BIOGRAPHY: ANTOIN E MURPHYreviews Adam Smith: An Enlightened LifeBy Nicholas Phillipson Allen Lane, 346pp. £25
THE TITLE of this new biography clearly identifies Adam Smith with the Enlightenment. It is consistent with Scottish academia's quest to centre Smith, and his great friend David Hume, at the centre of a Scottish Enlightenment, a type of intellectual counterpart to the great French Enlightenment inspired by authors such as D'Alembert, Diderot, Rousseau and Voltaire. In this mindset Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations,published in 1776, is seen as the apogee of the Scottish Enlightenment. There is, however, a need to question this approach, because it tends to underplay the role of the French Enlightenment in the development of Smith's ideas as well as overemphasising the enlightenment element of Smith's ideas.
The Wealth of Nationsis undoubtedly a great book. It has been used by generations of economists to justify the role of a laissez-faire approach to market-driven economic activity. It identifies the role of self-interest as a catalyst to human behaviour, uses the metaphor of the "invisible hand" to show how markets if left to themselves can provide an overall economic harmony and provides a strong indictment of most types of government intervention in the economy. Liberals can take it to bed, read a chapter or two and blissfully fall asleep knowing that all they need to do is follow the Smithian line and all will be well.
The reality is that Smith's book is a synthesis of other people's ideas. Nicholas Phillipson, the author of this new biography of Adam Smith, does not really come to grips with this reality. For example, the Wealth of Nationshas been lauded as one of Smith's greatest achievements because it shows how the price mechanism allocates resources in markets. Smith's analysis was very much inspired by the Irishman Richard Cantillon's earlier analysis of this phenomenon in his Essai sur la Nature du Commerce en Général(1755), posthumously published during the height of the French Enlightenment. Cantillon received very scant acknowledgment from Smith and is not mentioned by Phillipson. A further significant example would be that of Turgot, a writer who was the first person to introduce the term "capital" into economic analysis. Phillipson mentions Smith meeting him on his visit to France in the 1760s but fails to point out the crucial role that Turgot's analysis of the role of capital had in providing the driving force for increasing the wealth of the nation in Smith's analysis.
The second issue that needs to be raised with respect to Smith’s “enlightenment” approach is his treatment of money. One expects from an enlightenment mind a degree of vision as to how society is developing. Smith, and indeed Hume, lived in a Scotland where there was an extraordinary amount of financial innovation – Scottish banks, were, for example, the first to create overdrafts. Despite this Hume was highly critical of all types of financial innovation, believing that if the London stock exchange was wiped out by a wave there would have been no harm done to the British economy. Smith, following in this lineage, was deeply fearful of the “Daedalian wings of paper credit” and believed gold and silver were preferable to paper money. If their respective views had been followed the British financial system would have been unable to make any progress and would not have created the monetary foundations necessary for the Industrial Revolution. Rather than presenting an enlightened vision of financial innovation, it could be argued, both Hume and Smith were dyed-in-the-wool monetary conservatives who had little idea of the changing monetary world in which they were living.
Phillipson does discuss the collapse of the Ayr Bank in 1772, which seriously affected the fortunes of Smith’s patron, the duke of Buccleuch, who was a partner of this bankrupted financial institution. He questions whether this collapse may have influenced Smith’s views of money and banking. In my view it did. Smith could not be seen to be praising the advantages of a paper credit system when his patron, Buccleuch, had lost such a sizeable sum when involved in an institution that overexpanded its note issue.
The Buccleuch link raises a further issue that biographers of Smith have still not fully investigated. Aside from a couple of years as an academic at the start of his career Adam Smith never worked. He was paid £500 for two years to accompany the young duke on a tour of France and Switzerland and then received an annual pension of £300 for life from Buccleuch. As such Smith was a paid retainer of the Buccleuch family for most of his life. At a later stage, in 1778, Buccleuch arranged for Smith to be appointed commissioner of customs, a position he held for the last 12 years of his life. Businessmen, excoriated in the Wealth of Nationsfor their inability to meet for more than five minutes without conspiring against the public interest, may question the bona fides of a writer whose income derived from acting as a paid family retainer and a tax inspector.
Nicholas Phillipson is a dedicated Smithian scholar. In this biography he provides a sympathetic account of Smith’s early career as a moral philosopher. When it comes to Smith the economist, however, his analysis is less insightful. His narrative is descriptive rather than analytical and appears to accept unconditionally that Smith can be equated with “enlightenment”.
Antoin E Murphy is an associate professor of economics at Trinity College Dublin. His most recent book,
The Genesis of Macroeconomics
, was published by Oxford University Press last year
