Subjectivism and Objectivism in the History of Economic Thought

Kiichiro Yagi, Yukihiro Ikeda

• Publisher: Routledge
• Year: 2012
• Print ISBN: 9780415605366
• eBook ISBN: 9781136275173
• Edition: 1
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

This book investigates the tensions between subjectivism and objectivism in the history of economics. The book looks at the works of Adam Smith, Carl Menger, Leon Walras, William Stanley Jevons, Oskar Morgenstern, Ludwig Mises, Piero Sraffa, and so on. The book highlights the diverse subjective and objective elements of their economic theories and suggests a reframing of methodology to better address the core problems of the theories.

Contributors of the volume are leading members of the Japan Society of History of Economic Thought who have provided a comprehensive overview on the economics methodology and the related problems. Hence, this book will be of an invaluable asset to not only those who are interested in the history of economic thought, but also to scholars who are concerned with the methodological problems of economic science.

1	Subjectivity, objectivity and biological interpretation in Smith’s view on the real values of labour, money and corn
	Tetsuo Taka

The purpose of this chapter is to reinterpret Adam Smith’s labour theory of value which has long been criticized for mixing quantities of spent labour, labour commanded and sacrificed labour-disutility. Careful examination of his arguments reveals that the whole structure of his economic theory should be interpreted as an integral part of the organic and biological understanding of human being and society.

The reinterpretation resolves itself into the following three points. First, if we pay attention to Smith’s distinction between the maintained quantity of labour and maintainable quantity of products, it is easy for us to understand why Smith declared that the unchangeable value of labour must be, in the short term, represented much better by money rather than by corn, however the latter represented it much better in the long term. Second, the labour theory of value elaborated in the first five chapters of the Wealth of Nations (hereafter abbreviated to WN) should be understood as an organically composite theory founded upon the physical and mechanical analysis of the increase of productive power through the division of labour: the whole product of labour became a “commons stock” of the society. The exchange value of each commodity was decided not only upon the subjective judgements of each owner but also upon the sympathy between buyers and sellers. Third and finally, Smith’s theory of economic development was substantially the evolutionary theory about the quantitative increase of products and population resulting from the division of labour, the qualitative extension of the diversity of products (consumption) and human liberty. The distinctive means for escaping from Ricardian and Malthusian dismal sciences, therefore, seems to be found in the fact that Smith constructed his economics not only upon the instinctive working of sympathy explained in The Theory of Moral Sentiment (hereafter abbreviated to TMS), but also upon his own biological and evolutionary methods.

Division of labour and the propensity to exchange: physical reasoning and the role of sympathy

As Smith explicitly said that the greatest improvement in the productive powers of labour was the effects of the division of labour, he emphasized its decisive role for achieving physical and mechanical efficiency of production. The genius of Smith clearly appears in the short example of a small pin manufactory “where ten men only were employed, and where some of them consequently performed two or three distinct operations” (WN.I.i.3), A pin manufactory was very suggestive, since “changing fashions in dress were followed by people of all classes, pins were surely one of life’s necessities” in the early seventeenth century (Thirsk 1977, 78). English pin making benefited by Dutch technological innovation started to employ children and gave opportunities for disabled soldiers and crippled paupers (ibid. 80–3), who earn “from 1s. to 2s. a week” in the description of Warrington (Young [1771]1967, vol. 3, 165).¹

Smith cited three reasons for the increase of productivity. First, the division of labour increases the dexterity of workmen “by reducing every man’s business to some one simple operation, and by making this operation the sole employment of his life” (WN.I.i.6). Second, “the advantage which is gained by saving the time commonly lost in passing from one sort of work to another is much greater than we should at first view be apt to imagine it”. Smith asserted further that the habit of sauntering and of indolent careless application renders every country workman “almost always slothful and lazy, and incapable of any vigorous application even on the most pressing occasions” (WN.I.i.7). Third, the invention of machines which facilitated and abridged the labour. However, Smith attached great importance to “philosophers or men of speculation” rather than workers as sources of technological advance.

Smith’s theory of division of labour is formalized fundamentally upon the physical and mechanical principle of the productivity enhancement in the social production of the necessaries of life, although it consists of two kinds of people, one engaged directly in production, like workers, and the other speculative work in order to accumulate scientific knowledge, like philosophers. It may, therefore, be an ideal case that “every workman has a great quantity of his own work to dispose of beyond what he himself has occasion for; and every other workman being exactly in the same situation” (WN.I.i.10). In short, the characterization of division of labour in the first chapter of WN is the explanation of physical and mechanical enhancement of productivity by individual workmen, and is a model of the barter system where all surplus products of labourers were to be exchanged with each other.

However, Smith presented different images in Chapter 2, since he declared that the different produce of geniuses and talents are brought, “as it were, into a common stock” by the general disposition to truck, barter and exchange (WN.I.ii.5).

This division of labour, from which so many advantages are derived, is not originally the effect of any human wisdom, which foresees and intends that general opulence to which it gives occasion. It is the necessary, though very slow and gradual consequence of a certain propensity in human nature which has in view no such extensive utility; the propensity to truck, barter, and exchange one thing for another.

(WN.I.ii.1)

Although this argument displays a distinctively anthropological and evolutionary conception of human nature, it seems worth noting that the guarded statement, “whether this propensity be one of those original principles in human nature” or “the necessary consequence of the faculties of reason and speech, it belongs not to our present subject to enquire” (WN.I.ii.2) in WN was finally extended to the confident belief in TMS in 1790. He said thusly.

The desire of being believed, the desire of persuading, of leading and directing other people, seems to be one of the strongest of all our natural desires. It is, perhaps, the instinct upon which is founded the faculty of speech, the characteristical faculty of human nature. No other animal possesses this faculty, and we cannot discover in any other animal any desire to lead and direct the judgment and conduct of its fellows.

(TMS.VII.iv.25)

This kind of distinctive reference to the instinct does not appear in WN, although Smith studied botany and enriched his conception of the instinct by reference to the twelfth edition of Linnés Systema Naturae (1766–8) in the latter part of “Of the External Senses” accomplished during his writing of WN. ² While Smith used the term propensity in place of it, it was very close to the term instinct. He paraphrased the propensity to truck, barter and exchange thusly.

Man has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and shew them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.

(WN.I.ii.2)

Today we know that Charles Darwin coined the same human nature into “the Social Instinct” of which “sympathy forms an essential part” (Darwin [1871]1874, 99), and what Frans de Wall called “reciprocal altruism” prevailed among animals who “seek and enjoy company” (de Wall 1996, 170). Although Smith’s understandings attained less scientific maturity yet, it may safely be said that Smith’s concept of propensity to exchange basically means sympathy, and this is almost the same concept as Darwin’s social instinct and de Wall’s reciprocal altruism.³ This distinct biological feature of Smith’s view of human nature enabled him to grasp a society with division of labour as an organism united through sympathy and reciprocal altruism, and therefore to insist that the whole product of labour becomes the common stock of society.

Those different tribes of animals, however, though all of the same species, are of scarce any use to one another. The strength of the mastiff is not, in the least, supported either by the swiftness of the greyhound, or by the sagacity of the spaniel, or by the docility of the shepherd’s dog. The effect of those different geniuses and talents, for want of the power or disposition to barter and exchange, cannot be brought into a common stock, and do not in the least contribute to the better accommodation and conveniency of the species.… Among men, on the contrary, the most dissimilar geniuses are of use to one another; the different produces of their respective talents, by the general disposition to truck, barter, and exchange, being brought, as it were, into a common stock, where every man may purchase whatever part of the produce of other men’s talents he has occasion for.

(WN. I.ii.5)

Then, Smith’s argument that “it is by treaty, by barter, and by purchase, that we obtain from one another the greater part of those mutual good offices which we stand in need of”, it will be safely said, depended on the role of sympathy and reciprocal altruism formulated in TMS on the one hand, and “the certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption” (WN.I.ii.3) on the other hand. The certainty of exchange should be secured by making individual products into the common stock of society. The propensity to exchange, therefore, is the same kind of biological and anthropological understanding of human nature as Darwin’s “sympathy as an instinct” or de Wall’s “reciprocal altruism”, so it became the foundation of the physical and mechanical understanding of the society with division of labour formulated in the first chapter of WN.

Therefore, Smith’s argument will be summarized as follows. When people exchange their surplus produce with the necessaries of life produced by other people, the exchange rate – the price – should be determined in the marketplace according to their subjective judgements of the exchanging powers of their surplus produce, whether they exchange their own surplus with some part of the common stock or they exchange it directly with other people’s surplus. While the market price (exchange rate) decided in the market is always objective for any participants and bystanders, there must be sympathy between them for the exchange to be approved as justifiable and agreeable whether the price was good or bad. The “objective” price (exchange rate) in WN, a kind of social decision, might be parallel to the decisions of the “impartial spectator” or “the arbiter” in TMS.

Then, it was appropriate and quite right for Smith to discuss further how individual producers subjectively meet with the objective price (exchange rate). Nevertheless, he turned his eye to the emergence of money, and emphasized its decisively contributive role for the extension of the division of labour and market economy.

Commercial society, money and the state: the institutionalist interpretation

The proper theme of Chapter 4 “Of the Origin and Use of Money” was the elucidation of “the manner that money has become in all civilized nations the universal instrument of commerce, by the intervention of which goods of all kinds are bought and sold, or exchanged for one another”, and Smith achieved it from three perspectives: first, the transformation of human nature due to the transition from society with division of labour and barter to society with commercial exchange; second, the emergence of metal currency as a means of exchange; third, state assurance by stamping of the fineness and weight of the metal to promote commerce and industry.

First, the evolution to commercial society requires its members to adopt new spiritual attitudes of the merchant, making commercial society a distinctive institution. Smith says thusly.

When the division of labour has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.

(WN.I.iv.1)

That living by exchanging makes humans in some measure merchants means that nobody can live just relying on the instinctive human trait of reciprocal altruism which turns their produce into the common stock of the community. Smith was a distinguished institutionalist, in so far as he insisted that the evolution from the barter community to the commercial society could not occur until human beings establish new customs of thought proper to the merchant.

Second, Smith’s interpretation of the evolution of money as a means of exchange seems, indeed, the typical conjectural history, despite not a few textual evidences after the period of the Roman Empire were cited. One example of conjecture is the statement that

every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavored to manage his affairs in such a manner, as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.

(WN.I.iv.2)

An example of evidence is the hearsay reports that “in the rude ages of society, cattle are said to have been the common instrument of commerce; a species of shells in some parts of the coast of India; tobacco in Virginia” (WN.I.iv.3). The comment that “there is at this day a village in Scotland where it is not uncommon, I am told, for a workman to carry nails instead of money to the baker’s shop or the alehouse” seems but a gentle joke of opportunistic eviden...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• List of contributors
• Preface
• Introduction: subjectivism and objectivism in the history of economic analysis
• 1 Subjectivity, objectivity and biological interpretation in Smith’s view on the real values of labour, money and corn
• 2 Individual rationality and mechanism in the history of microeconomic theory
• 3 Quételet’s influence on W. S. Jevons: from subjectivism to objectivism
• 4 Transforming ofrareté? From Auguste to Léon Walras
• 5 Austrian subjectivism and hermeneutical economics
• 6 Carl Menger’s subjectivism: “types,” economic subjects, and microfoundation
• 7 Böhm-Bawerk’s objectivism: beyond Menger’s subjectivism
• 8 Ludwig von Mises as a pure subjectivist
• 9 Uncertainty and strategic interdependence in the interwar Viennese milieu
• 10  Some evolutionary interpretations of the economic systems of Piero Sraffa and John von Neumann in the light of complexity
• Index