The Celebrated Adam Smith
By Murray N. Rothbard
(Originally published as chapter 16 in An Austrian Perspective on the History of Economic Thought, Vol. I, Edward Elgar Press, 1995; Mises Institute, 2006. Sources on this chapter.)
Part 1 – The mystery of Adam Smith
Part 2 – The life of Smith
Part 3 – The division of labour
Part 4 – Productive vs. unproductive labour
Part 5 – The theory of value
Part 6 – The theory of distribution
Part 7 – The theory of money
Part 8 – The myth of laissez-faire
Part 9 – On taxation
[i] Das AdamSmithProblem referred to only one of the numerous contradictions and puzzles in the Adam Smith saga: the big gap between the natural rights — laissez-faire views of his Theory of Moral Sentiments, and the much more qualified views of his later and decisively influential Wealth of Nations.
[ii] In an illuminating article on ‘Adam Smith’s Acknowledgements,’ Professor Salim Rashad writes: ‘It is stated by Schumpeter that this [not acknowledging one’s sources] was the practice of his age. This is incorrect. If we turn to some of the works quoted in the Wealth of Nations, such as Charles Smith’s Tracts on the Corn-Trade or John Smith’s Memoirs on Wool, we shall find them scrupulous in acknowledging their intellectual debts. Among Smith’s contemporaries, Gibbon is well-known for the care with which he provided references and the same is true of the best-known agricultural writer of Smith’s day, Arthur Young.’ Salim Rashad. ‘Adam Smith’s Acknowledgements: Neo-Plagiarism and the Wealth of Nations,’ Journal of Libertarian Studies, 9 (Autumn 1990), p.11.
[iii] The first and most consistent piece of modern Smith revisionism came a year earlier in two excellent and illuminating articles by Emil Kauder: ‘Genesis of the Marginal Utility Theory: From Aristotle to the End of the Eighteenth Century,’ in J. Spengler and W. Allen (eds), Essays in Economic Thought (Chicago: Rand McNally and Co., 1960), pp. 277-87; and ‘The Retarded Acceptance of the Marginal Utility Theory,’ Quarterly Journal of Economics (Nov. 1953), pp. 564-75. But Schumpeter’s revision was far more influential.
[iv] Unfortunately, since the mid-1970s celebration of Smith’s bicentennial, a counter-revisionist trend has set in to try to restore the hagiographical attitude dominant before the 1950s. See our bibliographical essay below.
[v] For a new view of Smith’s tenure at the customs house based on original investigation into the handwritten minutes of the board of customs commissioners, 1778-90, as well as on Smith’s numerous letters to customs collectors at the outports, see the important article of Gary M. Anderson, William F. Shughart II, and Robert D. Tollison, ‘Adam Smith in the Customhouse,’ Journal of Political Economy, 93 (August 1985), pp. 740-59.
[vi] Griping about alienation had begun with the influential Essay on the History of Civil Society (1767), written by Smith’s friend Adam Ferguson. A similar theme, however, had appeared in Smith’s unpublished Glasgow lectures of 1763. On Ferguson’s influence, see M.H. Abrams, Natural Supernaturalism (New York: W.W. Norton, 1971), pp. 220-21, 508.
[vii] Quoted in Ronald Hamowy, ‘Adam Smith, Adam Ferguson, and the Division of Labour’, Economica(August 1968), p. 253.
[viii] Edwin Cannan, A History of the Theories of Production and Distribution in English Political Economy From 1776 to 1848 (2nd ed., London: P.S. King & Son, 1903), pp. 23.
[ix] Cannan, op. cit., note 8, p. 24.
[x] Ingrid Hahne Rima, Development of Economic Analysis (3rd ed., Homewood, Ill.: Richard D. Irwin, 1978), p. 79.
[xi] Edwin G. West, Adam Smith (New Rochelle, NY: Arlington House, 1969), p. 173.
[xii] Also see Nathan Rosenberg, ‘Adam Smith on Profits — Paradox Lost and Regained’, Journal of Political Economy, 82 (Nov/Dec. 1974), pp. 1187-9.
[xiv] We cannot use the excuse that Smith had developed the utility — scarcity analysis in his lectures and therefore saw no need to repeat it in the Wealth of Nations. For the lectures were unpublished and remained so until almost the twentieth century.
[xv] Paul H. Douglas, ‘Smith’s Theory of Value and Distribution’, in J.M. Clark et al., Adam Smith, 1776 — 1926 (Chicago: University of Chicago Press, 1928), p. 80.
[xvi] Emil Kauder, ‘Genesis of the Marginal Utility Theory from Aristotle to the End of the Eighteenth Century’, in Spengler and Allen, op. cit., note 3, p. 282. Also see H.M. Robertson and W.L. Taylor, ‘Adam Smith’s Approach to the Theory of Value’, in ibid., pp. 293-4.
[xvii] John Locke (1632-1704), the great late seventeenth century English libertarian political theorist, is often erroneously held to have originated the labour theory of value. Actually, Locke was discussing a far different problem from the determination of price. In the first place, he championed the idea of private property in land to the original homesteaders, who took unused land out of the common by ‘mixing their labour’ with the soil. This is a labour theory of the proper origin of private property rather than a labour theory of value. Second, Locke is trying to demonstrate the unimportance of land — supposedly originally communal as compared to the importance of human energy and production in determining the value of products or resources. Locke asks us to compare an unused piece of communal land with the difference made by labour in tilling the soil and transforming it into consumer goods. Here Locke is certainly correct in highly valuing the input of human energy, which here includes the creation and the collaboration of capital goods as well as the narrow modern meaning of ‘labour’. Human energy, or ‘labour’ in the broadest sense, has certainly made the crucial difference in the march upwards from penury and. barbarism to modern civilization. But this is no ‘labour theory of value’ in the sense of determining price.
[xviii] Thus Ricardo, following and clarifying Smith, asserted that ‘The estimation in which different qualities of labor are held comes soon to be adjusted in the market with sufficient precision for all practical purposes’. And Marx declared that ‘the different proportions in which different sorts of labour are reduced to unskilled labour as their standard are established by a social process which goes on behind the backs of the producers’. Cited in Douglas, op. cit., note 15, p. 82n.
[xix] Douglas, op. cit., note 15, p. 95. Similarly, the astute Alexander Gray wrote that ‘through Ricardo, his [Smith’s] cost-of-production theory and his emphasis on labour as the source of all value, became one of the cornerstones of the Marxian structure. Indeed, it is a commonplace that Scientific Socialism was arrived at by carrying classical English political economy to its logicalconclusions’. Alexander Gray,Adam Smith (London: The Historical Association, 1948), p. 24.
[xx] Douglas, op. cit., note 15, pp. 102-3.
[xxi] H.M. Robertson and W,L. Taylor, ‘Adam Smith’s Approach to the Theory of Value’, in Spengler and Allen, op. cit., note 3, p. 301.
[xxii] For a more elaborate critique, see our discussion of Malthus and Malthusianism below (Chapter 17).
[xxiii] Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Bros, 1937), p. 87.
[xxiv] Adam Smith, Lectures on Justice, Police, Revenue and Arms (1896, New York: Kelley & Millman, 1956), p. 197.
[xxv] Thus, Douglas Vickers writes, in a volume generally devoted to Smithian apologetics: ‘in the matter of the theory of money The Wealth of Nations does not deserve very high praise. In the Wealth of Nations the theory of money resides at a relative nadir in the swings of its long historical development. Deeper analysis and more extended argument occurred on both sides of the 1776 divide’. Douglas Vickers, ‘Adam Smith and the Status of the Theory of Money’, in A. Skinner and T. Wilson (eds),Essays on Adam Smith (Oxford: The Clarendon Press, 1975), p. 484. Also see W.L. Taylor, Francis Hutcheson and David Hume as Predecessors of Adam Smith (Durham, NC: Duke University Press, 1965), p. 132.
[xxvi] See Frank Petrella, ‘Adam Smith’s Rejection of Hume’s Price-Specie-Flow Mechanism: A Minor Mystery Revealed’, Southern Economic Journal, 34 (Jan. 1968), pp. 365-74.
[xxvii] Oddly enough, Professor Eagly, in his article allegedly rehabilitating Smith as an adherent of the Humean price-specie-flow theory, demonstrates just the opposite: ‘To begin with, Smith assumed the existence of an international purchasing-power-parity for the monetary metals… Whenever and wherever the local price of specie in terms of commodities diverges from the international purchasing-power-parity, specie movements take place immediately. The world demand for specie thus appears to an individual nation as infinitely elastic with respect to its price in terms of commodities. Any small deviation in the domestic commodity price of specie from the international parity results in immediate specie export (or import)’. In short, Smith focuses completely on long-run equilibrium, with process dropping out altogether. Robert V. Eagly, ‘Adam Smith and the Specie-Flow Doctrine’. The Scottish Journal of Political Economy, 17 (February 1970), p. 64. Bloomfield’s apologia for Smith follows Eagly, adding encomiums to Smith’s alleged modernity in anticipating Mundellian, neo-monetarist equilibrium economics. Arthur I. Bloomfield, ‘Adam Smith and the Theory of International Trade’, in Skinner and Wilson, op. cit., note 25, pp. 478-80. J.T. Salerno, ‘The Doctrinal Antecedents of the Monetary Approach to the Balance of Payments’ (doctoral dissertation, Rutgers University 1980), pp. 196-208, also follows Eagly, but admits in the course of his discussion Smith’s inconsistencies as well as his stress on long-run equilibrium. Wu, in his generally excellent work, admits that ‘Smith said nothing about the intermediate mechanism’, but then oddly proclaims that since Smith had approved Hume’s analysis in the lectures, ‘he could hardly have omitted entirely Hume’s doctrine from his celebrated essay’. An unfortunate example of excessive reverence for one’s subject leading an author to ‘a priori history’, Chi-Yuen Wu, An Outline of International Price Theories (London: George Routledge & Sons, 1939), pp. 82-3.
[xxviii] See Eagly, op. cit., note 27, pp. 62, 66-8; Salerno, op. cit., note 27, pp. 208-211.
[xxix] Charles Rist, History of Monetary and Credit Theory: From John Law to the Present Day (1940, New York: A.M. Kelly, 1966), p. 85.
[xxx] Schumpeter, op. cit., note 13, pp. 184-6.
[xxxi] Ibid., p. 181.
[xxxii] As Schumpeter notes: the free market principle and the natural law view that the ‘free interaction of individuals produces not chaos but an orderly pattern that is logically determined had been quite clearly enunciated before, for example, by Grotius and Pufendorf’. Ibid., p. 185.
[xxxiii] In his critique of Smith, Garrison notes that ‘Smith’s own blueprint for increasing wealth was… self-defeating, although there is no evidence that this was ever recognized by Smith… In reality credit controls serve only to reduce the gains from intertemporal exchange. Individuals may prefer, say, one unit of a consumption good now to two or even five units of the good next year. If this preference is not allowed to be expressed in the market, then the wealth of the nation, reckoned in terms of present value, i.e. discounted at a rate corresponding to the individuals’ true time preference, will actually decrease’. Roger W. Garrison, ‘West’s “Cantillon and Adam Smith”: A Comment’, The Journal of Libertarian Studies, 7 (Autumn 1985), pp. 291-2. Also see Edwin G. West, ‘Richard Cantillon and Adam Smith: A Reappraisal’ (unpublished MS), pp. 22-3.
[xxxiv] See G.M. Anderson et al., ‘Adam Smith in the Custom house’, Journal of Political Economy, 93 (August 1985), p. 751n.
[xxxv] Anderson et al., op. cit., note 34, pp. 752-3.
[xxxvi] Smith to George Chalmers, 22 December 1785, in Ernest C. Mossner and Ian S. Ross (eds), The Correspondence of Adam Smith (Oxford: The Clarendon Press, 1977), letter 251, pp. 289-90; quoted in Anderson et al., op. cit., note 34, p. 754.
[xxxvii] In his canons of taxation, Smith was influenced by his teacher Hutcheson, and by his friend Henry Home, Lord Kames. Smith also may well have been influenced by Carlo Antonio Broggia’s (1683-1763) Tratto de’tributi. (1743) and Count Pietro Verri’s (1728-97) Meditazione sull’ economia politica(1771). Broggia was a Neapolitan, possibly a retired businessman; Verri was a Milanese who served as an official in the Austrian and also the French administration in Milan.
[xxxviii] Though these canons may be banal, they are by no means self-evident. Thus, see the critique in Murray N. Rothbard, Power and Market: Government and the Economy (Menlo Park, Calif.: Institute for Humane Studies, 1970), pp. 102-3.
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