This post mainly deals with the common misconception about Adam Smith, whose name is known to all students and professors of Economics; the misconception being the notion that he advocated laissez-faire. Sadly, his works are not as known. (Though the names of his two major works are widely known) So, this post tries to makes visible what is commonly invisible regarding Smith.
In the Indian Schools, textbooks in Economics associate him with the ‘wealth definition’. In Frank ISC Economics, which is authored by D K Sethi and U Andrews, Adam Smith is supposed to have defined Economics as “A science which enquires into the nature and causes of wealth of nations.” Definition is “a concise explanation of the meaning of a word or phrase or symbol”. [Dictionary.com] Adam Smith has never defined Economics is the afore mentioned way. Is it ‘right’ to teach such ideas? Isn’t it against the ethics of academics? A large number of students are programmed in such a way in school, whereby their notion of economics is constituted only by neoclassical economics. Plurality in economics has been totally done away with. Teachers teach what is printed in the textbooks. No questions are asked.
Also, it is not surprising to see classical economists (Smith, Ricardo, Malthus, etc) being seen as ‘classical’ or rather irrelevant, because of either their naive assumptions or their bad theories.
The primary focus of this blog post is to argue that Adam Smith never advocated Laissez-faire. Let me put forth two instances where such a misconception has been put forth.
The following paragraph was published in The Hindu Young World, a widely read Indian Newspaper.
Adam Smith’s fundamental proposition was that a free market is a self-regulating mechanism and tends to produce the most desirable types and quantities of goods.
The second instance is from Economy professor, an online dictionary of economics.
Adam Smith’s fundamental argument was that individuals should be allowed to pursue their own private economic interests as much as possible and so long as they do not violate basic principles of justice.
Smith called this the invisible hand of the market – although everyone is acting in their own self-interest, they are led to achieve the good of all as if by an invisible hand of economic forces. Therefore, outside interference will inevitably lead to disaster. This became known as laissez-faire economic policy.
Instances like these are numerous. One reason could be that, the only paragraph(s) that such people read by Smith is this (are these):
Every individual…generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and 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.
-The Wealth of Nations, Book IV Chapter II
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. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.
-The Wealth of Nations, Book I Chapter II
In fact, there is very little evidence to state that Smith advocated ‘free markets’ through stating the importance of self-interested behaviour. Also, he viewed individuals as a part of the society and not like an individual that is cut off from the society-the Homo economicus. Sen rightly points out that “it is precisely the narrowing of broad Smithian view of human beings, in modern economies, that can be seen as one of the major deficiencies of contemporary economic theory.” [Sen 1987]
To conclude, Adam Smith tried to understand his society and also tried to prescribe ways by which the society could grow-morally and economically through his two masterpieces. In short, he was a great scholar, who ideas are still prevalent; despite what school textbooks and some academicians posit.
Sen, A.K. 1987: Economic Behaviour and Moral Sentiments. On Ethics and Economics. OUP.
Prof. Gavin Kennedy’s Blog-a must read for those who want to ‘know’ Adam Smith.
The Prospects of Homo economicus-a scientific American piece which uses behavioural economics.