Frank Taylor

In a recent paean to the historical traditions of the Labour Party Gordon Brown listed the abolition of slavery amongst its achievements. No matter that this happened almost a century before the Labour Party was no more than a gleam in Keir Hardie's eye. Never let the facts get in the way of a good story.

James Buchan introduces his recent book Adam Smith and the pursuit of perfect liberty with another story of that ilk ... namely Gordon Brown's attempt to appropriate the legacy of Adam Smith by portraying him as some sort of proto-socialist. He was treading a well worn path. Many others have also used Smith's name and what they claim to be his philosophy to gild their own ideas. In recent years he has become a favourite amongst the neocons.

Although Buchan sets out to debunk Smith mythology this effort gets progressively diffused and then lost in a largely biographical monogram. With an extra chapter or two addressing directly the various Smith myths, the intended exercise might have been more pointed. It is only by reading Buchan's work alongside a parallel reading of the Wealth of Nations itself that an adequate perspective can be drawn.

In amplifying this theme I will not commit the cardinal error of attributing to Smith views on issues which were not even embryonic in the mid eighteenth century. But within Smith there are certain ideas which might be usefully reapplied in a modern Green context.

It is a pity that many of the neocons and others who use Smith's name seem never to have bothered to read his work. That might lead to some awkwardness. Crucially it becomes quickly apparent that the Smithean model of a pure market cannot work unless there is a fair parity of size, power and influence between producer and consumer. This is implicit rather than explicit in the Wealth of Nations. Big commercial institutions were few and far between in those days. As Buchan notes; 'Smith was brought up in a backward corner of an unmechanised world ... His notion of a factory was twenty employees and 1000 in capital employed.'

Smith's world was of an interlocking mass of small local markets, not one great globalised neocon soup, sustained largely by the interaction of numerous small players. This vision is not only very far indeed from the globalised system of corporate oligopolies that we confront today but entirely antithetical to it. Smith's system is vastly more Schumacher than Bilderberg.

Smith's view of the rich and powerful would not, contrary to popular myth, sit well at a Bilderberg convention; "People of the same trade seldom meet together, even for merriment ... but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices ... 'And again, 'Merchants and master manufacturers ... by their wealth draw to themselves the greatest share of public consideration ... As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business, than about that of the society, their judgement ... is much more to be depended upon with regard to the former ... The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with ... the most suspicious attention.'

He identified civil government as a conspiracy of the rich against the poor. On another occasion he writes, 'All for ourselves and nothing for people, seems in every age to have been the maxim of the masters of mankind'. He attacked the East India Company, describing government by merchants as being possibly the worst of all forms of government. Perhaps Smith went as far as he dared in expressing such sentiments. Only a few years later Tom Paine was forced to flee a warrant for sedition for publishing The Rights of Man.

Buchan puts Smith's work into the context of his lifetime task of unravelling and revealing the causes of moral behaviour and of the emotional impulses behind moral sentiments. Although, through his life, this task touched subjects as various as astronomy, rhetoric, gardening, aesthetics, landscapes and the appreciation of colour, it was never completed. Indeed it is possible to see The Wealth of Nations as a long digression from this work. As Buchan says, 'Behind The Wealth of Nations ... is the ghost of an old-fashioned inquiry into the moral character of luxury'. However if his ambition was ultimately to reconcile commerce with morality it was an honourable failure in an impossible task.

Not that, neocons again please note, Smith was any lover of luxury or 'opulence' as he so frequently called it. He was an austere and unworldly man uninterested in material things and possessed of a fastidious integrity. Once he tried to return a pension to the Duke of Buccleuch because he felt he had adequate income from other sources. Later, as a Commissioner of Customs, he burnt his clothing on discovering that it had been illegally imported. His work has many unflattering references to 'luxuries', 'follies' and 'childish vanity'.

Thus to Smith greed was not necessarily a universal good, 'When a man ... spends his revenue chiefly in hospitality, he shares the greater part of it with his friends ..., but when he employs it in purchasing ... commodities, he often spends the whole upon his own person, and gives nothing to anybody... The latter species of expense, therefore, especially when directed towards frivolous objects ... jewels, trinkets, gewgaws, frequently indicates, not only a trifling, but a base and selfish disposition'.

Frugality is the genesis of true wealth, prodigality its nemesis. So durability is of the essence and productive labour more beneficial than unproductive; 'the labour of the manufacturer fixes and realises itself ... in some subject ... It is, as it were, a certain quantity of labour stocked and stored up ...' whereas the production of services, useful as those are 'perish in the very instant of performance'; the 'labour of a menial servants adds to the value of nothing'. Production, insofar as it represents the 'improvement' of material resources creates wealth whilst spending on servants, actors, armies, poets and circus clowns, because they consume resources yet leave no durable product, dissipates it.

Moreover he saw real wealth as residing in the net not gross revenue of either an individual or a society, 'But thought the whole value of ... every country is thus divided among ... its different inhabitants, yet as in the rent of a private estate we distinguish between the gross rent and the net rent, so may we likewise in the revenue ... of a great country.' Perhaps the neocons, in their adulation of Smith, might wish to revise the modern concept of Gross National Product!

As is implied in these passages, all value was founded in labour; labour is 'fixed' in its produce almost as an image is fixed in a picture. Perhaps behind this entirely valid view lies the shadow of a Newtonian analogy. As, to Newton, an object can neither move nor change its course unless acted upon by a force, so to Smith matter remains inert until acted upon by human labour.

And he believed that this labour should be well rewarded, 'The liberal reward of labour, therefore ... is the natural symptom of increasing national wealth.' He regarded it as 'abundantly plain' that 'an improvement in the circumstances of the poorer ranks ... be regarded as an advantage ... No society can be flourishing and happy, of which the far greater part ... are poor and miserable.'

Smith worried that as production expanded and concentrated labour would be 'little attended to', and even that men would be reduced to automatons. Again in his consideration of the condition of labour, both his chilliness towards wealth and power, and the essential nature of his market model, is revealed, 'The masters, being fewer in number, can combine much more easily; and the law, besides, authorises, or at least does not prohibit their combinations, while it prohibits those of workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer.'

Adam Smith did much to debunk the idea that money was, of itself, wealth, and that countries would grow rich merely by accumulating bullion; 'Money is neither a material to work on, nor a tool to work with;'. Rather money is merely the measure of wealth, not wealth itself. All other things being equal real resources do not alter because, over time, their assigned money value might alter. Moreover real resources and assets are far more important than temporary money values.

Importantly he distinguished between landed, trading and manufacturing interests and what he called the 'monied interest'; a distinction between those who make money from doing and making real things and those who make money from money. Neocons and hedge fund managers might also like to note that he did not regard banking regulation as a violation of natural liberty any more that 'The obligation of building fire walls, in order to prevent the communication of fire, is a violation of natural liberty ... '

Economic terminology was in its infancy in 1776. Thus what we now call 'capital' is described by Smith as 'stock'; and what we now describe as 'growth' he termed 'improvement'. Yet there are subtle differences which could prove useful if applied in a modem context.

In modem economics goods, once purchased, are 'consumed' and thereby cease to be of consideration. Once 'consumed' a product simply drops off the economic radar. However 'stock' in the Smithean lexicon is a slightly broader concept than 'capital' which nowadays often takes on the more restricted meaning of investment money and fixed productive assets. The term not only refers to this and to 'circulating capital' but also to goods which although purchased retain value and utility. This is consistent with his idea that the true wealth of a society lay in the accumulated net total value of all the goods and assets accumulated and 'fixed' by its labour.

Likewise this appears to underpin his notion of 'improvement'. Again this is a subtly broader concept than 'growth', because, true to the underlying purpose of Smith's lifetime work, the term incorporates an ethical and aesthetic dimension. It has to be taken in its literal sense of 'making better'. Today we see so much 'growth' without 'improvement' whilst being all too aware of the potential of 'improvement' without 'growth'. The ethical dimension to Smith's economics has been lost, as indeed has any ethical or aesthetic dimension in modem economics.

Smith regarded personal freedom both as a consequence of 'improved' manufacture and prosperity and as a condition for it. In most circumstances this may be right but we must be aware that such linkages are contingent and not necessary. The case is often made that as China develops economically so the liberalisation of its society will inevitably follow. Against that it must be said that the Axis dictatorships of the 1930's were amongst the most technically advanced states of their day. In today's context the most advanced information technologies of all are those related to mass surveillance and control. This is to say nothing of the potentialities of biotechnology or of the developing interface between man and machine. Technology could as easily enslave humanity than liberate it.

Adam Smith is not the patron saint of anyone. He was, if inadvertently, a radical thinker some of whose ideas have been worked into certain modem confections in a tendentiously selective way. It is impossible to know what he would have made of a globalised world dominated by corporate oligopolies run by an elite of the super rich. From what we can glean from his work it would not be very flattering. However it has often been said of modem economics that it knows 'the price of everything and the value of nothing'. Here lies the crux of how Smith has been misrepresented; for his impulse was ethical and he most certainly did understand the difference between price and value far more than most of his modem counterparts.. To that degree he might still have his uses.

Frank Taylor, November 2006

James Buchan; Adam Smith and the pursuit of perfect liberty; Profile Books 2006.

Adam Smith: The Wealth of Nations; Abridged edition introduced by Andrew Skinner; Penguin Classics 1986.