Read Butler on Smith
Adam Smith’s An Inquiry into the Nature and Cause of the Wealth of Nations (The Wealth of Nations, TWoN) is one of those books that many people refer to, but few have actually read. Possibly not surprising, since the Penguin version consists of 522 packed pages. But, crucially, in contrast to another book that it seemed everyone owned, but no-one had actually read (Stephen Hawking’s A Brief History of Time) TWoN is actually extremely well written and easy to understand.
Most people who quote Smith tend to know little about him. For one thing, they are usually unaware that seventeen years before he published TWoN, he published another book, The Theory of Moral Sentiments. For anyone who claims that Smith’s invisible hand is the “unacceptable face of capitalism” (to quote Edward heath and mix the metaphors) this should be required reading. Sadly, they are unlikely to even think of picking it up.
Which is why it is excellent that Dr Eamonn Butler, Director of the Adam Smith Institute (www.adamsmith.org) has published an IEA (www.iea.org.uk) occasional paper called Adam Smith – A Primer.
Actually, Adam Smith is suddenly all the rage again. TWoN is being republished in hardcopy. The Adam Smith Institute has taken the initiative to a statue of Adam Smith to be unveiled soon in Edinburgh; and P J O’Rourke has published On The Wealth of Nations – a sort of TWoN for Dummies.
O’Rourke is funnier than Butler, but Butler is the better writer. Hence, for my money, Adam Smith – A Primer is by far the better work of the two.
Butler brings to the fore a number of Smith’s observations that are still highly relevant today: In addition to the importance of the distribution of labour, the revolutionising notion that money is not the same as wealth which lead to Smith’s rubbishing of mercantilism (the Chinese leadership could benefit from reading this); the harm done by protectionism and other impediments to trade (copies to be sent to the President of France as well as to a large number of US Senators) and possibly most importantly, the mutual gains from exchange. This idea, that exchange is not a zero-sum game should be broadcast by loudspeakers wherever demonstrators gather to protest against globalisation.
Crucially, none of this is due to the goodness of the people involved. Where the road to hell is frequently said to be paved with good intentions, Smith takes the opposite tack. The road to wealth is usually paved with bad or at least selfish intentions. But the result is still to the good (p. 43).
If there is one quote that all critics of capitalism know from Smith, it is this. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” (TWoN, Book I, chapter X, part II, p232-233 in the Penguin edition.) This is frequently cited as a reason to involve supposedly altruistic politicians in the regulating and taming of the market. This was perhaps best put by a former Prime Minister of France, Edouard Balladur, who said “What is the market? It is the law of the jungle, the law of nature. And what is civilisation? It is the struggle against nature.”
However, Butler points out that Smith’s words are immediately followed by criticism of politicians, who he notes share the blame, since they pass and enforce regulations that make such collusion more likely and more effective (p. 49). This highlights another of Smith's overarching themes, namely the importance of freedom in maximising everybody's welfare and the constant threat to this from politicians and governments.
But the best thing with Eamonn Butler’s Adam Smith Primer is this: it makes you want to go back and reread the original works. And that is exactly what I intend to do. I recommend everyone else to do it too.