I was clearing some of the loose papers littering my office floor or rather my daughter was tidying up because she was fed up with the mess, when I came across a cutting from The Economist, for 6 December 2003. It is headed ‘Competition is all’ and reports a speech given at the Royal Society of Edinburgh by John Vickers, a distinguished academic economist and Chairman of the UK’s Office for Fair Trading.

In it he quotes two passages from Adam Smith’s Wealth of Nations (1776):

“It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest.”

and

“People of the same trade seldom meet together, even for merriment or diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

However an anonymous journalist from The Economist adds his or her comments:

“The point of the first quotation is to say that self-interest, unco-ordinated except by the invisible hand (that is by competition) promotes the public good. The second says, in contrast that producers set out to subvert competition unless they are somehow prevented from doing so. So the first remarks is broadly sympathetic to the principle of laissez faire, whereas the second apparently takes the opposite view.”

Anybody unversed in Adam Smith’s legacy would get entirely the wrong idea of his economics from the three errors in the journalist’s comments.

The exchange with the butcher, the brewer and the baker has no connection to laissez faire (never mentioned anywhere in Wealth of Nations). It is about how people exchange what they have for what they want, and they do so, not by promoting their own self-interest but by serving the self-interest of others. You cannot get what you want without giving others what they want. This is the meaning of the human propensity to exchange: ‘Give me some of what I want and I will give you some of what you want.’ This is known as negotiation, a universal behaviour among human kind.

The invisible hand is only mentioned once in Wealth of Nations (in Book IV, whereas the exchange principle is discussed in Book I), it has become iconic of Smith’s economics not because it was a major principle – nor even a minor one - of his approach. It never was important, and in all his writings it is mentioned only three times as a metaphor in different contexts of ‘unintended consequences’ (once when Smith discusses pagan religious superstition!).

That the second quotation is ‘apparently’ broadly unsympathetic to laissez faire is an understatement. Smith was never sympathetic to laissez faire (a maxim of some leading French economists of the time) and his second statement does not contradict his views. Smith was hostile in Wealth of Nations on numerous occasions (far too many to cite here) to the monopolising and anti-competitive proclivities of ‘merchants and manufacturers’.

The harmful effects of monopoly are a constant message that he repeats over and over. That fact alone should have alerted the journalist from The Economist to the possibility that he or she was incorrect in implying that there was a contradiction here between the two passages. Of course, not having read Professor Vickers’ speech I cannot assert that he was the source of the error.

* By the way, Adam Smith was a founding Fellow of the Royal Society of Edinburgh in 1783. For respect, if nothing else, reports of Annual Public lectures at RSE should present Adam Smith’s views accurately.