith?s overemphasis on free trade and his lack of understanding of the coordinating role of government in development are major errors to Rashid. Rashid does not accept Jacob Viner’s assessment that Smith was sanguine about many types of government intervention.? Instead, Rashid argues that Smith?s ideology of unfettered markets comes at the expense of the poor.?

This seems like an unfair reading. One can disagree with Smith’s conclusions about the benefits of trade for development, but it is hard to argue that Smith favored the ideology of free markets even though he knew it would hurt the poor. Quite the contrary; Smith?s support of markets derives (I believe) from his motive to help the working poor.? Moreover, in some contexts, Smith?s approach bears consideration.? Lack of access to markets is still a major barrier to development in parts of sub-Saharan Africa, where forces of monopsony and monopoly create barriers that generate rents for elites. Smith?s contributions to understanding rent-seeking and decrying the mischief that passes for policymaking in mercantilist societies seems on-target. In addition, while Smith?s rhetoric promoted free trade, he never advocated shock therapy in carrying out reforms.? While Rashid might want to argue for industrial policy as a preferable alternative to free trade when institutions support it (e.g., with East Asia?s hierarchical, Confucian social norms), it could be a recipe for disaster in the wrong institutional setting.?

Second, Rashid faults Smith?s economic model for highlighting individual efforts and ignoring critical social interactions.? Smith never discusses the mechanisms — the ?coordinating vision? of the entrepreneur — that are needed (for example) to make the pin factory a success. This is an excellent point.? There is no explicit Coasian world of high transactions costs, for instance, that would lead anyone to start a company instead of remaining a single proprietorship, and each of the producer-agents specializes without conversation or collaboration.? This is a valid criticism, but can be taken too far; Smith does show an interest in social relations in production, although it is subtle.? In the invisible hand that appears in The Wealth of Nations, Smith analyzes the forces at work that would lead entrepreneurs to invest their capital domestically rather than export it. One important factor leading to home investment (and hence to the beneficial character of the invisible hand in this case) is knowledge about the moral character of the traders that one would encounter and could trust.? Hence, social relations enter into Smith?s economic thinking, although not to the extent one might hope.? Despite these comments, Rashid?s chapter is stimulating.?

Further elaboration on Smith?s view of government is found in a paper by Steven Medema and Warren Samuels.? In response to those who claim Smith favored only limited government, the authors note that ?If government and law seem anathema in the Wealth of Nations, they are part of Smith?s obvious and simple system of natural liberty, that is, of the natural order of things? (p. 307).? In contrast to Rashid, these authors believe Smith?s views can and must be discerned from studying the totality of his output because Smith?s work is ?grounded in multiple paradigms? (p. 300).? Smith took different things for granted in different contexts, and a researcher who ignores the unstated totality will depart with an ?undernourished? formulation.? The totality consists in understanding Smith?s tripartite model of a working society: first, an individual?s social interactions and sympathies that lead to self-control via a moral conscience; second, the laws and rules that produce external control by authorities; and third, the market, which imposes its own regimen of discipline.?

Smith notes that laws and institutions evolve and evolution is often instigated by biased sources with personal gain in mind.? Government plays an integral role in Smith?s conception of economic life, even though in the particular time and circumstance of his writing, the dominant evil was excessive government manipulations in favor of the rich.? In short, natural liberty does not trump all else, as exemplified by this quote from WN:

But 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. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed. (p. 312)

A number of papers endeavor to ground modern discoveries in the insights of Adam Smith.? To mention a few, Maria Paganelli does so for experiments, Amos Witztum addresses general equilibrium, and James Buchanan and Yong Yoon tackle stochastic demand and increasing returns.? These are an interesting, if necessarily incomplete, collection of papers in this section.? What seems conspicuously absent, in light of the 250th anniversary of TMS and the 150th anniversary of Darwin?s On the Origin of Species, is any paper addressing the importance of Smith to economic researchers using Smith as a spring board for understanding evolution, mirror neurons, neuroeconomics, and other concepts that may constitute Smith?s most important insights for the next few decades.?

This critique aside, the Elgar Companion to Adam Smith is an outstanding collection by a gifted group of writers, and is highly recommended.?? The list of contributors is:?? V. Brown, J.M. Buchanan, S.C. Dow, J. Evensky, P. Groenewegen, S. Hollander, G. Hueckel, D.M. Levy, B. Long, D. McCloskey, S.G. Medema, L. Montes, M.P. Paganelli, S.J. Peart, S. Rashid, W.J. Samuels, A.S. Skinner, G. Vivenza, A. Witztum, Y.J. Yoon, and J.T. Young.

References:

K. Haakonssen, editor, (2006), The Cambridge Companion to Adam Smith (Cambridge University Press).?

J. Wight, (2006), ?Adam Smith?s Ethics and the ?Noble? Arts,? Review of Social Economy, 64 (2): 155-180.?

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Jonathan Wight is Professor of Economics and International Studies at the University of Richmond.? Recent research has focused on human instincts as a way of understanding Smith?s invisible hand and Smith?s ideas on informal learning and moral learning.? He is the author of the academic novel, Saving Adam Smith: A Tale of Wealth, Transformation, and Virtue (2002).?

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