A reader of The Economics Anti-Textbook recently wrote to us and asked about our views of Adam Smith, whom we (he wrote) "cite ... extensively as advocating an absolutely free market capitalist economy". He asked in light of the comments made about Adam Smith's views by Noam Chomsky here and elsewhere. I thought a blog note might clarify things.
The textbooks, with rare exceptions, provide little information about the development of economic ideas in general or about Adam Smith. Our references to Smith's 'invisible hand' theory [the claim that competitive markets frequently lead to an efficient allocation of resources] should be seen as references to the textbooks' use of the term. (Note: Robert Frank's Principles of Microeconomics -- I have the 3rd Canadian edition -- pp.200-201 offers a much more careful discussion of the 'invisible hand' idea than do other books.)
The caricature version of Smith put out by right-wing organizations -- that of an advocate of a free market capitalist economy -- does not square with the real Smith, who in his lifetime was regarded as something of a subversive who was an inspiration for the French Revolution. As Emma Rothschild explains in Ch. 2 of her Economic Sentiments: Adam Smith, Condorcet and the Enlightenment (Harvard U. Press, 2001), Smith the Conservative was an image make-over done after his death by writers in the 1790s.
Rothschild writes (p.71): "Smith's real sentiments were obscured by Smith himself, and by his friends and followers after his death. But they amounted, during his lifetime, to a cluster of beliefs which were distinctly influenced by French ideas. He was critical of religious establishments, of war, of poverty, and of the privileges of the rich."
She adds: "Freedom consisted, for Smith, in not being interfered with by others: in any side of one's life, and by any outside forces (churches, parish overseers, corporations, customs inspectors, national governments, masters, proprietors). Interference, or oppression, is itself an extraordinarily extensive notion; Smith at times talks of inequality as a form of oppression, and of low wages as a form of inequity. But it was just this multiplicity that was lost after his death. By the end of the 1790s, the freedom of noninterference had become something very much less, at least for political economy. It was little more now than the freedom not to be interfered with in one side of one's life (the economics), by one outside force (national government)."
It's remarkable that this capitalist-libertarian caricature of Smith has survived unscathed for more than 200 years and is still being peddled by outfits like The Adam Smith Institute.
Anyone interested in this topic might also look up Spencer Pack's book Capitalism as a moral system: Adam Smith's critique of the free market economy (Edward Elgar: 1991).
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