Adam Smith

New book highlights Adam Smith's contributions to political theory

Adam smith reconsideredBy Mark D. White

A new book from Paul Sagar (King's College London), Adam Smith Reconsidered: History, Liberty, and the Foundations of Modern Politics, coming out in March 2022 from Princeton University Press, argues that Adam Smith should be understood as a pioneer in political theory as well as economics and moral philosophy (the PPE trifecta, so to speak). Furthermore, Sagar argues that this new focus significantly alters the way Smith's more widely acknowledged contributions should be understood.

From the publisher's website:

Adam Smith has long been recognized as the father of modern economics. More recently, scholars have emphasized his standing as a moral philosopher—one who was prepared to critique markets as well as to praise them. But Smith’s contributions to political theory are still underappreciated and relatively neglected. In this bold, revisionary book, Paul Sagar argues that not only have the fundamentals of Smith’s political thought been widely misunderstood, but that once we understand them correctly, our estimations of Smith as economist and as moral philosopher must radically change.

Rather than seeing Smith as either the prophet of the free market, or as a moralist who thought the dangers of commerce lay primarily in the corrupting effects of trade, Sagar shows why Smith is more thoroughly a political thinker who made major contributions to the history of political thought. Smith, Sagar argues, saw war, not commerce, as the engine of political change and he was centrally concerned with the political, not moral, dimensions of—and threats to—commercial societies. In this light, the true contours and power of Smith’s foundational contributions to western political thought emerge as never before.

Offering major reinterpretations of Smith’s political, moral, and economic ideas, Adam Smith Reconsidered seeks to revolutionize how he is understood. In doing so, it recovers Smith’s original way of doing political theory, one rooted in the importance of history and the necessity of maintaining a realist sensibility, and from which we still have much to learn.


Deirdre McCloskey on Humanomics

Bettering humanomicsBy Mark D. White

In case you missed it, there was a fantastic interview with Deirdre McCloskey—another of my main influences, as well as a longtime friend—conducted by Paolo Silvestri in the Spring 2021 issue of Erasmus Journal of Philosophy and Economics. Their discussion is wide-ranging and insightful, covering much of McCloskey's writing over the years, but a significant focus is on her book Bettering Humanomics: A New, and Old, Approach to Economic Science, released earlier this year by the University of Chicago Press.

In solidarity with Vernon Smith and Bart Wilson (including their recent book Humanomics), and all of them drawing ultimately on Adam Smith, McCloskey argues for a richer economics—"quantifiably serious, philosophically serious, historically serious, and ethically serious," as she writes in the preface to the book—that recognizes the subject of economics as human beings, not mathematical abstracts, which only gets us so far (and reasonable people can quibble about exactly how far that is).

McCloskey takes particular aim at behaviorism and positivism, "both top-down, infantilizing, as in nudging, and industrial planning, and other anti-liberalisms. And both are indefensible philosophically. And both are poor guides to understanding the economy" (p. 202 of the interview). For more on these points, see the discussion between her and Silvestri in the Journal of Institutional Economics (open access), which focuses more on her forthcoming book Beyond Behaviorism, Positivism, and Neo-Institutionalism in Economics (also from Chicago).


The Decline of College

By Jonathan B. Wight

Richard Vedder, emeritus professor of economics at Ohio State, is writing a book on declining productivity in American universities.  A précis was printed in the Wall Street Journal as “College Wouldn’t Cost So Much If Students and Faculty Worked Harder.”

It’s hard to argue with the main points, namely that, compared to 50 years ago:

  • Students study fewer hours;
  • Students get higher grades after learning less;
  • Faculty teach fewer hours;
  • Faculty publish more papers that are read by fewer people;
  • Administrators have come to outnumber teaching faculty.

This is truly a mess.  The ethics of it arises because of misaligned incentives, as Adam Smith wrote about in castigating his own teachers at Oxford.  

In modern America, administrators want to get donations and accreditation.  Accreditation bodies want to justify themselves by pretending they are ratcheting up quality. Faculty quality is mistakenly often construed to mean more publications.  And so on…. [Let’s not even talk about athletics.]

The situation is somewhat worse than Vedder portrays, because the rise of administrators is highly correlated with the rise of meetings and paperwork. While faculty are teaching less, they are caught up in more rigmarole of governance, tenure, promotion, and other time-sapping (but highly important) activities. 

But why pick on colleges?  Exactly the same facts probably pertain to high schools.  When my father graduated high school in 1932, he wrote beautifully using Shakespearean metaphors and knew world history. 

My only pushback to Vedder is that he assumes that the only reason to do research is to create knowledge that will be recognized by others as advancements in thinking. This is a worthy but elusive goal; most researchers, even at prestigious universities, will never publish anything that will be read by future scholars.

A more pragmatic reason for encouraging and rewarding faculty engagement with research is that it keeps a teacher from going stale. A faculty member, through stretching oneself and subjecting oneself to a research review process, must necessarily command more control of the classroom.  At least that has been my experience.  This is not a defense against Vedder’s general critique, only a qualification.

[Thanks to Bacon's Rebellion (https://www.baconsrebellion.com) for the link!]


Market Power

By Jonathan B. Wight

It is a no-brainer that business people don’t really like competitive market capitalism, despite all their exhortations about the value of markets.  Just read any of The Wealth of Nations to find Adam Smith with the same view.  Business people much prefer rigged markets, as long as they are on the inside. 

So it is no surprise that new research finds that converting health care insurance from non-profit to for-profit leads to a rise in premiums (not the fall that would be anticipated because of greater market efficiencies). 

Leemore Dafney reports on this in “Does It Matter if Your Health Insurer Is For Profit? Effects of Ownership on Premiums, Insurance Coverage, and Medical Spending,” in the latest edition of the American Economic Journal: Economic Policy (2019, 11(1): 222–265): 

“I find both the BCBS affiliate and its rivals increased premiums following conversions in markets where the converting affiliate had substantial market share….The results suggest for-profit insurers are likelier than not for- profit insurers to exercise market power when they possess it.”

Next time someone says that markets are a solution that will bring down prices in privatized sectors, remember that context matters.  Context, context, context


Adam Smith on Externalities

By Jonathan B. Wight

A friend recently inquired about Adam Smith’s view on externalities. A much longer post is needed to break apart several important ideas.  First, one would need to disentangle the invisible hand concept from market “efficiency.” (See J. Wight, The Treatment of Smith’s Invisible Hand, The Journal of Economic Education 38(3)(2007): 341-358.)

Second, while Smith does not discuss (to my awareness) externalities arising from environmental pollution, he did write that private market transactions could pollute or corrupt one’s mind. Here are two examples, one negative and one positive.

Negative externalities:  When market forces lead to an extreme form of labor specialization, people become “stupid and ignorant” and this mental weakening has a deleterious effect on civil society.  This is why Smith proposes publicly-funded education as a remedy: 

“The man whose whole life is spent in performing a few simple operations, of which the effects 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. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expense of his intellectual, social, and martial virtues. But in every improved and civilised society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.” (Wealth of Nations)

This is pretty clear evidence that in Smith’s mind private market transactions can produce deleterious effects for third parties, and that there is a role for government in remedying the situation. 

Positive externalities: In The Theory of Moral Sentiments, Smith claims that people make fundamental misjudgments about means and ends (he is a precursor to behavioral economics).  In the story of the poor man’s son, we learn that extreme striving and ambition never produce the expected happiness or peace of mind—it is all a psychological “deception.”  The beneficiaries of this striving accrue to others, namely society at large—through greater wealth and innovation. 

“And 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 improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth.” (The Theory of Moral Sentiments). 

No doubt there are other examples of Smith’s awareness of third party effects.  See, for example, this blog about relative standing

[Thanks to Rob Garnett for raising the question.]


The Price of Watches

By Jonathan B. Wight

Critics sometimes complain that Adam Smith’s economics were not very good. The labor theory of value has certainly not held up well in most circles, and Smith was flummoxed by the diamond-water paradox.

But one area where he remains right, apparently, is in his economic history. Kelly and Ó Gráda in “Adam Smith, Watch Prices, and the Industrial Revolution,” (QJE 2016) find that Smith’s rough guess that watch prices fell by 95% over the preceding century was in the ballpark. After adjusting for quality improvements, Smith’s analysis is even closer to the truth.

Here’s the abstract:

“Although largely absent from modern accounts of the Industrial Revolution, watches were the first mass-produced consumer durable and were Adam Smith’s preeminent example of technological progress. In fact, Smith makes the notable claim that watch prices may have fallen by up to 95% over the preceding century, a claim that this article attempts to evaluate. We look at changes in the reported value of over 3,200 stolen watches from criminal trials in the Old Bailey in London from 1685 to 1810. Before allowing for quality improvements, we find that the real price of watches in nearly all categories falls steadily by 1.3% a year, equivalent to a fall of 75% over a century, showing that sustained innovation in the production of a highly complex artifact had already appeared in one important sector of the British economy by the early eighteenth century.”

When we hear justifiable complaints against the dehumanizing effects of the modern industrial system (and Smith was himself such a critic) it should be remembered that there are compensating benefits. In this case, a timepiece has become a much more affordable item for a working person.


More Barbarity in the Treatment of Adam Smith

By Jonathan B. Wight

Just what we need!  More ludicrous and erroneous teachings about Adam Smith!

Smith favored laissez-faire markets, right?  Wrong!

Smith favored unbridled capitalism led by greed, right?  Wrong.

One person’s profit means another person’s loss, right?  Wrong. 

Unfortunately, The Anspacher Theater in New York is hosting The Low Row, an “epic” play about Adam Smith and his alleged degenerate views.  Here is the flyer:

Smith playNeedless to say, the author is profiting handsomely from putting forth outright lies and fabrications (at least judging from the release above). 

People who love the truth should stay away from this claptrap. 


Should the High School Economics Course Include Ethics?

By John Morton Mort morton2

Over one million high school students enroll in an economics course each year, usually in their senior year.  That’s an impressive number.  While these courses vary greatly, three formats dominate.

About 150,000 students take Advanced Placement Economics.  This program consists of a one-semester microeconomics course and a one-semester macroeconomics course.  Because students can earn college credit if they pass a standardized test at a certain level, AP Economics is similar to the college introductory economics course.

Most students take a one-semester course, which is a watered-down college introductory course with personal finance added on. 

The third type of course is a one-semester course focused on personal finance with some economics thrown in.

Despite their differences, these courses all share one feature--they do not teach economics within an ethical context.  This puzzles me.  Adam Smith is considered the “father of economics,” but when he lived, he was considered a professor of moral philosophy.  In the years right after the Enron scandal, there was an interest of economics teachers in teaching ethics, but the interest was short-lived.

What is the study of ethics?  In short, it is the consideration of what is right or wrong.  Ethics is about defining and living a good life.  It’s about making life better for others.  It’s about integrity.  An ethical person wants to make the world a better place.

A study of ethics would seem to be a natural fit in an economics class.  For example, one of the first lessons of economics is that both parties gain when they trade.  The emphasis is on improving our material standard of living.  It seems to me that students should also discuss the effects of trade on peace, virtue, trustworthiness, and discipline.  From another point of view, how important are integrity and responsibility to successful trade?

From my own teaching experience, I know that students respond well to these ideas because most of them hope the world will be a better place with them than without them.


Keeping Your New Year’s Resolutions

By Jonathan B. Wight

Economists tend to think that people are rational, and that after voluntarily choosing a goal people are therefore capable of exerting the will-power necessary to achieve that goal. 

We all know this often isn’t so, and behavioral economics has come up with some useful heuristics to improve outcomes and to improve self-control. 

But economists still tend to be wedded to the idea of developing self-control using rational arguments and incentives: tell subjects that if they are willing to wait 15 minutes they can get two candies rather than one immediately.  In theory, incentives lead people to develop will power. 

But there’s may be a more effective way, that relates to Adam Smith’s theory of moral sentiments. It has to do with using your sentiments of gratitude and compassion to boost self-control.  Read about it here

Happy New Year!


Sign of the Times?

By Jonathan B. Wight

David Hume in a letter to Adam Smith, bemoaning political life:

“Superstition and Ignorance gain Ground daily.”  -- September 1765

Which leads to Hume’s growing apathy:

“Why shoud I forgo Idleness and Sauntering and Society; and expose myself again to the Clamours of a stupid, factious Public? I am not yet tir’d of doing nothing; and am become too wise either to mind Censure or Applause.”   -- January 1766

This is the danger of our day—that the scandal after scandal, and the crass political maneuverings over taxes, the environment, general governance, and the lack of common decency at the top of all branches of government—will make us all want to retreat into our shells, waiting for this absurd time to pass.

But will it pass if we so retreat?  Step 1 is to start the work at local levels to reduce the force of gerrymandering--the real threat to democracy.

Happy Thanksgiving to all, even or especially to those of differing views!  We have much to be grateful for, even as we battle over the particulars.