by William H. Benson
March 6, 2020
Last week, I happened to hear an economist named Tyler Cowen, professor at George Mason University, play a game called “Overrated / Underrated” on National Public Radio’s podcast “Planet Money.” An interviewer asked Cowen, “Who is the most underrated economist ever?”
Cowen surprised the interviewer when he replied, “Adam Smith.”
Cowen admitted that Adam Smith remains, “a highly rated economist, but most people do not grasp the full subtleties of his work, how well it holds up, how deep the history there is in it, how good a philosopher he was, and how interdisciplinary a thinker he was.
“There are innovations in Smith’s work that people fail to pick up on. On the major issues of economics, Adam Smith was correct. His work, An Inquiry into the Nature and Causes of the Wealth of Nations, is a long book, and almost no one reads it today. People think they know it, but they don’t.”
Cowen is correct about one thing. My copy of “Wealth of Nations” contains 590 pages, a long book.
Adam Smith published “Wealth of Nations” in 1776, the same year when Thomas Paine published “Common Sense” and when Thomas Jefferson wrote The Declaration of Independence.
Unlike Paine and Jefferson, Smith though was not an Englishman who lived in the American colonies. Instead he was born a Scot, was raised by his widowed mother in Kirkcaldy, Scotland, midway between Edinburgh and St. Andrews, and was educated at Glasgow University and Oxford.
He joined academia in 1751, taught logic and moral philosophy for 14 years at Glasgow University, but in 1764, he retired to Kirkcaldy to write The Wealth of Nations.
In its first chapter, Smith emphasizes the advantages of “division of labor.”
He gives an example of a pin factory. With only ten employees, it makes “forty-eight thousand pins in one day.” Thus, Smith says, each employee “makes a tenth part of the total,” or 4,800 pins in a day, but if each worked alone, he would not have made “twenty, perhaps not one pin in a day.”
In his second chapter, Smith suggests that workers should act out of self-interest, rather than out of pity, charity, or benevolence for others. “Nobody but a beggar chooses to depend chiefly upon the benevolence of his fellow-citizens.”
Workers who act out of self-interest want to know, “what is there in this bargain, this offer, for me?” But the charitable-minded say, “let me help you?,” without thinking of themselves.
Smith writes, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” They want paid for the products they sell.
Smith insists that a self-interested worker will benefit the larger society.
He writes, “a worker intends only his own gain, not the public interest. He is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest, he promotes that of society more than when he really intends to promote it.”
In 1991, the economist Paul Samuelson asked a pointed question, “Can the desperate citizenries of Poland, Czechoslovakia, of Mainland China, and North Korea, of the Soviet Union and Cuba, even begin to understand this insight by the professor of the Scottish Enlightenment?”
As for the American Revolutionary War, Smith suggests in Wealth of Nations that the cost to maintain Britain’s empire was “not worth the cost of keeping it.” The taxes that shopkeepers in England were paying, plus the interest on the debt to fight the war against the 13 British colonies, was not worth the extra profit that the shopkeepers earned when they sold their products to the colonists.
Thomas Paine added to that argument in “Common Sense.” He said “Britain is oppressed with a debt of upwards of one hundred and forty millions sterling, and she pays upwards of four millions interest.”
Smith also insisted that a nation’s government should invest in human capital: educate and train the nation’s workforce, and provide health care for its citizens. Wages will vary depending upon the number of years of training that each job requires, and how odious or distasteful the job is.
Smith disapproved of English schools, in contrast to Scotland’s universities, because he believed the English teachers unmotivated and ill-trained. He said that “the professors there had given up altogether even the pretense of teaching.”
Adam Smith, father of classical economics, never married. He said, “I am a beau [boyfriend] only to my books.” He died in Edinburgh on July 19, 1790.
Next time in these pages, the most overrated economist ever.