Raphael on Adam Smith

D.D. Raphael. Adam Smith. Past Masters series. Oxford University Press, 1985. vii+120 pp.

Adam Smith has become quite the figure in conversations regarding faith and economics, from John D. Mueller’s denouncement of Smith the economist to Kenneth Barnes’ appraisal of Smith the moralist. Regardless of which aspect one assesses Smith, all participants in this discussion would benefit from understanding Smith as he understood himself. D.D. Raphael’s short volume Adam Smith does just that. Writing for the Past Masters book series. Raphael was a well-known political philosopher and Smith scholar who helped edit three volumes of the Glasgow Edition of the Works and Correspondence of Adam Smith (now in reprint from Liberty Fund). The book serves as an introduction to Smith and nothing more; however, it is an introduction to Smith, rather than an introduction to Smith the moralist or Smith the economist. After an appraisal of Smith as “a master for many schools” (chap. 1), Raphael recounts the broad outline of Smith’s “Life” (chap. 2), the role of sympathy in Smith’s “Ethics” (chap. 3), an overview of Smith’s “Economics” (chap. 4), some “Comparisons” between the two preceding chapters and some other works of Smith’s (chap. 5), and a concluding chapter on Smith’s views on the relations between “Philosophy, Science, and History” (chap. 6) followed by a list of books for “Further Reading”. Besides being an excellent introduction to Smith’s thought, Raphael presents some wonderful remarks countering J.A. Schumpeter’s criticism of Smithian economics. You may find this book in a library collecting dust, but it is a dusty book worth reading.

Karl R. Heintz

9 November 2018

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D.D. Raphael on Schumpeter on Smith

51xpw-c2+DL._SX320_BO1,204,203,200_A rather interesting passage from D.D. Raphael’s short book Adam Smith (Oxford University Press, 1985):

. . . As in so much else, however, Adam Smith set out with especial clarity  the relation of the relevant points to his system of political economy as a whole.

This indeed is the cardinal virtue of the Wealth of Nations. Not all readers have shared in the general admiration of the book, and the comments of one important scholar are worth noting at this point. J.A. Schumpeter, in his monumental History of Economic Analysis (1954), made a number of deprecatory remarks about the Wealth of Nations as a contribution to economic science. ‘But no matter what he actually learned or failed to learn form predecessors, the fact is that the Wealth of Nations does not contain a single analytic idea, principle or method that was entirely new in 1776.’ Yet Schumpeter felt bound to allow that the Wealth of Nations ‘is a great performance all the same’ because of its ‘co-ordination’. This was intended to be rather faint praise. The task of co-ordination required ‘a methodical professor’ and Smith ‘was fitted for it by nature’.

Schumpeter underrates the character of Smith’s systematization. Methodical co-ordination of the ideas of other people could not have produced a comprehensive system of the whole economic process, all parts of which interact with each other so as to maintain a self-adjusting balance and steady growth. Smith derived much of his material from other people but it needed imaginative vision to use that material as constructively as he did. Even Schumpeter is virtually obliged to contradict himself when he describes the first leading feature of Smith’s book: ‘Though, as we know, there is nothing original about it, one feature must be mentioned that has not received the attention it deserves: nobody, either before or after A. Smith, ever thought of putting such a burden upon division of labor.’ Whether Smith was right or wrong to do so, it was a new idea if nobody else had thought of doing it. In fact this feature of the Wealth of Nations is simply one aspect of the imaginative vision which Smith applied to his materials in order to build a comprehensive system. … It is an example of the way in which Smith’s philosophical interests colour his scientific work.

Schumpeter could not have seen this since he believed that philosophy has nothing to contribute to economics; it simply gets in the way. For all his great learning , Schumpeter had his blind spots. While appreciating the ‘intellectual stature’ of Smith’s Essays on Philosophical Subjects, especially the essay on the history of astronomy, Schumpeter says of them: ‘were it not from the undeniable fact, nobody would credit the author of the Wealth of Nations with the power to write them.’ The words ‘nobody would’ mean ‘Schumpeter would not’. Those who read the Wealth of Nations with more sympathy and imagination than Schumpeter did can see that the philosopher who began the essay on the history of astronomy with a theory of scientific systems is himself applying that theory in his construction of an economic system.

I think those last comments on Schumpeter are a little shrewd, given that his History of Economic Analysis was never finished. Perhaps when the section on Smith was written in the middle of his academic career, Schumpeter did not consider philosophy useful to economic theorizing; however, he seems to have changed his mind when considering Heinrich Pesch and Oswald von Nell-Breuning.

Either way, Raphael’s book is a good introduction to Smith. I’ll be posting a review within the upcoming week.

Christian Politics **Must** Be Moral

I believe the following comments on Tim Keller’s NYT op-ed on Christian politics, are warranted:

(1) Keller is right to point out that “[t]he historical Christian positions on social issues do not fit into contemporary political alignments”. Consider issues relating to human life. Genesis 1:28 reveals that fertility within marriage is a divine command. Many natural lawyers of the early modern era stated that mankind “has not liberty to destroy himself, or so much as any creature in his possession . . .

“Every one, as he is bound to preserve himself, and not to quit his station wilfully, so by the like reason, when his own preservation comes not in competition, ought he, as much as he can, to preserve the rest of mankind, and may not, unless it be to do justice on an offender, take away, or impair the life, or what tends to the preservation of the life, the liberty, health, limb, or goods of another.”

John Finnis has shown in many places that the unborn has a right to life. Now, when a major American political party promotes late-term abortion, can we say that the political position of a Christian on this issue is not a matter “of biblical command but of practical wisdom”? (See the lengthy quote above in regards to the examples Keller does mention in his article.)

(2) Keller is right that “there are many possible ways to help the poor”. However, it is not clear what he means when he writes ‘[t]he Bible does not give exact answers to these questions for every time, place and culture”. Keller’s example of the Misssisssipian reminds me of a quote from the late Francis Schaeffer, in which Schaeffer ended a question on a political matter with something to the tune of “However, I can see how someone might be a Democrat and a faithful Christian”.

Unfortunately, this is not the case anymore. A good man was recently accused of being a serial rapist on charges which a member of the US Senate’s investigative council found to be worse than the usual “he said, she said” case. Republican representatives demanded that the claims of the accuser be corroborated; Democrat representatives did not. Who do you think is bound by the dictates of justice.

I agree with Keller that “Christians should be involved politically as a way of loving our neighbors” and that we can turn to the Bible for “the resources to love people who reject both our beliefs and us personally”. However, I worry Keller is implicitly allowing Christians to idolize the god that failed.

Redeming Capitalism? (Review of Kenneth J. Barnes, Redeeming Capitalism)

Kenneth J. Barnes, Redeeming Capitalism. Wm. B. Eerdmans, 2018. xiv + 233 pp. Foreword by Miroslav Volf.

Capitalism is a subject, not an object. … Capitalism is nothing more than the result of countless individual and corporate decisions and for good or ill, the capitalism we have is the capitalism we have chosen; its redemption rest on the choices we are yet to make.

This is how Kenneth J. Barnes, a senior international executive and now holder of the Mockler-Philips Chair in Workplace Theology and Business Ethics at Gordon-Conwell Theological Seminary, opens his new book on “virtuous capitalism”. The outline of the book is simple. After discussing the effects of the 2008 financial crisis (introduction and chapter 1), he takes the reader on a tour of the historical evolution of capitalism, covering pre-capitalist economies (chapter 2), the work and thought of Adam Smith (chapter 3), Karl Marx’s critique of capitalism (chapter 4), Weber’s “Protestant ethic” thesis (chapter 5), postmodern capitalism (chapter 6), and the political uprising of utopianism (chapter 7). After this historical overview, he addresses “God and Mammon-A Biblical Perspective” (chapter 8), “Theology and Ethics” from Augustinian, Thomistic, and Calvinist perspectives (chapter 9), the roles of “Common Grace, Wisdom, and Virtue” (chapter 10), the theological virtues (chapter 11), and how we might redeem capitalism “from the bottom up” (chapter 12) and “from the top down” (chapter 13).

While this is a good book to give to incoming students wanting to study business or economics, there are some serious problems with Barnes’ arguments. First is his inadequate treatment of the history of capitalism. His chapter on pre-capitalist economies fails to mention the rise of finance in the middle ages and the development of political economy in the works of Aquinas and the late Scholastics, as documented by Robert Lopez in his book The Commercial Revolution of the Middle Ages, 950-1350 (Cambridge University Press, 1971) and historians of medieval economic thought. While several names come to mind for those wishing to explore the later topic, Alejandro Chafuen’s Faith and Liberty: The Economic Thought of the Late Scholastics (Lexington Books, 2003) and Samuel Gregg’s For God and Profit: How Banking and Finance Can Serve the Common Good (Crossroad Publishing Company, 2016) both have the virtue of being scholarly introductions for laymen. These thinkers had a decisive influence on Gershom Carmichael and Francis Hutcheson, both whom Adam Smith read as a college student. Of course, one cannot discuss the history of capitalism without mentioning the names of Friedrich Hayek and John Maynard Keynes and the impact their debates on capital theory and macroeconomic had on subsequent generations of economists; sadly, one only finds a critique of Milton Friedman’s NYT op-ed on business ethics in Barnes’ book.

Aside from his simplistic history of capitalism (as well as important theological traditions in business ethics), some of his policy prescriptions might raise an eyebrow or two. For example, Barnes erroneously states that the living wage is premised on “the minimum wage” (138). Yes, the minimum wage interferes with the operations of a free market, but the living wage does not have to. As Acton Institute scholar Dylan Pahman points out in his article “Giving the Just Wage Its Due”, this approach to economic justice errs “in focusing on the universal to the neglect of the particular”:

Justice, classically defined, is to render to each what is due. A just wage, then, is that wage which remunerates a worker with proper regard to his or her particular contribution, need, and other circumstances. The focus on a living wage reduces this criterion to need alone and furthermore presumes that the need of each worker is the same. But is this actually the case? No, it isn’t.

Such factors include the price of housing in a given area (Grand Rapids, Michigan is much cheaper than anywhere in California) and the experience of the employee in question (a working father working full-time versus an unskilled teenager working weekday afternoons). While “Scripture is clear  in its mandate to pursue justice, love mercy, and to respond with care to those in economic need” (Dennis Hollinger, Choosing the Good, quoted in Barnes, 136), these “exceptionless moral norms” do not come prepackaged with specific policy proposals.

A third issue I have with the book is its lack of discussion of the ethics of money production. Not once did I see that famous line from John Paul II’s Centennius Annus that a properly functioning economy requires “stable money” (paragraph 48). It is because we do not have a stable monetary system that we have had worldwide economic problems since the Bretton Woods agreement, the 2008 financial crisis being the most severe. Those interested in this issue are encouraged to read Jörg Guido Hülsmann’s The Ethics of Money Production (Ludwig von Mises Institute, 2008) and Denis Fahey’s Money Manipulation and Social Order (Brown and Nolan Limited, 1944).

Despite these criticisms, there is much to appreciate in Barnes’ book. His distinction between the short term and long term highlights an important aspect of ethical entrepreneurship, and his discussion of economic justice is long overdue. While I do not hope Barnes’ book is the end of the discussion of these matters, I sincerely hope it marks the beginning.

Jacob Viner on Schumpeter on Adam Smith

Jacob_Viner

From Jacob Viner’s review of Schumpeter’s History of Economic Analysis (taken from Essays on the Intellectual History of Economics, ed. Douglas A. Irwin [Princeton University Press, 1991], 327ff., 338):

Schumpeter’s “Reader’s Guide” to Adam Smith’s Wealth of Nations, although unfinished, is an admirable outline of such theoretical structure of “system” as there is in that book, and would make an extremely useful introduction to any new edition of it. Schumpeter does not like Adam Smith, however, as theorist, as man, or with respect to his social views. The Wealth of Nations, although in some unexplained way it was “a great analytic achievement” (p. 38), completely lacks originality. It “does not contain a single analytic idea, principle, or method that was entirely new in 1776″ (p. 184). Many of his predecessors excelled him as analysts. Verri’s concept of economic equilibrium was “as far as this goes, rather above than below A. Smith” (p. 178). It is “not without interest to observe how little, if anything, [Campomanes] stood to learn from the Wealth of Nations” (p. 173). Most references to Adam Smith are hostile. He suggests that Smith’s criticism of Mandeville’s (two-volume!) “pamphlet,” The Fable of the Bees, may have been due to jealousy of Mandeville as the anticipator of the argument or “Smith’s own pure Natural Liberty” (p. 184). ” The wooden hands of the Scottish professor” and f”the safe side that was so congenial to him” (p. 212), his “feelings of resentful distrust” and his “narrow views” with respect to big business (pp. 150, 545), these are representative of Schumpeter’s reaction to Smith. Smith was writing “in bad faith” when he claimed that the mercantillists “confused” wealth with money (p. 361). It is not, I think, necessary to accept Adam Smith as a hero of our profession to conclude that Schumpeter’s objectivity was somewhat undermined her by the conflict between Smith’s and his own “ideologies”.

Viner also comments in a footnote that the standard interpretation of Mandeville “overlooks the vital role [he] assigns to ‘the dexterous management of the skillful politician”, which Viner considers in his introduction to Mandeville’s Letter to Dion.