Adam Smith: a legacy in fraught dispute

This month, 300 years ago, economic philosopher Adam Smith was baptised. He remains controversial today, writes.

AS often befalls the judicious, careful and nuanced intellectual, Adam Smith’s legacy remains controversial. He is often claimed by opposing ideological sides as ‘‘our man’’. Fortunately, he is not that easy to pin down.

Orthodox classical and neoclassical economic ideologues claim him, celebrating his notion of the hidden hand that generates social benefits despite the selfish motives that drive economic agents. Critics point out that the hidden hand actually plays a very small role in his most famous book, An Inquiry into the Nature and Causes of the Wealth of

Nations. Far from uncritically celebrating that the market will guide the unconstrained pursuit of selfish interests to the ultimate benefit of society, he warned against market failures, the irresponsible behaviour that flows from the concentration of economic power and the resultant disregard for the poor.

Remarkably for his time, Smith displayed a deep regard for and empathy with the poor. He argued for the recognition of the claim of all people to equal dignity, and that noone ever deserves to be poor. This reflects his moral philosophy which he developed in his first masterpiece, The Theory Of Moral Sentiments.

In that work Smith locates the origin of human morality in the otherregarding emotion of empathy. That is, the ability to think oneself in the shoes of your fellow citizens. In large anonymous societies, which he analyses in Wealth of Nations, the logic of selfinterest promotes efficiency.

Economic agents can’t have efficient exchanges if they constantly have to be concerned about the emotional states of those they trade with. However, the market can never guarantee justice and the dignity of everyone, although it might encourage certain other virtues. ‘‘Wise and virtuous’’ (his term) people are required to limit the harm that flows from selfishness and to secure justice as a common good, also for the poor.

Apart from these ongoing debates about his legacy, Smith remains highly relevant for us here in New Zealand for two other reasons.

The first is that Smith is duly celebrated as an early, and for his time, perspicacious critic of colonialism and slavery. He rejects colonialism as a form of monopoly on an international scale. Colonial monopolies charged higher prices for goods and services in the colonies than in the metropoles, and compelled colonies to export natural resources and labour to the metropoles, subsidising the lifestyles of the wealthy in London, Paris and Madrid. Thus was set in motion a pattern by means of which colonial territories and their independent successor states continue to sponsor the rich world of Europe and North America even today.

Secondly, was Smith a royalist or a nascent republican, and can he help us in New Zealand to decide? Again, he cannot be pinned down easily, although in his lesser known and inhislifetime unpublished Lectures on Jurisprudence he seems to favour republicanism. He says it has ‘‘the affairs of the state under the direction of the whole rather than that it should be confined to one person’’.

He did point out, though, that republics would be less inclined than monarchies to abolish slavery, as slave owners would constitute a powerful electoral lobby.

Of course, it is impossible to know what he would have thought of constitutional monarchies as we know them today.

More relevant for us is that he was very sceptical of politics and politicians no matter in which form of government. Politicians are as subject to bad character and lack of wisdom as we all are. Hence, solid institutions such as the rule of law is our best safeguard against bad governance. In addition, governments should be urged to act in limited and judicious ways, as grandiose schemes of social transformation or too much faith in market forces fail more often than not.

That sounds a warning to the market utopians on the Right, as it does to the social utopians on the Left. Enough reason to make

Adam Smith compulsory reading for anyone aspiring to public office.