Schumpeter, Smith, and The Wealth of Nations

One of my favorite writers once said of Alexis de Tocqueville’s Democracy in America, “Tocqueville’s book has so much good sense in it that it seems almost meanspirited to raise a complaint. But since its flaw is important, and happens to be shared by many contemporary writers on America, it needs to be exposed”. My thoughts and sentiments regarding John D. Mueller’s Redeeming Economics are quite similar. This book was recommended to me by someone I respect, Mueller provides some excellent arguments regarding popular arguments that tend to undermine the pro-life movement, and it introduces readers to Jacques Rueff, one of the most important statesmen of the 20th century.

Nevertheless, there are important flaws in Mueller’s book, so I am going to spend some time here reviewing them. One such flaw in Mueller’s book is his account of Adam Smith and classical economics. Though there are a number of points I could consider, today I will consider Mueller’s denial of originality to Smith. Mueller states at the beginning of chapter three of Redeeming Economics that “Adam Smith was not the ‘founder’ of economics. … Joseph Schumpeter was quite correct to conclude that ‘the Wealth of Nations does not contain a single analytic idea, principle, or method that was entirely new in 1776′”. Since Mueller never provides the context of the quote in either the main text nor the footnotes of the book, I decided to take a gander myself:

We know already that the skeleton of Smith’s analysis hails from the scholastics and
the natural-law philosophers: besides lying ready at hand in the works of Grotius and Pufendorf, it was taught to him by his teacher Hutche-son. It is true that neither the scholastics nor the natural-law philosophers ever evolved a completely articulate scheme of distribution, still less the misleading idea, which was to play so great a role in the theory of the nineteenth century, of a social product or National Dividend distributed among the agents that take part in its production. But they had worked out all the elements of such a scheme, and Smith was no doubt equal to the task of co-ordinating them without further help from anyone. According to Cannan, the Glasgow Lectures—which show no great advance beyond Hutcheson in any direction—contain ‘no trace whatever…of the scheme of distribution which the Wealth of Nations sets forth.’ It is not necessary to infer from this, however, that Smith was under heavy (and largely unacknowledged) obligation to the physiocrats, whom he met (1764–6) and presumably read before he settled down to work at Kirkcaldy. The Draft discovered by Professor Scott proves that this may go too far: the Draft clearly foreshadows the scheme of the Wealth. On the other hand, however, it must not be forgotten that the heritage of the natural-law philosophers and the achievements of A. Smith’s French contemporaries were not all he had to work with. There was the other of the two streams that meet in the Wealth of Nations, represented by the Consultant Administrators and the Pamphleteers. Smith knew Petty and Locke; he presumably made acquaintance with Cantillon, at least through Postlethwayt’s Dictionary, at an early stage of his work; he laid Harris and Decker under contribution; his friend Haume’s writings and Massie’s must have been familiar to him; and in the long list of writers whom he affected to despise because of their ‘mercantilist errors,’ there are some who might have taught him a lot, for example, Child, Davenant, Pollexfen, not to insist on such ‘antimercantilists’ as Barbon and North. But no matter what he actually learned or failed to learn from 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. (Schumpeter, History of Economic Analysis, pp. 178 – 179)

There are two things to notice in this passage (three, if you count the editorial footnote at the beginning of this section). First, contrary to Mueller’s thesis that Adam Smith broke with the natural law tradition, Schumpeter acknowledges that the basics of Smithian political economy (“the skeleton”) is based in large part on the work of “the scholastics and the natural-law philosophers”, particularly Pufendorf as “taught to him by his teacher Hutche-son”. Besides these influences and Smith’s French contemporaries, Smith knew of “the Consultant Administrators and the Pamphleteers” (Petty, Locke, Postlethwayt, Hume, Nicolas Barbon, and Dudley North). Though it is not necessary to infer from the above that “Smith was under … obligation to the physiocrats” and their subjectivist theory of value, he had a great deal of material to work with.

Second, it is not so clear that Smith rejected the Scholastic notion of final distribution. Contrary to Mueller’s claim, Schumpeter acknowledges that Smith was competent enough (“no doubt equal to the task”) to develop a theory of distribution (“co-ordinating them”) based on his Scholastic inheritance (the Scholastics “had worked out all the elements of such a scheme”). Such has been discussed elsewhere. (I wonder, though – does Schumpeter  think that the Scholastic theory of distribution is a “misleading idea”?)

So why did people admire and read Smith’s Wealth of Nations?

Those who extolled A.Smith’s work as an epoch-making, original achievement were, of course, thinking primarily of the policies he advocated—free trade, laissez-faire, colonial policy, and so on. But, as should be clear by now and as will become still clearer as we go along, this aspect would not lead to a different conclusion even if it were relevant to our subject. Smith himself, according to Dugald Stewart, indeed laid claim (in a paper drawn up in 1755) to priority concerning the principle of Natural Liberty on the ground that he had taught it as early as 1749. By this principle he meant both a canon of policy—the removal of all restraints except those imposed by ‘justice’—and the analytic proposition that free interaction of individuals produces not chaos but an orderly pattern that is logically determined: he never distinguished the two quite clearly. Taken in either sense, however, the principle had been quite clearly enunciated before, for example, by Grotius and Pufendorf. It is precisely for this reason that no charge of plagiarism can be made either against Smith or on his behalf against others. This does not exclude the possibility of course that, in stating it with greater force and fullness than anyone before him, Smith experienced subjectively all the thrill of discovery or even that, some time before 1749, he actually made the ‘discovery’ himself. (Schumpeter, ibid, 178-179)

Schumpeter then discusses Wealth as “a great performance all the same and fully deserved its success” beford moving onto his “reader’s guide”.  In short, Adam Smith is to his predecessors what Mises and Hayek were to Menger, Böhm Bawerk and Wieser.

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2 thoughts on “Schumpeter, Smith, and The Wealth of Nations

  1. […] My last post tried to answer the challenge that Adam Smith should not be considered the founder of economic science, since he did not make any original analytical contribution. Of course, there is another way to answer Mueller’s challenge is to consider another aspect: if Smith did not make any analytical contributions, why is he considered the father of economic science? […]

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