Adam Smith on neo-liberals

I’m currently reading Simon Schama’s “Citizens: A Chronicle of the French Revolution”. It would be superfluous to add to general praise it has won since publication nearly 30 years ago, but for what it’s worth, here’s the NYT review of it.

This blog is merely triggered by his account of Turgot’s 1776 economic policy disaster.  Constraints on trade and prices were suddenly removed, people rioted, Turgot was dismissed, and Simon Schama’s writing conveys a knowing roll of the eyes.  To my modern mind, familiar with cases of countries not responding as hoped to the shock imposition of neo-liberal policy prescriptions, the story seems rather familiar.

But I also know of 1776 as the publication date of the Wealth of Nations, which I’ve taken previously as the original fount of economic liberal doctrine.  Clearly I was wrong, and equally, what’s generally taken as neo-liberalism isn’t as neo as people might think.  That’s something I’ve suspected for some time.  Neo-liberalism makes sense in the context of intellectual history, as the initiative taken by Hayek and others post WW2, and the trends which followed on from it, but I don’t think its content is radically different from previous versions of economic liberalism.  Hayek would have agreed.

So I was prompted to go back to the Wealth of Nations, to see what Adam Smith might have to say about the thinking followed by Turgot. I was sure there would be something, because Turgot was a Physiocrat, and about all I knew about the Physiocrats is that their doctrine was criticised in the Wealth of Nations, for a theory of value which prioritised agriculture, and discussed in a chapter entitled

Of the Agricultural Systems, or of those Systems of Political Œconomy which Represent the Produce of Land as either the Sole or the Principal Source of the Revenue and Wealth Every Country

However, I’d no idea that they also were economic liberals, something Smith acknowledges

in representing perfect liberty as the only effectual expedient for rendering this annual reproduction the greatest possible, its doctrine seems to be in every respect as just as it is generous and liberal

even though “liberal” as a noun and “liberalism” were not current in 1776.

Most of what Smith writes about the Physiocrats I find rather tedious, because, like most people with a modern economic training, I have little interest in those old theories of value.  But the side comments, and the social and historical context given are fascinating.  There are two I find particularly telling.

First, he points out that economic liberalism can be too doctrinaire

Mr. Quesnai, who was himself a physician, and a very speculative physician, seems to have entertained a notion of the same kind concerning the political body, and to have imagined that it would thrive and prosper only under a certain precise regimen, the exact regimen of perfect liberty and perfect justice. He seems not to have considered that, in the political body, the natural effort which every man is continually making to better his own condition is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political œconomy, in some degree, both partial and oppressive. Such a political œconomy, though it no doubt retards more or less, is not always capable of stopping altogether the natural progress of a nation towards wealth and prosperity, and still less of making it go backwards. If a nation could not prosper without the enjoyment of perfect liberty and perfect justice, there is not in the world a nation which could ever have prospered. In the political body, however, the wisdom of nature has fortunately made ample provision for remedying many of the bad effects of the folly and injustice of man

Para. IV.9.28

In other words, Adam Smith is not too bothered if economic policy differs from what he might suggest as ideal, because he recognises that there are processes, which he may not actually understand, which will at least move an economy in roughly the right direction. I think this makes him more of a liberal, in a wider sense, and not an ideologically blinkered economic liberal, which is the sense neo-liberal carries now when used  more or less reasonably as a criticism.  It is probably rather more often used unreasonably as a criticism, but that is another matter.

The second observation is that the followers of this doctrine behave in a rather cult like manner

Its followers are very numerous; and as men are fond of paradoxes, and of appearing to understand what surpasses the comprehension of ordinary people, the paradox which it maintains, concerning the unproductive nature of manufacturing labour, has not perhaps contributed a little to increase the number of its admirers. They have for some years past made a pretty considerable sect

And later

This sect, in their works, which are very numerous, and which treat not only of what is properly called Political Œconomy, or of the nature and causes of the wealth of nations, but of every other branch of the system of civil government, all follow implicitly and without any sensible variation, the doctrine of Mr. Quesnai. There is upon this account little variety in the greater part of their works.

Para IV.9.38

This also feels like something we are familiar with still – advisers and consultants who have learned true doctrines about how markets are to be introduced, in which those to whom they are introduced are supposed to respond in a particular way.

But without the habit of independent thought, and the presumption that others, with different backgrounds may also have something useful to contribute, this is a recipe for disaster.

Categorised as Economics

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