Smith’s Wealth of Nations and the economic past: setting the scene for economic history?

Abstract

Although Adam Smith used history extensively in his Wealth of Nations, his contribution to economic history is neither systematised nor explicitly presented. The aimof this paper is to investigate the ways in which history is incorporated in Smith’s political economy and to elucidate the role of historical investigation in Smith’s Wealth of Nations. We propose a “four thematic” approach of Smith’s use of history, corresponding to four distinct ways in which Smith incorporates the historical element in his political economy. First, as method through a progressive version of proto-historical materialism, second, as illustration in order to verify his theoretical conclusions, third, as theory in the form of his stages theory, and, finally, as economic history to describe the emergence of modern Europe after the fall of the Roman Empire.

Keywords:

• Adam Smith
• theory
• history

JEL CLASSIFICATIONS:

• B12
• B31

Acknowledgement

We would like to thank the two referees of this journal for their meticulous comments which helped to improve the focus of this paper. Any remaining errors are ours.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 This view is more explicitly crystallised in Robertson (cited in Meek 1971, 10) who points out that “In every inquiry concerning the operations of men when united in society, the first object of attention should be their mode of subsistence. According as that varies, their laws and policy must be different”.

2 Rima (1998) connects Smith’s stages theory and the distribution of surplus product among society’s members with the (subsequent) conflict between them.

3 There are many points in Smith’s magnum opus that illustrate this necessity. See WN, Book I, c. viii, §14, 85 and Book I, c. viii, §25, 90.

4 This materialistic (and mechanistic) view is a common motif among Scottish scholars. Millar’s (1818, 1–2) comment with respect to the period following the accession of James I and VI is indicative.

5 See his History of Astronomy, Section III, § 3, 50.

6 The materialist dimension of Smith’s thought is also evident is also in Smith’s discussion concerning labour productivity. Drakopoulos and Karayiannis (2006, 33) note that Smith is the first economist who connected wages with work effort. Smith believes that material incentives promote labour productivity: “Where wages are high accordingly, we shall always find the workmen more active, diligent and expeditious, than where they are low” (Smith [1776] 1976, 99). For instance his proposal for a private university system, and his critique of apprenticeship, are explicitly connected with these views. For universities see WN, Book V, c. i, § 8, 761, while for apprenticeship see WN, Book III, c. ii, § 9, 387.

7 As Smith ([1776] 1996, 24) puts it “[and] yet it may be true that the accommodation of an European prince does always so much exceed that of an industrious and fugal peasant, as the accommodation of the latter exceeds that of an African king, the absolute master of the lives and liberties of ten thousand naked savages”.

8 See WN, Book II, c. iii, § 32, 343–344.

9 Although Smith has a progressive view of history, in many instances he identifies regressions and cyclical processions of history. His views about the cyclical processions of history formed under the influence of Machiavelli who is regarded by Smith as a prominent historian. Smith cites China (Book I, c. v) as an example of a country that is standing still and India (Book I, c. v) as a case of regression.

10 It is indicative that Hume (cited in Smith 1977, 186), in his welcoming comment on the WN, notes that “it has Depth and Solidity and Acuteness, and is so much illustrated by curious Facts that it must at last take the public attention”.

11 Milonakis and Fine (2009, 51) point out the historical dimension of Smith analysis and note that Smith’s theory of prices “is dynamic, how the economy is changing, not how it is at a given moment”.

12 Smith ([1776] 1996, 15) informs us that “the important business of making a pin is, in this manner, divided into about eighteen distinct operations”.

13 For instance in China, which had long ago acquired full complement of riches, the ordinary rate of interest was twelve percent (Smith [1776] 1976, 112).

14 It must be noted that, for Smith, the accumulation of stock naturally leads to the improvement of the productive powers of labour due to the motivation of productive labour (Smith [1776] 1976, 277).

15 It should be pointed out that Smith had no access to the official archives of such remote countries as China, East India, North and South America. Therefore, he made use of travellers’ notes from which he attempted to glean out facts of economic, social, and political history. For Great Britain (and to a lesser degree for France) whose official registrations were accessible to him, he used them as authenticated historical material. However, this preference for official archives does not render travellers’ notes of secondary importance. The historiography of Enlightenment, as Croce (1921: ch. 5) observes, is connected with the indexing of travellers’ notes. Croce points out that “A beginning was made with the use of the material discovered, transported, and accumulated by explorers and travellers from the Renaissance onward”, and, “India and China attracted attention, both on account of their antiquity and of the high grade of civilization to which they had attained” (p. 255).

16 According to Rashid (1990, 23), Smith’s entire presentation of Poor Laws is based on Richard Burn’s History of the Poor Laws (1764). Smith quoted freely from Burn’s History and referred to him a “very intelligent author”.

17 A stages theory is also elaborated in Mill’s Principles of Political Economy (1848) and in Marx’s well-known passage in the Preface to his Contribution to the Critique of Political Economy (1859).

18 Heilbroner (1973, 243) rightly observes that in the WN we are faced “with the deeply pessimistic prognosis of an evolutionary trend in which both decline and decay attend- material decline awaiting at the terminus of the economic journey, moral decay suffered by society in the course of its journeying”.

19 Smith ([1776] 1976, 776) arrays a variety of historical evidence to illustrate this. An interesting example is gleaned out from post-Homeric Greece. He notes that the ancient little republics that had emerged after the Trojan War had “as a great accomplishment of their education music and dancing which were the great amusements of their antecedents”.

20 In China and Indostan for instance, “the real price of labour, the real quantities of the necessaries of life which is given to the labourer, it has already been observed is lower […] than it is through the greater part of Europe” (Smith [1776] 1976, 224).

21 Uneven economic development was not confined to the commercial stage of economic development. Smith ([1776] 1976, 387) notes that even in the period of Classical Antiquity and in the Middle Ages, even within the narrow circle of commerce, some countries were opulent and industrious while some others were not.

22 Smith cites numerous examples of such distorting regulations. The Wealth of Nations includes an anthology of erroneous governmental actions. For instance, the regulations that diminished the price of wool by the 14^th enactment of Charles II in 1662, “would in […] circumstances of the country have been the most destructive regulation which could well have been thought of. It would not only have reduced the actual value of the land of the kingdom, but by reducing the price of the most important species of small cattle, it would have retarded very much its subsequent development” (Smith [1776] 1976, 252).

23 Smith’s ([1776] 1976, 344–345) comments are indicative of this “gradualist” process and he uses historical material to illustrate this.

24 Book III of the Wealth of Nations attempts to systematise the transition from the “feudal” to the “commercial” stage of economic development. Smith argues that when German and Skythian nations- which were in their “shepherd” stage of economic development, “over-ran the western provinces of the Roman empire, the confusions which followed this invasion caused the interruption of the existing commerce between the towns and the country” (Smith [1776] 1976, 381).

25 Some manufactures, like the great commercial cities of Italy (Venice, Florence etc.), developed out of “the natural course of things”, while others were (later of course) the natural products of the agricultural development. Smith ([1776] 1976, 408) notes that: “In this manner have grown up naturally, and as it were of their own accord, the manufactures of Leeds, Halifax, Sheffield, Birmingham, and Wolverthampton. Such manufactures are the offspring of agriculture”.

26 Smith is explicit about how modern Europe followed “an inverted course of economic development”. He notes that this “course” was both slow and uncertain. He uses the comparative method to illustrate the differences between “the natural” and “the inverted” course of economic development: “Compare the slow progress of those European countries of which the wealth depends very much upon their commerce and manufactures, with the rapid advances of […] North American colonies, of which the wealth is founded altogether in agriculture” (Smith [1776] 1976, 422). Smith believes that, contrary to Europe (and Britain in particular), the economy of North America followed “the natural course of things”, and this is why it is connected with improved lands and cultivation. It must be noted that the case of North America became, according to Ross (1995, 250), “the major case study for the unfolding of Smith’s theory of free market, and the most urgent point for the application of the theory”.

27 Such a stance is related to the differentiated application of Newton’s analytic-synthetic method. Smith developed this position in his TMS and is praised by Hume for following “the practice of our modern naturalists [Newtonians] and [making] an appeal every moment to fact and experiment” (cited in Ross 1995, 179).

28 Rae (1895, 7) points out that Smith was always an excellent observer. His late biographer, Ross (1995: xviii), notes that “he learned much about practical affairs from observation of local industries and the improving state of agriculture in the Fife hinterland”. The sharpness of his perceptiveness is illustrated in one of his letters to the Duke’s Buccleugh stepfather, Charles Townshend, in which he in extenso described one of Duke’s temper (Smith 1977, 114-115). The details arrayed there show his eminent abilities in observation. Smith had been highly observant already from his childhood and incorporated many of his observations in his writings.

29 Pascal (1938) observes that “Marx’s first thorough exposition of historical materialism, The German Ideology, 1845–1846, builds on the groundwork laid by Adam Smith and his contemporaries” (cited in Levine 1987: 431) while Meek (1967) points out that Scottish historical sociology filtered into Marx’s work. However, Smith’s version of materialism, despite having a strong historical dimension, differs from Marx’s “historical materialism”. Marx’s theory depends on the relationship between relations of production and productive forces as a frame in which class struggle occurs. Although Smith described relationships of authority and subordination in different historical stages, he did not interpret the development of history as a consequence of class struggle. By contrast, according to him, societies move from one stage to another one because, under the pressure of increasing population, new forms of economic organisation are required (our thanks to an anonymous referee for emphasising this point).