When I visited Britain in August I was pleased to see the
image of Adam Smith on £20 notes. I was even more pleased to find a statue of
Adam Smith in Edinburgh.
The statue, by Andrew Stoddart, stands in the Royal Mile, in
High Street, next to St Giles Cathedral and opposite Edinburgh's City Chambers.
It is not difficult to find.
Unfortunately, it seems that the birds are not treating Adam
Smith with the respect he deserves, but I doubt that he would care.
I went looking for Adam Smith because he is the father of
modern economics and because his views on the benefits of specialization and free
trade have contributed to a vast improvement in living standards over much of
the world over the last couple of centuries. But I suppose that is the kind of
thing that might be said by anyone who views himself as a disciple of Adam
Smith.
When asked to be more specific about Adam Smith’s contributions,
people who are familiar with his writings tend to emphasize different things.
One important contribution lies in fundamental thesis of Wealth of Nations that the extent to which people are able to enjoy
‘the necessaries and conveniences of life’ depends largely on labour
productivity – ‘the productive powers of labour’. Economists debate whether
Smith told the right story about productivity growth – perhaps he gave too much
emphasis to capital accumulation, gains from specialization and scale economies,
rather than to technological progress. I think the important point is that
Smith understood and emphasized the importance of economic freedom in promoting
productive use of resources (including good management) as well as an efficient
allocation of resources among industries.
Mention of economic freedom brings me to the contribution
that Smith made in pointing out the role of the ‘invisible hand’ of the market
in translating the pursuits of individuals into desirable social outcomes. Smith
noted:
‘It is not from the benevolence of the butcher, the brewer,
or the baker, that we can expect our dinner, but from their regard to their own
interest’.
Smith would not have approved of that oft-quoted sentence
from Wealth of Nations being
interpreted as implying that butchers, brewers, bakers and other people engaged
in business activities pursue only selfish interests. In The Theory of Moral Sentiments, Smith wrote:
‘How selfish soever man may be supposed, there are evidently
some principles in his nature which interest him in the fortune of others and
render their happiness necessary to him though he derives nothing from it
except the pleasure of seeing it’.
Smith also made a major contribution in explaining that the
visible hand of government is often far from benign. I particularly like a
passage in The Theory of Moral Sentiments
about the consequences of being governed by ‘the man of system’ – a
political leader who is ‘apt to be very wise in his own conceit’. Smith
suggests that the ‘man of system’ imagines that ‘he can arrange the different
members of a great society with as much ease as the hand arranges the different
pieces upon a chess board’. He fails to consider that ‘in the great chess board
of human society, every single piece has a principle of motion of its own,
altogether different from that which the legislature might chuse to impress
upon it’. Smith points out that when the visible hand of government is attempting
to regulate the individual members of society, it is likely that ‘the game will
go on miserably, and the society must be at all times in the highest degree of
disorder’. (See: TMS, VI.ii.2.17).
I think Smith’s greatest contribution was in promoting the idea
that a ‘system of natural liberty’ can establish itself ‘of its own accord’,
when the role of government is confined to duties of ‘great importance’ that
could not otherwise be performed. We should never lose sight of Smith’s vision
of natural liberty:
‘Every man, as long as he does not violate the laws of
justice, is left perfectly free to pursue his own interest in his own way, and
to bring forth both his industry and capital into competition with those of any
other man, or order of men. The sovereign is completely discharged from a duty
[for 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’. (See: WN, IV.ix.51).
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