The Jettisoning of Adam Smith

Updated: Apr 15

Penty, A. J. (January, 1935). The Jettisoning of Adam Smith. The American Review, 326-336.

When some fifty years ago the reputation of Adam smith began to suffer because of the criticism of Ruskin and Socialists, the late Lord Haldane wrote a book to whitewash him. Although in The Wealth of Nations Smith may times insists that in pursuing his own interest the individual promotes that of society. Haldane urged that Smith was not a teacher but an observer writing about the mercantile world in which he live, and that while he recognized in the desire for wealth the most powerful of all motives he did not exalt it into the foundation on which this system is based. No doubt, this special pleading served its purpose at the time. It enabled the economists to come to terms with the new thought without repudiating the old. Nowadays, however, this compromise is breaking down. The economists are finding themselves in an impossible position. They find that though they are supposed to be the guardians of economic wisdom, the tradition of thought to which they are committed does not throw a particle of light on the economic deadlock that has overtaken society, and, in consequence, they are not unnaturally anxious to throw it overboard. However, it is not as easy as it might appear, or at any rate, it is not easy to do it in a way that will not bring discredit on themselves. For to throw overboard Adam Smith is to jettison one who for long has been revered as the Father of Political Economy, and this is a very delicate task, to be done with circumspection.

This would appear to be the motive of Mr. Ginzberg’s The House of Adam Smith. In this volume Adam Smith is not presented either as the apologist of a vicious system already in existence, which in the deepest sense is true, for he was the apologist of capitalism; nor as the formulator of a revolutionary theory of economics, which divorced economics from morals in the same way that Machiavelli divorced politics from morals; which is also true. The Adam Smith that Mr. Ginzberg portrays is one who is primarily interested in improving society be strengthening the weaker class, and who wrote to improve the lot of farmers and laborers in the eighteenth century. That may be true, yet I cannot help observing that Adam Smith, like other economists of his time, sought to recommend his proposals by insisting that they would operate to raise the rents of land and property. Perhaps the economists were wise in their generation. All power in those days was in the hands of landlords and capitalists, and as the one thing in which both presumably would be interested would be higher rents the only way of getting anything done was to persuade them that the measures advocated would have that result.

However, there is no need to quibble about this. It is possible that Adam Smith was inspired by motives as worthy as say those of Machiavelli with whom he invites comparison. Adam Smith assumed that self-interest is a principle to which the regulation of society can be safely entrusted, since the self-regarding instincts of men would, if given free play, so balance and neutralize each other as to eventuate in an equilibrium of good. It was because he believed in the possibility of such and equilibrium that he came to demand the abolition of all monopolies and all restriction upon trade, in the interests of Free Trade, which it is interesting to observe in his day was understood to mean no only all we understand by a policy of free imports but all we mean by economic individualism and laissez- faire; for all regulations affecting internal trade were to be deprecated as much as tariffs. This belief made him unsparing in his criticism of the Mercantile System, which incidentally he never understood, for he lumps together as one-system institutions with different origins and different aims, some of which are defensible while others are not. Yet we can scarcely blame Adam Smith for this, for our capacity to discriminate carefully between them is dependent upon our knowledge of economic history, which was at his time an unexplored subject. Modern historical research has revolutionized many economic beliefs, but though undertaken by the universities themselves it has never strange to say revolutionized their teaching.

Adam Smith was misled by appearances. His great error was his assumption that the depressed and service condition of labor in his day was a result of the subjection of trade and labor conditions to regulation. It is true as he insists that one of the reasons for low wages was that magistrates who were empowered to fix them deliberately kept them low in order that laborers could be made more industrious. Though this power was given to magistrates by the Elizabethan Statute of Apprentices it does not follow that that Statute is the final source of the evil and more than that the Elizabethan Poor Law is to be blamed for many other social evils. Indeed, so far from this being the case, both measures were much more of the nature of effects than causes. They were both in their origin honest attempts to deal with the economic confusion of the sixteenth century consequent upon the suppression of the monasteries and the decline of the guilds.

Mr. Ginzberg makes no mention of the suppression of the monasteries. Yet their suppression exercised a decisive influence upon English economic history and was mainly responsible for the economic confusion in Adam Smith’s time. In addition to their religious functions, the monasteries carried on many auxiliary activities that were no part of their original purpose. Not only were they educational and charitable institutions, but they were accustomed to maintain highways and dykes, to build bridges and sea walls and do other such work for the commonwealth. Many arts had been brought to a high state of perfection in the monasteries. Sculpture, embroidery, clock making, and bell founding were monastic arts. The monks who had been the chroniclers and transcribers of manuscripts in the Middle Ages were among the first to set up printing presses.

Moreover the monasteries had come to own about a fifth of the land in the country. In consequence, their violent suppression by henry VIII disorganized the social and economic life of society. It upset the political and economic equilibrium leaving a gap in the social organism, which reformers ever since have attempted in vain to fill. Their suppression deprived the poor at one blow of alms, shelter, and schooling. It left great numbers entirely destitute of the means of existence who took to thieving and begging. Henry VIII is said to have put 72,000 thieves to death. Elizabeth complained bitterly that she could not get the laws enforced against them and she resorted, particularly in London and its neighbors, to martial law. However, it was useless. Public sympathy was with the thieves and beggars who had been rendered destitute. Since for that reason, if for no other, extermination was impracticable, the only way of meeting the problem was to make some general, permanent provision for those without the means of subsistence. Hence the Elizabethan Poor law.

Now when the monasteries were suppressed the Crown confiscated their lands. However, Henry was not able to keep them. He soon found out that he would only be allowed to proceed with their suppression on condition that he shared the plunder with the politicians. Therefore, there came into existence an aristocracy whose fortunes were built upon land stolen from the Church, and henceforth they never lost a chance of blackening the Roman Church. Cobbett saw this a hundred years ago, and he deals with it in his History of the Reformation. He saw that a class that had inherited land stolen from the Church had a stake in this misrepresentation. Cobbett’s History was burnt by the public hangman, as was the custom of the time. It was burnt because it was something more than a history – because it exposed a conspiracy.

Now all this has a very direct bearing on the subject we are discussing. The middle Ages are involved in misrepresentation of the Roman Church, and consequently the prejudice artificially created by interested persons against the Roman Church has been transferred to the social traditions of the middle Ages and this in turn makes it exceeding difficult to secure recognition for economic truth about the period. As a result, economic history as popularly understood rests on a false foundation and being on a false foundation everything is distorted, and this stands in the way of our understanding the problem of the present day. I am not a Roman Catholic but say these things as an economist whose experience teaches him that religious prejudice is at the root of a great deal of economic confusion.

No one with and understanding of mediaeval economics who reads Mr. Ginzberg’s book can doubt the truth of this. Mr. Ginzberg cannot see Adam Smith in his proper perspective because he cannot be just to the middle Ages, and he cannot be just to the middle Ages because of his antipathy to the Roman Church. I was conscious of this all the time I was reading the book, but it was not until I reached the last chapter that I fully appreciate its intensity and irrationality, for the way a discussion on economics turns into one on natural law and form natural law turns to birth control and abortion and the Pope’s encyclical on marriage and divorce suggests that the author has a complex where the Church is concerned. At the best, he appears to regard it as an engine of exploitation that maintains its power by the promotion of superstition. It never seems to occur to them that there is anything to be said on the other side.

“The leaders of the mediaeval Church,” he says, “despised wealth, for they could not achieve it.” A man who could write that will never understand the Middle Ages; nay I will o further and say he will never understand anything, for he will pick up everything by the wrong end. He will not even understand Adam Smith, who would have agree with him, because to understand Adam Smith it is necessary to relate him to his background which is not to be understood apart from an understanding of the Middle Ages. Viewed in relation to the Middle Ages, Adam Smith appears less as an innovator than a man who carried a vicious principle to its logical conclusion. He attacked the system the system of Protection in the interests of economic individualism because he identified economic individualism with individual well-being. Yet had he been acquainted with mediaeval economics he would have known that, so far from economic individualism promoting the interest of the farmer and laborer, it was just the reverse, for under such conditions the only men who finally prosper are the merchant and the banker. The farmer suffers because he finds himself at the mercy of fluctuating prices, while the laborer finds himself pressed down by the superior economic power of those who employ him.

No, to improve the position of the farmer and laborer Adam Smith should not have demanded the abolition of all status and privileges, but status and privileges for all. This would have meant a return to the Guild principle of the Middle Ages. That it never occurred to him to look in this direction for a solution of the economic problems of his age is to be connected with the fact that he never knew why the Guilds had been organized; for as I have already said economic history had yet to be explored. On the contrary, all he knew was that there were privileged bodies called Guilds in Glasgow who were empowered to prevent Watt setting up in business there as a mathematical instrument maker. He did not know that these Guilds were the degenerate survivals of bodies that once had responsibilities as well as privileges. What is more he did not know that the reason for the degeneracy of the Guilds was not to be found in the fact that they were monopolistic bodies, but because their monopolies were not co-extensive with society, for if in the Middle Ages the Guilds had been co-extensive with society prices would have been fixed everywhere and capitalism would not have come into existence in rural areas, and if that had been the case the Guilds would have continued to exercise their functions to this day. However, the rise of capitalist industry in rural areas undermined the position of the Guilds, entirely changing their character.

There can be little doubt that the later regulations of the Guilds which were regarded as tyrannical and which we hear about in the fourteenth century owed their existence to the increasing competitions of this unregulated rural industry and the desire of the masters to protect their position against it. At an earlier date, it had been possible for every journeyman in the Guilds to look forward to a day when he would be able to set up in business on his own account as a master. But when in the fourteenth century the masters began to find the market for their work declining as a result of the completion from rural capitalism industry they began to frame regulations, not with an eye to the interests of the Crafts as a whole which at an earlier date they had done, and which in the new circumstances was beyond their power, but solely to protect their own individual interests.

Such undoubtedly was the origin of the grievances of the journeymen for which they obtained redress in 1336 whereby, on becoming apprentices, they were made to swear upon oath not to set up in business in the towns without the consent and license of the masters, warders, and fellowship of the Guild, upon pain of forfeiting their freedom and like penalty. A further consequence of this competition of rural capitalist industry was that the Guilds found it increasingly difficult to maintain fixed prices, until at last, in the sixteenth century, the whole system broke down amid the economic chaos that followed the suppression of the monasteries and the wholesale importation of gold from South America, which doubled prices all over Europe. The Statute of Apprentices was an attempt to save something from the wreck of mediaeval civilization.

Mr. Ginzberg is concerned to understand the reason for the survival of Adam Smith. “The economic system of the eighteenth century,” he says, “has all but disappeared, and one would therefore expect to find the economic theories and fancies of that period only in a museum. One is therefore startled to learn that a treatise on economics written before the invention of steamboats, railways, and automobiles is still in vogue long after these mechanical improvements have become commonplace.” Mr. Ginzberg is rightly surprised, though for the wrong reason. The real reason for being surprised at the survival of Adam Smith is not just, that he wrote before the age of steamboats, but also because what he said was never at any time true. A thing that is true is true for all time and the coming of steamboats makes no difference; they could not render a truer idea obsolete, but incomplete.

Now we can answer, why had Adam Smith Survived? The answer is in the first place that he was canonized by the universities as the Father of Political Economy, and in the next that the teaching of his theories was to all intents and purposes endowed. Until the middle of last century, there were no chairs of economics at our universities; economics being previously taught as part of jurisprudence. But when these chairs were established Adam Smith, the classical economists, Free Trade, and the Gold Standard were in the ascendant, and were accepted as the basis of university teaching on economics. In addition, once any philosophy, subject, or theory receives such official recognition it is for practical purposes beyond criticism, and it reproduces itself automatically each generation. Ideas, which are not officially recognized, have to fight for their existence and disappear when they are disproved by arguments or events. However, it is different with ideas officially endorsed by educational authorities. They become so strongly entrenched and fortified that only an earthquake can shift them.

Nevertheless, the earthquake today is a fait accompli and if my suspicion, that the universities today are anxious to jettison Adam smith, is well found I should like to conclude on a note of warning. There is no purpose in their throwing overboard Adam Smith unless they are prepared to take their stand on mediaeval economics, which is the exact antithesis of everything Adam Smith stand for. Once they have thrown overboard Adam Smith, they must go either back to the Middle Ages or forward to Bolshevism for which Mr. Ginzberg is not without sympathy, though I imagine he would be more surprised if he went to live in Russia today than if he were transported to the Middle Ages. It is said that the London School of Economics with which I have heard Columbia University compared – turns out hard-boiled Liberal, Bolsheviks, and nothing else. There is reason in this.

Bolshevism is finally the only possible reaction against Liberalism for people who reject the Middle Ages.

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