Adam Smith's Future in Modern Economics

Most academic economists today would dismiss Adam Smith as a mere ‘literary economist’; many are not sure about the economist bit. Flipping through a copy of the Wealth of Nations, and not finding a single mathematical equation among nearly a million words of text, is enough to dissuade busy students of economics and their adult tutors from making an effort to read beyond the title page and, perhaps, flick through the index. Of course, every economist has heard of Adam Smith, and so have most of the chattering classes that pass for today’s groupie intelligentsia.

Politicians, journalists, tv presenters and lobbyists mention his name regularly and select from one of a few famous, but well-worn, quotations attributed to him to give themselves an air of profundity, especially undeserved when they misuse his name in pursuit of ends, many of which its author never intended and, living in the 18th century, could know nothing about.

A secondary objective of Lost Legacy is to expose as many of these misattributions as possible. It is not my main objective, as it can get repetitive if I try to comment on all of them on a daily basis, and it detracts from my current objective of completing my new book on Adam Smith’s economics and philosophy.

Rather than mainline on the errors of modern commentators, many of them of little consequence because the fads of modern media moguls will pass the same way as yesterday’s gossip, celebrity scandal and today’s newspapers, I would rather concentrate on the few commentators that are of consequence, in scholastic terms, and on the many modern economists whose talents are presently directed towards the fantasy world of abstract mathematics that excludes people by assumption (in the case of growth and development it often excludes technology, even knowledge) and has few lasting policy implications. Beyond the theory of comparative advantage (1818), abstract reasoning has little of permanent value to show for its efforts, though it has created a magnificent world that attracts the best minds in the field, some focussed on hyper-specialist sectors that occupy small portions of its landscape, and few with wider vision, but of no greater long-run relevance.

Adam Smith had much to offer both in terms of scientific method and practical outcomes of his inquiry into the existing 18th century social and economic system. When more modern economists re-examine that legacy, not to mimic its recommendations – the interventions into the Natural Order of the 18th century have been overtaken by modern forms that change almost totally the environment in which the Natural Order is repressed – but to apply the methods of scientific enquiry that Smith excelled in, their contributions may have an impact beyond their current efforts, in which each new school overturns the old, until overturned itself by the next big new thing, with the problems remaining in that unfinished agenda that we know as human society.

The philosopher’s role is not to change the world, but to understand it by doing nothing, but observing everything. The key word here is ‘observe’. Economists in their contributions should ‘look out of their windows’ occasionally.

Human societies do not move like planets, nor like molecules or DNA, which movements may be mapped with mathematical precision. The people in societies move, as Smith put it under laws of motions determined by themselves. Ascribing self-interest to humans to develop determinate solutions to their behaviours is ‘not enough’ because the self-interest of individuals is mediated by the need to accommodate their self-interest to those with whom the individuals interact.

This takes me to a theme I have worked on for sometime; aspects of it are discussed in ‘Adam Smith’s Lost Legacy’ (Palgrave, 2005) and also on occasion here. Smith correctly identified the common method of mediating differing self-interests of individuals as ‘bargaining’. This phenomenon preceded Smith by millennia; it follows him by centuries through to today. The bargaining process is a niggling problem for modern economics. It has not managed to map it mathematically through all the years of marginal analysis, neo-classical and post-neo-classical analysis.

John Nash claimed to have solved the bargaining problem, but what he solved was the bargaining outcome and not the bargaining process (he eliminated the process by his assumptions). Attempts to solve the latter by economists (Zeuthen, Hicks, etc.,) failed. Hence, the central most common behaviour in markets, organisations, families and societies remains outside the ambit of abstract economics still, after over 200 years since Smith wrote about it. I am interested in why, and what might be the remedies. The answer, whatever it is, will not be found in the arguments of functions, but might be in the arguments of bargainers (of which I have done my fair share of observing).

That is my future agenda for Lost Legacy (with occasional comments on misquoters).