Adam Smith by Jesse Norman review: Beyond the caricature

Adam Smith, What He Thought and Why it Matters

Author: Jesse Norman

ISBN-13: 978-0241328491

Publisher: Allen Lane

Guideline Price: £25

Newt Gingrich, the American Republican politician who laid the foundations for the rise of the Tea Party and their fierce challenge of American government, has frequently cited the Scottish economist Adam Smith as an important influence. The focus by Smith on the role of free markets in creating wealth was a cornerstone of the political agenda developed by Gingrich.

A resistance to government ultimately led Gingrich to playing a key role in the closure of federal government for 27 days during his tenure as Speaker for the House of Representatives.

Gordon Brown, as chancellor of the exchequer and prime minister, also associated himself with Smith. Both were born in Kirkcaldy in Scotland. Brown claimed that Smith would have been a spiritual member of New Labour and hailed his influence on modern economics. He, in contrast to Gingrich, advocated for active government and increased investment in public services.

How could such differing political agendas both claim inspiration from the same source? Is it due to selective interpretation or a breadth of economic philosophy that can accommodate differing political agendas?

This very question led to a group of German scholars, in the 19th century, developing “Das Adam Smith Problem”, asking how could a single philosophy lead to such competing views.

The reconciliation of these differences, and much else, is at the heart of Adam Smith by Jesse Norman. The author is not only a Conservative Party MP but a philosopher and an author of a highly regarded study of Edmund Burke. Smith himself admired Burke as "the only man, who, without communication, thought on economic subjects exactly as he did".

Life and times

The life and times of Smith is briskly dealt with Norman. He was born in 1723 in a small town in Scotland and studied at the University of Oxford. He was elected professor of logic and metaphysics at Glasgow University. His subsequent career combined tutoring royalty and serving as a Scottish commissioner of customs.

The publication of his best-known book, The Wealth of Nations, in March 1776 changed our understanding of economies and political choices that determine their nature.

It opens famously with an account of pin making in his native Kirkcaldly, Smith observed that “A workman … could scarce, perhaps, with the utmost industry, make one pin a day, and could certainly not make twenty”. However, when the process is broken down into different operations, the same pin maker is dramatically more productive: “each person … might be considered as making four thousand eight hundred pins in a day.”

Smith identified the role that specialisation, or division of labour, can play in transforming the output of market economies. As Norman writes, “It is the principal source of wealth creation for Smith, and its full implications are momentous”.

Self-interest

The consequences of trade and the recognition by Smith of the dynamism of self-interest led to his advocacy of the role of markets. This has also led to the perception of him as the original proponent of unfettered markets with minimal government intervention, the godfather of neoliberalism.

This caricature originates in an alleged focus on the primacy of selfishness, when Smith wrote: “It is not from the benevolence of the butcher … that we expect our dinner, but from their regard to their own interest.”

Norman is not the first to comprehensively challenge this presentation. This book is the latest of many to present the championing by Smith of markets in the context of his earlier book, The Theory of Moral Sentiments, published in 1759.

Here Smith makes the case for moral imagination. As Norman argues, “Without moral imagination it becomes impossible to put oneself in any genuine way in another’s shoes, to persuade them or to empathise with them. In such a world there can be no exchange, no regard, no public debate or deliberation.”

This is the solution to the Adam Smith problem, where “markets operate within a context of norms and trust which itself underwrites legal mechanisms of justice and enforcement”.

Elegance and warmth

Exchange is central. Exchange of esteem provides the underpinning for exchange in markets.

So, where Norman excels is through offering a broader assessment of the philosophy of Smith with an elegance and warmth while demonstrating his relevance to many of our current challenges.

The sequence of passages where Norman lays out a series of perceptions about Smith and then offers a refutation of so called “myths” is an excellent example of where relevance is demonstrated.

The author concludes by arguing that the exchange of esteem is fracturing, that “the consent on which modern commercial society relies, consent given freely by people who believe it will enable them to prosper, is starting to break down”.

In this biography of Smith, in this vivid animation of his ideas, the author reminds us of the heritage and potential of mixed economies and their interplay with healthy societies. At a time of such flux, this is timely.
Paschal Donohoe TD is the Minister for Finance and Public Expenditure and Reform