The Genius of Adam Smith

Equalization, Frontier Centre, Regulation, Role of Government, Trade, Uncategorized, Worth A Look

Today, outside St. Giles’ Cathedral in Edinburgh, on the cobblestoned Royal Mile, economics Nobel Laureate Vernon Smith will unveil a monument to the most influential figure of the Scottish Enlightenment. At long last Adam Smith, whose insights are still too rarely grasped more than 200 years after his death, will receive a fitting memorial.

July 4th is appropriate for such a tribute, as is the fact that Smith’s towering statue (pictured below) is being unveiled by an American. Not only was Smith’s great book, The Wealth of Nations, published in 1776, the year of American Independence, but he had great sympathy with the colonists’ revolutionary cause. Smith had been a professor at Glasgow University when that city was booming from trade with the Americas, but he had realized that much of Glasgow’s wealth came from restrictions on what the colonies could produce for themselves. He also pointed out that the military costs involved in controlling colonies as part of a “mercantilist” system were greater than the benefits. He favoured a free trade relationship and even political union with North America, which he predicted would one day rise to become a greater power than Britain.

Smith’s statue was sculpted by Alexander “Sandy” Stoddart, the Scottish artist who also crafted the nearby tribute to Smith’s best friend, philosopher David Hume. The representational heroism of Mr. Stoddart’s work stands in stark and deliberate contrast to much of the trendy, leftish “art” of recent decades, which was either incomprehensible, or deliberately insulting to the viewer.

The driving force behind the new monument is the London-based Adam Smith Institute, but some credit must also go to a Scotsborn Canadian, Bob Lamond, a Calgary oilman who will be at today’s ceremonies. Mr. Lamond has been pressing for more than a decade to have Smith better remembered, and was instrumental in cleaning up Smith’s neglected tomb in the nearby Canongate Kirk.

One parodic view of Smith is that, as the father not only of economics but of perpetually demonized capitalism, he had no sympathy for those below plinth level. Nothing could be farther from the truth. Smith was very much concerned with improving the lot of ordinary people. In The Wealth of Nations, he pointed to the remarkable social — and international — benefits of self-interested interaction through trade and the division of labour. He noted that participants appeared to be guided by an “Invisible Hand” to produce a good that was “no part of their intention.” This truism has been the centrepiece of attacks on the capitalist system as motivated by “greed” and “selfishness” and thus morally indefensible. But the merely obvious observation that Smith’s famous “butcher, brewer and baker” are serving us primarily in their own interests in no way detracts from the value of that service, nor implies that they are rendered heartless by their business dealings.

One oft-repeated criticism of Smith is that his insights could not possibly apply to a world of supermarkets and giant corporations, of automobiles and air travel, of global financial institutions and the Internet, of alleged resource depletion and worsening pollution. But despite the fact that politicians and activists persist in biting the Invisible Hand, it continues its remarkable work. More fundamentally, Smith’s insights remain valid because he was not merely a supporter of markets and a critic of overweening governments, but also a student of human nature. Indeed, Vernon Smith has pointed out that Adam Smith should also perhaps be known as the “father of psychology.” While The Wealth of Nations permeates economics, modern scholarship has still not caught up with many of the remarkable insights of Smith’s “other” book, The Theory of Moral Sentiments, which received an unlikely boost earlier this year when it was commended by billionaire philanthropist Bill Gates.

Some have seen a fundamental contradiction between Smith’s two books, but the notion that one must choose between humans as either self-interested or sympathetic is ridiculous. Smith painted humans as complex and often internally conflicted creatures whose prudence, benevolence and ingenuity is nevertheless best encouraged in a free and open society with minimal government, clear laws and strong external defences. He would have been astonished by the redistributionist pretensions of the welfare state and the “global salvationism” of such organizations as the United Nations.

Indeed, in that regard, it would be intriguing to reflect on what Adam Smith might think of Vernon Smith’s participation in the “Copenhagen Consensus,” a distinctly wonkish exercise in deciding how authorities might most effectively spend $50-billion to achieve a “better world.” He might be similarly concerned at the “folly and presumption” of his new fan, Mr. Gates’ desire to “leverage” tax dollars. Adam Smith might ask what elite groups are doing lavishing huge amounts of other peoples’ money on countries whose lack of development is rooted in repressive government, something about which the Sage of Kirkcaldy knew a good deal. One of the Copenhagen group’s more welcome — but obviously controversial — conclusions was that fighting climate change was a waste of resources. We might imagine that climate change would be quite beyond Adam Smith’s ken, but although “negative externalities” were not much on the minds of 18th-century political economists, Smith thought deeply about both scientific theory and the fanaticism of religion. Among Smith’s philosophical works is a treatise on astronomy that notes that scientific theories are designed to cater to our desire for explanations, and are always and inevitably provisional. He would thus treat claims that science of climate change was “settled” with the greatest suspicion, particularly since they come accompanied by calls for draconian government action.

Adam Smith will doubtless witness much more folly and presumption from his new Edinburgh perch.