Controversies
It should not be surprising that a very large and wide-ranging work like WN should be the source of considerable interpretive controversy. The scope for differences of opinion are only compounded when such a large book is in turn but one element of a much larger body of writings, covering a very wide range of human phenomena, writings which have many possible real or imagined interrelations.
Here we draw attention to just three key issues in interpretation.With respect to Smith’s economic theory, one may ask how it contrasts with margin- alist or so-called “neo-classical” economics, built around supply and demand functions for commodities and factors of production, in turn supposedly derived from constrained individual optimization with autonomous individual preferences and substitution possibilities in production and consumption. This theoretical approach arose in the late nineteenth century and became dominant in academic economics during the first half of the twentieth century. Of all the founders of marginalism, Alfred Marshall in particular sought to portray a theoretical continuity between classical and marginalist theory (for a valuable commentary, see Groenewegen 1993 [2003]). So the interpretive controversy here has turned upon whether the economics of Smith, and indeed the classical economists more generally, can properly be understood as belonging to the same theoretical framework as marginalism; or whether his economics is to be understood as in a classical tradition running from William Petty to Ricardo and Karl Marx, which has a distinctly different theoretical structure to the later marginalist theory. The latter view derives in particular from the work of Piero Sraffa. Hollander (1973) is perhaps the best example of the former view of Smith.
I am firmly of the view that Smith’s political economy does not share a fundamental theoretical continuity with marginalism.
Whatever may be said of the veracity of the twentieth-century perceptions of Smith in relation to liberal politics and economic policy, the image of Smith as economic theorist is distorted by assimilating him to the marginalist tradition. Much could be said about this matter but suffice it to here make these key points. Two distinctive and related features of the marginalist theory, essential to its characteristic results under competitive conditions, are the marginal productivity theory of functional income distribution, and the adaptation of labour demand to labour supply, with equilibrium entailing full utilization of resources (Garegnani 1983, 1984, 1987; Kurz and Salvadori 1995: 379-467). Nothing resembling either mechanism is to be found in Smith’s theory.On the contrary, if there is any adjustment between labour demand and supply the causation runs from the former to the latter (for example, WN: I.viii.40). With regard to functional distribution, Smith theorizes it in terms of distribution of a social surplus, with the outcome decisively dependent upon the balance of bargaining power. The classical concept of “surplus” refers to that part of the gross product of the economic system which is available for free disposal, after replacement of the inputs used up in the production of that gross output, including among those inputs the necessary or subsistence consumption of the labour employed - or more particularly, in Smith’s case, the productive labour employed. For Smith, the surplus is realized in the income forms of land-rents, pure profits (that is, profits net of risk premia) and a part of wages, depending on that balance of bargaining power, behind which lies a complex of economic and social factors (Aspromourgos 2009: 97-101, 196-202).
The second issue concerns, in particular, how indebted Smith’s political economy is to Physiocracy and Turgot; but this may also be treated as part of a larger question, as to how original Smith’s economics is more generally.
(Smith’s contact in the mid-1760s with Quesnay, the Physiocrats and Turgot was noted above.) The upshot on the narrower issue is that it seems inescapable that Smith was decisively indebted to Quesnay and Turgot on the subject of capital theory, the role of capital in growth, and the competitive tendency towards equalization of net profit rates on capital. None of this capital-related theory, which is clear and evident in Quesnay or Turgot or both, and is also in WN, is to be found in the economic parts of LJA and LJB, both sets of lectures having been given before Smith’s French travels, though “stock” plays some role in the lectures (Aspromourgos 2009: 164). The significance of this evident debt cannot be overstated. Capital is absolutely fundamental to the theory of WN, books I and II, both the treatment of functional income distribution and commodity prices, and of output and productivity growth. In both dimensions, the allocation and accumulation of capital are central to the dynamics of competition. At one point, Smith was intending to dedicate WN to Quesnay (Stewart 1811 [1980]: 304).On the wider question of the originality of Smith’s economics more generally, it is possible to find antecedents for many if not most of the particular propositions and doctrines of his political economy. One could treat this lack of originality on particulars as an indictment, throwing into question the legitimacy of Smith’s canonical status in the history of economics. Rashid (1998) is a recent example of this stance. In fact, Smith’s friend, Dugald Stewart (1811 [1980]: 322-3), certainly not of an anti-Smith disposition, tends also toward the view that Smith’s contribution was more as systematizer of extant economic ideas, than as an original genius; but this is not thereby regarded as a slight achievement:
[P]erhaps the merit of such a work as Mr Smith’s is to be estimated less from the novelty of the principles it contains, than from the reasonings employed to support these principles, and from the scientific manner in which they are unfolded in their proper order and connection...................................................................
[I]nquestions of so complicated a nature as occur in political economy, the credit... belongs... to the author who first established their solidity, and followed them out to their remote consequences; not to him who, by a fortunate accident, first stumbled on the truth.
... The skill and the comprehensiveness of mind displayed in his arrangement, can be judged of by those alone who have compared it with that adopted by his immediate predecessors. And perhaps, in point of utility, the labour he has employed in connecting and methodizing their scattered ideas, is not less valuable than the results of his own original speculations...
Smith’s achievement in this regard is to have successfully fashioned a system for a new science. If there is any genuine sense in which he is the “founder” of economics, this is it. Interestingly, while in WN Smith barely acknowledges intellectual debts, he was not slow to take offence when he thought his own ideas were being borrowed without attribution (Bryce 1983b: 3; Ross 1995: 105-7, 191, 230, 404; Winch 2004: 26).
Finally, there has been long-running controversy concerning the relationship between TMS and WN. The question here, put bluntly, is whether there is consistency between the moral philosophy in TMS and the supposed philosophy of selfishness in WN (Raphael and Macfie 1976: 20-25; Montes 2003). Some interrelations between the accounts of human behaviour in the two books were noted in the previous section. Suffice it merely to add here that there is currently a substantial consensus that no significant contradictions exist between the doctrines of the two books.
However, it is one thing to argue that there are no fundamental contradictions; it is another to suppose that the two books together provide a completely unified and consistent conception of human nature, behaviour and society, without any tensions between the two. Here, a somewhat cheeky comment by Jacob Viner (1927: 201) remains pertinent:
It is a commonplace among the authorities on Adam Smith that it is impossible fully to understand the Wealth of Nations without recourse to the Theory of Moral Sentiments.
The vast bulk of economists, however, who have read the Wealth of Nations without reading the Theory of Moral Sentiments, have not regarded Smith’s masterpiece as an obscure book, as one especially hard to understand. On the other hand, the very authorities who are most emphatic in asserting the need of reference to the Theory of Moral Sentiments to understand the Wealth of Nations, once they embark upon their self-imposed task of interpreting the latter in the light of the former, become immersed in difficult problems of interpretation for which scarcely any two writers offer the same solution.There is still truth in these comments on the interpretation of TMS, more than 80 years after Viner wrote them, though whether WN, by contrast, is so easy to understand is another matter!
Tony Aspromourgos
See also:
British classical political economy (II); Scottish Enlightenment (II).