Chose Your Sources Carefully!

I am reading Eric Beinhocker’s ‘The Origin of Wealth’ (Harvard), prompted by a couple of reviews and following my recent reading of Hollander’s ‘Hidden Order (Addison-Wesley). It looks like I should enjoy it.

However, I was disappointed to see his account of Adam Smith’s contributions, which seems to rely, not directly on Wealth of Nations, but on R. E. Backhouse, The Penguin History of Economics, Penguin, London, 2002! He also sources Ian Ross, author of the definitive biography, ‘The Life of Adam Smith’ (Oxford University Press, 1995) but seems not to have read it closely.

I appreciate that authors who draw on formidable bibliographical material as Beinhocker does (his book gives a panoramic coverage indeed) must rely on secondary sources to a degree, but I there are safer (in a scholarly sense) accounts of Adam Smith than Backhouse, on the evidence of what has been transported to Beinhocker’s; if he didn’t have access to Smith’s original, or he did, but didn’t have time, his choice of Backhouse as a source casts suspicions over the near 500 pages that follow, though I hope not.

Examples:

‘Smith was educated at Oxford’ (p 24)

He was resident at Oxford (1740-6), where the ‘publick professors have for these many years given up altogether even the pretence of teaching’ (Wealth of Nations, p 761), and he more or less ‘educated’ himself, so lax was tuition at Balliol College in those days (2 lectures a week, prayers twice daily) compared to the intense tuition he received at Glasgow (1737-40) under Francis Hutcheson, et al (tuition everyday from 7.30 am to 1 pm; essay writing in the afternoon for later classes). He continued his self-study (an early distance learning student?) in Kirkcaldy (1746-8) preparing for his Edinburgh lectures (1748-51).

‘While at Glasgow he came to the attention of a wealthy young Scottish duke who took him on as his well-paid private tutor.’ (p 25)

He came to the attention of Charles Townshend, stepfather of the Duke of Buccleugh (also spelt Buccleuch) in 1759. His stepson was still at Eton and when he left in 1763 Townshend, not the Duke, arranged for Smith to become his tutor (the young Duke was still a minor) (Ross, 1995, p 151-2). Townshend went on to become Chancellor had helped provoke the American rebellion with his various taxes, including that on tea. The Duke was also the grandson of Smith’s patrons, the 2nd and 3rd Dukes of Argyll, and became a lifelong patron of Smith too (he secured the Commissioner of Customs position for Smith in 1778).

Beinhocker’s/Backhouse’s(?) account of wealth creation (p 25) is different from Smith’s, mainly because they present it the ‘wrong’ way round. Smith argued that humans had a propensity to ‘truck, barter and exchange’ and this propensity preceded the division of labour. Once surpluses of anything were produced (accidentally or intentionally) they were objects of exchange, one good for another good. Divisions of labour, first by trade, then within production, increased the amount of goods (wealth). Money in any form is not wealth; it is what produced goods can purchase of the necessities, conveniences and amusements (luxuries) of life that constitutes wealth; money is a means to exchange wealth, but not wealth itself.

‘The “invisible hand” led society to the happy result of efficient resource allocation was the mechanism of competitive markets.’ (p 26)

Not at all! Smith’s use of the metaphor of the invisible hand had nothing to do with markets, which are discussed in Book I, while the invisible hand is mentioned once, but not discussed (if you discuss a metaphor it is no longer a metaphor!), in Book IV (p 476). He used it while discussing the consequences of individual merchants preferring to keep their capital working within their sight and not risking their capital in distant trade. He discussed much the same motives of security of scarce capital in Book III on the habits of bankers. The metaphor of the ‘invisible hand’ (actually from Shakespeare’s Macbeth, 3.2, or Defoe’s Moll Flanders, 1722) has been turned into a ‘theory’ by careless attributions from economists at Chicago in their neo-classical theory of markets, which has absolutely nothing to do with Smith’s political economy.

‘Smith’s point can be re-phrased in modern terms by quoting the character Gordon Greko from the 1980s movie Wall Street, “greed is good” – a rather surprising conclusion from Smith the moral philosopher.’ (pp 26-7)

Smith’s point was the exact opposite! In Moral Sentiments he denounces such views that have more in common with Bernard Mandeville’s Fable of the Bees (1724), and he was a remorseless critic of the idea of the public benefits of individual greed. Such a view has nothing remotely to do with Smith’s moral philosophy or his political economy.

What is really surprising is that someone purporting to be presenting a radical departure for economics from the neo-classical paradigm comes out with such utter rubbish about Smith, based on secondary accounts, and adds the final mocking insult to Smith that he somehow sullied himself and his moral philosophy for views he never held. Similar sloppiness when critiquing the massed ranks of neo-classical mathematicians will bring down a firestorm of derision – they are a most unforgiving lot in my experience.

‘For the seventeenth-century Irish financier Richard Cantillon…(p 27)

Cantillon’s well-known work, Essai sur La Nature du Commerce en General, was written before 1734 and first published in 1766. Cantillon was born between 1680-90 and spent his adult years to his mysterious, early death in 1734, in the 18th century. He is generally referred to as an 18th century economist.

Well, I certainly hope that the other authorities who inform Beinhocker’s work are more reliable than those who informed his report of Smith’s ideas. My confidence is under strain but my interest in complexity applied to economics (sparked by Hollander’s book) is stronger than my reservations.

You should read Beinhocker’s book and judge for yourself:

The Origin of Wealth: evolution, complexity, and the radical remaking of economics, Eric D. Beinhocker, Harvard Business School Press, Boston, Mass. 2006