The Science of Wealth

Adam Smith and the framing of political economy

Tony Aspromourgos

• Publisher: Taylor & Francis
• Year: 2008
• Print ISBN: 9780415463850
• eBook ISBN: 9781134041121
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This study clarifies the character of 'political economy' as a distinct and separable intellectual discipline in the generic sense, in the texts of Adam Smith. It focuses upon the scope and fundamental conceptualizations of the new science. Smith's conceptualization of economic analysis is shown to constitute a unified intellectual piece for understanding economic society and its dynamics. Smith's fundamental economic language is exhaustively examined, in all his texts, with a view to clarifying the meaning of the basic concepts of his system. As well, the 'prehistories' of those concepts, in literature prior to Smith, back to the earliest times, are quite comprehensively treated, thereby placing his political economy in its larger historical context and conveying a rich sense of the history of these ideas over the whole course of our civilization.

A quite complete account of Smith's economics as a whole is also entailed by this undertaking: his key substantive economic doctrines are thoroughly considered as well, and all the elements of his economic theory receive attention. To that extent, notwithstanding the focus on concepts, an interpretation of the substance of Smith's political economy is also provided. This focus is partly motivated by the view that Smith's intellectual triumph in the history of social science is not so much about the success of specific doctrines. His more considerable theoretical success is at a deeper level: gaining a wide and long-lasting acquiescence in the conceptual universe framed by the fundamental structures of his system, for a newly emerging discipline. Those who subsequently contested Smithian doctrine did so within Smith's framework; they did so 'on his terms'. While the book's primary purpose is to reconstruct the character of Smith's political economy as a distinct intellectual enterprise, it also addresses its relevance to modern economics, and to policy and practice in contemporary liberal society.

1 Introduction

It is terrific to contemplate the abysmal gulf of incomprehension that has opened itself between us and the classical economists. Only one century separates us from them: … I say a century; but even ½ a century after, in 1870, they did not understand it…. The classical economists said things which were perfectly true, even according to our standards of truth: they expressed them very clearly, in terse and unambiguous language, as is proved by the fact that they perfectly understood each other. We don’t understand a word of what they said: has their language been lost? Obviously not, as the English of Adam Smith is what people talk today in this country. What has happened then?

Piero Sraffa, 1927¹

The latter-day image of Adam Smith has long turned upon his role as a crucial figure—indeed, commonly regarded as the key figure—in the formation of political economy as a distinct social science. Perhaps even more, at least in the popular imagination, he has been widely viewed as providing one of the most substantial intellectual cases for liberal capitalism as the best possible system for arranging human society. These are two very different claims to fame, unless economic science itself can be thought of as favouring capitalism, an idea almost too absurd to take seriously. In any case, in the last few decades these beliefs about Smith have been much questioned. The publication from 1976 to 1983 of the Glasgow Edition of Smith’s extant writings and related documents (in particular, lecture notes) undoubtedly provided impetus to renewed interest in Smith’s intellectual work as a whole, naturally encouraging a more holistic approach to interpreting his thought. The resulting research endeavours, and much of their outcome, were certainly to be welcomed, and remain so. However, there is also a danger that something important about Smith’s intellectual achievement might be lost in this orientation towards his thought. There are a number of particular ideas for which Smith is perceived as famous—perhaps most notably, at least in the last half century or so, the ‘invisible hand’. Another is the benefits of ‘division of labour’. But Smith also regards the intellectual division of labour between the various sciences and arts as one of the dimensions of that beneficial process of specialization. In short, prefiguring one of the conclusions of this study, however much he has an all-encompassing and unified conception of science as such, or of the social sciences in particular, Smith has also an understanding of political economy as a separable science, though not thereby an autonomous one.

Certainly the meaning of that for which Smith’s standing as a thinker has most endured, his political economy, is better understood by considering WN in the context of Smith’s entire oeuvre, seeing it in the light of his thought as a whole. Like any immensely intelligent person, Smith aims for—and has considerable success in achieving—a consistent, coherent and unified set of views across the range of issues which concern him. We therefore do not fully understand his thought if we do not see that larger frame of reference. But it cannot be inferred from this that the political economy is not a separable intellectual ‘discipline’. To be sure, everything depends on everything else, in the end; but the progress of science has always been a result of the segmentation of phenomena, and associated intellectual specialization. Smith certainly endorses this latter proposition. One explicit illustration by him of science proceeding by way of separable branches occurs close to the beginning of WN, in relation to division of labour, which Smith argues arises from the human ‘propensity to truck, barter, and exchange’. He raises the question of whether this propensity is ‘one of those original principles in human nature’, or derives from more fundamental human faculties. Smith favours the latter view, but then leaves the issue aside—‘it belongs not to our present subject to enquire’ (WN: 25). Inquiry into how the propensity to exchange derives from more fundamental human faculties can be pursued; but for the purposes of political economy, that propensity can simply be taken as a given. So it is, we shall see, with other postulates of the political economy, in particular, self-regard and the desire of bettering one’s condition.

Our purpose in what follows is to uncover the character and fundamental structures of that particular intellectual project—the ‘shape’ and ‘contours’ of the mode of social science inquiry, the intellectual ‘discipline’ in the generic sense, that Smith conceived of as ‘political economy’. In our subtitle the historical development of the conceptualization of that science, both by Smith and by others before him, is described as the ‘framing’ of political economy. That somewhat awkward term—‘making’ or ‘invention’ would flow more easily off the tongue—is chosen with premeditation. The concern in what follows is not so much with all the myriad detail of Smith’s economics, or of the detail of the economic thought of others before him, nor with all the substantive economic doctrines. It is rather with the overall character of the science: its scope and fundamental conceptualizations; the ‘frame’ of this ‘machine’ for understanding society.² Smith himself is rather keen on the analogy of the world as a machine, and of science as a machine for producing understanding (e.g. TMS: 19; EPS: 66).

These terms to describe our focus in what follows—‘character’, ‘fundamental structures’, ‘shape’, ‘contours’, ‘frame’, ‘machine’—may appear rather vague. The short response to that possible reproach is that the proof of the pudding must be in the eating. But before briefly indicating here, positively, the ‘ingredients’ in what follows, it may further clarify the object of our inquiry to give a couple of instances of what we will not be concerned with. The theory of landrents is a good example of a particular substantive Smithian doctrine with which we have almost no interest in what follows. Smith’s treatment of this subject is a mess and, perhaps not coincidentally, few who have ventured into Smith interpretation have been keen to tread there. But our reason for largely ignoring it is rather that, whatever the extent to which his explanations of the determination of land-rents have any validity, this does not touch upon his ‘framing’ of political economy, as to its boundaries or fundamental structures. A further instance is Smith’s substantive theory of natural price determination. This is more connected than rent theory with what we treat as Smith’s fundamental structures in what follows; but even here, what is really fundamental is the conception of natural prices as the ‘anchor’ for the behaviour of market prices. That his understanding of the determinants of natural prices is unsatisfactory does not compromise the more fundamental conception of the dynamics of competition and market prices in relation to natural prices. Or at least, it does not necessarily compromise that conception: on this matter, there are complications which will have to be entered into (in essence, the question of the autonomy of natural prices with respect to the ebb and flow of supply and demand).

It has been suggested above that the proof of the pudding should be in the eating, not least because it is rather tedious in an introductory chapter to elaborately rehearse the arguments which are shortly to follow. But to turn briefly to the positive side—to what will actually be offered for consumption below—twelve fundamental elements constitutive of Smith’s political economy are examined, three in each of the four subsequent chapters (with key terms in italic):

• Chapter 2: political economy as the science of wealth; wealth as national product; nature as a norm.
• Chapter 3: convergence of market prices towards natural prices; supply and demand; price as necessary cost.
• Chapter 4: division of labour and labour productivity; gross revenue and net revenue; capital and productive labour.
• Chapter 5: the progress of opulence; the system of natural liberty; policy and theory.

These elements making up, in our judgement, the fundamental structures of Smith’s economics are not examined merely as separate and disparate ideas. By the end, they are shown to constitute a unified intellectual piece, an engine for understanding economic society in general and liberal capitalism (not Smith’s term) in particular, a fundamental frame of reference for economic analysis and social theory.³ Smith’s use of these key terms will be very exhaustively examined in the subsequent chapters—as will a small number of other important, related terms he uses (e.g. ‘scarcity’, ‘free’ and variants, ‘theory’). As well, their ‘prehistories’ in literature prior to Smith will be rather comprehensively treated; that is to say, the history of the concepts prior to Smith. The systematic examination of these prehistories is with a view to further clarifying his conceptualization of political economy, by placing it in its larger historical context. ⁴ Smith’s political economy will also be engaged with latter-day economics at a number of points in Chapters 2 to 5, or perhaps we should say, contemporary economics will be confronted with Smith’s project. This aspect of what follows proceeds from a belief that we still now have something to learn from him about how the social sciences should go about their business. The Epilogue reflects upon the fate of political economy and economics subsequent to Smith, and the lessons one might learn from his project, in a more comprehensive manner.

With regard to those chosen twelve or so concepts and key terms, which are treated as capturing the fundamental structures of Smith’s political economy, there is no need for us to dogmatically assert that no different choices could reasonably have been made. If one were to ask a representative sample of informed persons, what are the twelve most important concepts making up the fundamental structures of Smith’s political economy, it would be a considerable surprise if the responses turned out to be more or less identical. (One may suggest that the most likely additional candidate over and above our nominations might indeed be the ‘invisible hand’.) The inevitable scope for differences of judgement is placed in perspective by keeping in mind that the purpose of the choices is to capture the basic elements of Smith’s system. There is no doubt more than one set of choices that can achieve this. In the end, a quite comprehensive account of his economics is entailed by an exercise such as this, so that important concepts which are not key concepts in this study nevertheless find a place in the narrative (including that Smithian ‘hand’, which has so fascinated in later times). Furthermore, Smith’s substantive doctrines are not at all ignored in what follows: all the significant elements of his theory make an appearance. To that extent, notwithstanding the focus of this study, it also conveys an interpretation of the substance of Smith’s political economy. As to the choice of the number of fundamental concepts for consideration, this is an outcome of resolving the trade-off between breadth and depth. One needs to go broad enough to capture the overall shape of the political economy. At the same time, one must be able to go deep enough to convey a rich sense of the history of these ideas over the whole course of our civilization, from the earliest times to 1776, the Wealth of Nations being the key foundational text for the new science of political economy.⁵

The very close attention paid to fundamental aspects of Smith’s economic language in this study raises the question, what are we ultimately interested in, his language or his concepts? The answer, fairly emphatically, is the latter. But the discipline of a complete and careful consideration of Smith’s use of fundamental terms better enables one to grasp his conceptualizations, free of misreadings arising from the intrusion of latter-day concepts which are associated with the same terms—the meaning of ‘supply’ and ‘demand’ offers the most striking example. (We speak somewhat qualifiedly—‘ fairly emphatically’ the interest is in Smith’s concepts—because the actual historical development of language and of concepts involves dependence and causation, from one to the other, in both directions.⁶) In the chapters which follow, each subsection first considers one (sometimes two) of the twelve or so particular Smithian concepts and exhaustively examines his uses of the particular associated key terms (in all his writings⁷), and then proceeds also to account for the prehistory of those terms and their associated concepts prior to Smith. The exception to this rule is Chapter 3, where the prehistories of the key terms and associated concepts are best considered together, in a single subsection (sec. 3.5), because they are all so closely intertwined, both conceptually and historically. The exhaustiveness of the examination of Smith’s language use in relation to key terms is rendered practicable by the advent of a reliable machine-searchable electronic text of the Glasgow Edition.⁸ But for the interpretation of a thinker like Smith, good old-fashioned reading is not rendered obsolete by such technology. The research for this study included reading his texts the way he intended them to be read; or perhaps we should say, certainly for the case of so large a book as WN, the way Smith at least hoped they would be read: from beginning to end.

It is of course impossible for us to devote the same close attention to language use prior to Smith, except with regard to certain particular key instances. Nevertheless, taking language seriously guides the exploration of the prehistory of Smith’s concepts as well. The sheer scale of the material potentially relevant to the prehistory means that while a great body of primary sources has been investigated, there is inevitably also reliance on secondary literature, with regard to pre-Smithian thought. The concepts and terms that are the object of our investigation in Smith’s texts constitute a finite, well-defined and manageable domain of inquiry; in earlier literature, they do not. The histories we create are always partial, not only because they are from particular standpoints, the usual complaint or affirmation. They are partial also because the raw materials for those histories are commonly so vast (though, still, generally incomplete) as to make it impossible for a single mind to absorb all that is relevant to any ‘big picture’. There is much we do not know. With regard to Smith, there is very little need to rely upon secondary sources in what follows. Furthermore, no attempt is made to detail every instance of disagreement (let alone of agreement) between our findings and interpretation, and the very large secondary literature on Smith’s political economy. Apart from of course fully documenting any instances of reliance upon secondary literature, we also indicate by reference to key works how our findings stand in relation to other major lines of Smith interpretation. Beyond that, agreements and disagreements are indicated, between this study and those of others, on a range of particular issues. The narrative does not give space to more or less mercilessly pursuing others who take a different view of Smith. I do not share the belief that the best way of advancing one’s scholarship is to tear down the efforts of others in the field. The thing to be advanced is the understanding of Adam Smith’s texts—and perhaps via that, the understanding of our societies and ourselves.

It may be added that in the course of Chapter 4, recourse will be had to some small instances of ‘rational reconstruction’, in a precise and limited sense: ‘the application of formal models designed to accurately capture the intentions or ideas of an earlier author or text, while going beyond the actual analytical or formal execution of the writer’ (Aspromourgos 1997: 418). I immediately added after this definition: ‘[t]his is an interpretive method which may enable a clearer grasp of the logical coherence (or otherwise) and implications of a system’. As to otherwise-than-coherent, so it will also be here: formal statement of some aspects of Smith’s thinking will clarify certain limitations of his ideas. There has been some adverse reaction to rational reconstruction, though understood in a rather more expansive sense of the term, from some quarters (also discussed in Chapter 4). It is a large part of the primary purpose of this study to take very seriously the language in which Smith articulates the fundamental structures of his economics. That does not oblige a refusal to avail one’s self of latter-day methods of analysis; that purpose is not compromised by recourse to some simple, mathematical formulations of certain of Smith’s ideas, with a view to better grasping their meaning and limitations. Of course, one must proceed with care and remain alive to the difference between a mathematical statement of a Smithian proposition, and a mathematical inference from it which he did not grasp. So long as such care is taken, no reasonable principle of exegesis and interpretation is violated. Engagement with intellectual history is a messy and difficult business, for which no simple, mechanical rules of procedure—or simple, mechanical rules for prohibiting procedures—are legitimately available. Use of a little algebra may assist, and need not cause harm.

Insofar as it presupposes that WN is a decisive plateau in the development of political economy, what partly motivates this study is the view that Smith’s intellectual triumph, the influence of his book in the history of science, is not so much about the success of his specific theoretical doctrines. (His influence in the history of liberal capitalism is another matter.) Smith’s most considerable theoretical success is at a deeper level: it is in gaining a wide and long-lasting acquiescence in the conceptual universe, constituted or framed by the fundamental structures of his system, for a newly emerging intellectual discipline. This deeper success meant that those who subsequently contested Smithian doctrine did so within Smith’s conceptual universe; they did so, indeed, ‘on his terms’. The terrain upon which economic doctrine would be developed and fought over would be the terrain established by that book, for at least a century, and in some important and fundamental respects, well beyond a century. David Ricardo’s analytical advances, for example, are entirely within the conceptual universe laid out by Smith. To take another example, the concept of competitive equilibrium prices, which endures in economic theory to this day, is clearly conceptualized, almost for the first time, by Smith. (The qualification is due to Anne Robert Jacques Turgot.) There is a deeper success here, a profounder achievement, than merely gaining assent to specific doctrines: a constituting of the more fundamental frames of thought within which particular doctrine subsequently would be articulated, worked out, debated, and perhaps even sometimes resolved.

In our view, this dimension of Smith’s intellectual lifework—the conceptual universe he fashioned for a considerable and important part of science of human society—is his most enduringly important contribution. It is more important than the specific economic doctrines, an...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Preface
• A note on citation practice
• 1 Introduction
• 2 The science of wealth
• 3 Competition, prices and distribution
• 4 Production and capital accumulation
• 5 Opulence and policy
• Epilogue
• Notes
• References