What did Adam Smith think – and why does it matter today?
Romesh Vaitilingam Jesse Norman
This year is the tercentenary of Adam Smith – 300 years since the birth of the man widely considered to be the father of economics. Jesse Norman MP, author of Adam Smith: What He Thought, and Why It Matters, talks to Romesh Vaitilingam about Smith’s life and the enduring importance of his ideas.
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RV: Why is Adam Smith so important to you that you invested a huge amount of time in writing a book about him? And why do you think he matters for today such that we should be celebrating his 300th birthday?

JN:

I’ve always been a bit obsessive about Smith, and for several reasons. He has an extraordinary and continuing intellectual prestige, but he also exercises a certain dominance in the media and popular imagination. If you look at the citation index of Smith, there is a huge gap between him and other economists, even those as prominent as Karl Marx and John Maynard Keynes.

He’s also an unbelievably interesting thinker. I came to the view that there was an understanding of Smith in the academic world, which wasn’t being translated into a modern public understanding of him. It was all too easy to put him in a box marked ‘neoliberal’, ‘market fundamentalist’ or ‘materialist’, which was completely at variance with what he actually thought. It was also extremely easy for people with different political goals to grind an axe one way or another. Yet at the same time, there was this vast undiscovered continent of interesting ideas, which needed to be brought back into the picture.

That was the intellectual stimulus and excitement, and then there was a practical application, which was that it's only when you start to understand Smith more widely that you think about issues that translate directly into how we think now – not just economic issues: competition policy, trade and the like – but also really important social issues. Smith is astoundingly good on virtue signalling, on materialism and its discontents, on the way in which societies evolve, and on empire – all issues that we're thinking hard about now.

RV: On the misunderstanding of Smith, how much of that is a result of cherry-picking from his work? Or do you think the fact that much of his other work was destroyed upon his death (at his request) has contributed?

JN:

One cannot count the intellectual loss of the 18 notebooks that were destroyed. But yes, Smith’s writing is so luminous and so wide-ranging. He has an ability to think on both sides of different topics before he comes to a conclusion. This means that to have a detailed and sympathetic understanding of him, you really have to immerse yourself in it, and then weigh up a series of texts that you might think are conflicting.

Actually, I don’t think they are conflicting – he is a remarkably systematic and careful thinker. But there is certainly a lot of material to support some of these divergent readings. If you want to believe Smith is red in tooth and claw about markets, then there are certainly passages that would support that. And if you want to think he’s a bleeding heart liberal who wandered around worrying about other people’s feelings, then there are passages that will support that as well.

It’s worth saying that where that leads to historically is this idea that somehow there are two Smiths: one of The Theory of Moral Sentiments and one of The Wealth of Nations. That idea flourished when we didn’t have any other materials. It was wrong then and I think it can be shown to be wrong by sympathetic reading of both the books and understanding how they fit together. Discovering the various lecture notes on jurisprudence and some of the earlier writings explodes that whole view. It became much clearer what systematic project Smith was engaged in, and then what the linking theory of government and law is that sits between the two big published works.

RV: Smith lived in incredibly interesting times, but your book suggests that his personal life was not that interesting.

JN:

That’s true, but Smith’s correspondence is absolutely worth reading: it’s fascinating. There are many individual correspondences, and notably, the one with Hume, which is stunning on both sides. There’s an exquisitely teasing letter from Hume, after the publication of The Theory of Moral Sentiments, that is laugh-out-loud funny, which I describe in the book as a masterpiece of tantric epistolation, because it leads the reader on so much before the final denouement.

But otherwise, Smith’s life is a featureless Sahara. We don’t have any sense of the people he loved apart from his mother and one or two friends. We have no sense of any girlfriends or secret amours, and we have no sense of him in any of the wider colour that is mandatory to the current understanding of human achievement, which is always to tell the back-story and try and show how the ideas came about. We’ve kind of gone full circle – in the old days, we didn’t mind at all what the back-story was when we had the ideas; now, no one can think of an idea without trying to give it a psychological and historical origin.

RV: How were Smith’s ideas initially taken up? I understand the books sold well, and he got copies into the hands of key influencers of the time – for example, Robert Burns’ copy of The Wealth of Nations, which is now in the library at the University of Glasgow.

JN:

Yes, the books did sell well. But a lot was happening in 1776, when The Wealth of Nations is published, with the American colonies in the War of Independence. You’ve also got the publication of Edward Gibbon’s Decline and Fall of the Roman Empire, which is a smash hit, and so the publishers are doing great business in London.

The Wealth of Nations does well. It’s a big, fat book that first folio, so it’s very much priced at the top end of the market. It is picked up by more than a few people who quickly realise its intellectual significance. It goes into politics, through William Pitt, who proclaims himself something of an apostle of Smith, and there’s an attempt that Pitt makes to get a genuinely free trade agreement with the French in the 1780s, which seems to bear both a Smithian and Josiah Tuckerian influence – it’s hard to be completely clear about them. And of course, Charles James Fox famously talks about The Wealth of Nations at the despatch box, and says how marvellous it is, while confessing privately that he never read a word, a combination that was entirely in character for him.

Then very broadly speaking, it all gets swamped by the French Revolution. And the French revolutionaries love the book, because they read Smith as essentially a man of revolutionary temperament, who wants to sweep all away in his equalising commercial society. And this is economically analogous to what they’re proposing to do to the hierarchies and privileges of the elites in revolutionary France. I don’t think Smith is anything like that radical – it’s pretty clear from the late revisions to The Theory of Moral Sentiments that Smith was extremely dismissive of revolutionaries.

He is, by and large, a small ‘c’ conservative thinker. I would say this, wouldn't I? But if you look at the detail that is laid out in the book, this is more the case than even great scholars like Emma Rothschild or Donald Winch recognise, I would suggest.

He becomes a great friend of Edmund Burke, particularly in the later decades of Smith's life. And they undoubtedly fertilise each other’s thinking in very interesting ways. Burke’s writings on economics, which are much underestimated, bear a strongly Smithian thread. They don't agree about everything – for example, on inheritance and entitlement – but they're painting with the same intellectual palette. And they're thinking about people's sentiments, behaviour, activity and conduct, rather than just about what we might call incentives, mathematically modelled in markets, which is the way economists have tended to retrofit modern views onto Smith.

In the 19th century, there’s a gathering wave of interest as Britain is building an enormous colonial empire. There’s a focus on free trade, but really, a lot of it is imperial trade – not free in the proper sense that Smith would understand. But they need heroes to celebrate, so 1876 is a big Smith celebration: everyone’s talking about the benefits of free trade, when what they really mean is free trade on our terms in the British Empire.

In 1976, there's a celebration that goes alongside the celebration of the American War of Independence. Smith’s birth is marked in 1923 as well, but it's more muted. And so, it's nice to have a bigger celebration of his birth now.

Of course, what this disguises is the extent to which different groups try to play themselves into his intellectual legacy. Here, there have been a few big moves that are worth picking up. One, which I’ve touched on, was the attempt to ignore the anti-imperial parts of Smith – of which there are many – and to try to make Smith into a great apostle of imperial free trade. That, I think, is a very partial reading of Smith.

The second is in America where there was a tremendous instinct to focus on the free trade bits of Smith. America doesn't mind the anti-imperialism at all: it is, theoretically at least, hostile to colonial empires, even while it's rather imperial itself throughout much of the 20th century. But it certainly has that strand of thinking. Smith then gets very widely picked up after the Second World War, especially in the 1970s and 1980s when you get to Milton Friedman and his book and TV series Free to Choose and the whole rediscovery of free markets within academic economics. Smith is an obvious antecedent that people want to use.

The other thing that’s going on within the profession is the mathematisation of economics and markets. There’s a tremendous desire to recruit Smith to that and then essentially read his theory of markets in ways that make it as mathematically tractable as possible and to ignore everything that might create difficulties for a mathematical theory of markets.

This includes Smith's views about sentiments and behaviour, when in many ways he was the world's first behavioural economist. But you're not going to find any people thinking about mathematical economics who were interested in behavioural economics – they're all wrestling with questions about whether you can aggregate preferences and things like that.

To Smith, that question doesn’t really get going because he doesn't see people in this entirely atomistic way – there’s much more interconnectedness between them. And therefore, the idea of breaking everyone down into atoms and then trying to map preferences according to a utility function is not quite his way of thinking. The fascinating thing is that if you give his work these mathematical readings – and they're immensely fertile and productive in some cases – they have the effect of excluding a large chunk of what you might call the social, political and cultural critique that makes them so interesting.

I should just mention Marx in this context. It’s easy to forget that Marx is very much a lifter and shifter of economic orthodoxy. It’s Marx who coins the idea of capitalism rather than Smith. The latter’s idea of commercial society is, I think, a much more interesting and supple idea. But Marx inherits his received understanding of economics from reading The Wealth of Nations, in part, and he’s a very diverse, engaging thinker. So that's not by any means the only influence but it is one. Notably, he develops that into the Marxian theory of value.

RV: Let’s come to the present and imagine that we could bring Smith back to modern Glasgow or London. What do you think his take would be on some of the big challenges we’re facing now?

JN:

That’s such an interesting question. Let’s choose the issue of productivity. The first thing to realise about Smith is that he’s not hostile to the state. So, he recognises not only that markets need an encasing framework of law, which is set and enforced by the state, but also that the state can make very important interventions in its own right. In the 18th century, the biggest intervention is the Navigation Acts and Smith is ok with them. He thinks that security trumps trade if that’s what is required.

So, in that sense, he’s prepared to allow some very strong interventions under certain circumstances. We mustn’t think of him in a purely laissez-faire way. He’s looking for unified treatments, but I think he might well say that we shouldn’t expect a single unified answer to why productivity has been as bad as it is. There are lots of different things going on. These days, we might think in terms of zombie companies, withdrawal of labour from the workforce, marginal incentives or the financialisation of the economy. I’m not sure what a specifically Smithian theory would be – this is just a parlour game – but I think he would warn against a single, one-size-fits-all approach.

One thing that's quite interesting to look at is market activity and technology. Smith doesn't really have a theory of technology, although he lived in a period of very rapid technological change. In the 1770s and 1780s, technology was about to accelerate massively on the back of steam, and Smith was a good friend of James Watt.

But in a Smithian spirit, we could look at whether there are market-based means in which tech oligopoly or monopoly could be counteracted. One I suggest in the book is this idea of algorithmic consumers, where you set up bodies to aggregate consumer preferences or consumer behaviour – opposite Facebook or Google – so consumers are not always being individually picked off at the marginal rate. I think that would potentially level the playing field in quite an interesting way. The government hasn't really begun to think about those kinds of issues.

If you think about trade, Smith was never hostile to the idea that occasionally you had to engage in a bit of trade warfare in order to keep the other side honest. He wouldn't be abashed by that, but he certainly would be by a global retreat from trade and a raising of tariffs and non-tariff barriers. That's absolutely contrary to Smithian economics.

On another issue we've been thinking about, Smith was interested in what he calls mental mutilation to the wellbeing of people who are involved in work. And he believes that some form of public education is in order to liberate people from the kind of slavery that comes from repetitive work. And I think that's got all kinds of interesting applications and implications.

RV: Yes, he is very clear that there is a role for government intervention to increase the human capital of the whole population – and yet some free market interpreters of his work have suggested he didn't really mean it and it was a late addition.

JN:

I don't think there can be any doubt about it. From the very beginning of book one, chapter one of The Wealth of Nations, Smith presents a theory of specialisation and what we would term value-added. You're obviously going to get the benefits of intellectual capital to improve specialisation, but you're also going to get the negative impacts on intellectual capital from too much mind numbing, repetitive work. You can see how Smith is on both sides of that argument.

Smith was a very, very careful editor of his own work. He put these two enormous boats in the water, he spent the rest of his life tending and loving them, so the last thing he’s going to be doing is putting in stuff that he doesn't believe. His thoughts obviously evolved because they're being criticised by others as well as by himself, and he's reflecting more on these issues. But I don't think that in any sense means that they were 'merely' confused late additions. It think that's wholly inaccurate.

RV: Let’s reflect on your own personal engagement. You’ve worked in academia, in the private sector and now in government. Smith is all about the intersections of different parts of society – the market, the state, civil society – so it would be good to hear your take on that and how he might have influenced your own career.

JN:

My view of politics is that to be a politician at the highest level, you have to be a speaker of words and a doer of deeds – this is a Homeric idea. You can’t be a speaker of words if you haven’t reflected on political principle, because the difference between conduct and behaviour is that behaviour doesn’t have a self-conscious principle guiding it, while conduct does, one could argue.

If you’re going to talk about politicians in any full sense, you have to ask: what are they arguing for? What are their principles? Why do they think this issue is important? And of course, politics is a persuasive activity. There has to be a reflective layer, a layer of principle, that the politician can go to when someone asks: why are you doing these two things that look like they're contradicting each other? Have you just invented something for reasons of expediency, or does it come out of a core principle?

My way of thinking about politics has broadly been to advance a particular kind of small ‘c’ conservative view of the world, which I regard as the resting common sense of the average Brit, slightly elaborated and theoretically developed. It comes out of Burke and Smith, and I've written about it in philosophy, and then in the biographies and now in my new novel The Winding Stair., which is about two no less extraordinary people in their own ways, Francis Bacon and Edward Coke. Each of these approaches – philosophy and biography and the novel – is a different vector, a different means by which to get this way of thinking to people, and through them an understanding of history, tradition, context and the things that shape human thought and human behaviour as a result.

When you think about Smith, he is an astoundingly interdisciplinary thinker. The linking idea of exchange that brings together The Wealth of Nations, as the exchange of goods and services, and The Theory of Moral Sentiments, as the exchange of regard or esteem, is also the idea of exchange that underlies his thoughts on how language develops. So, we’re exchanging ideas through language with each other. That composite theory shows how he was intellectually able to devise a single unified set of ideas and then to apply it to different circumstances.

In my case, the thing that has been interesting in my own life has been how everything I have done in different ways recapitulates itself in my political activity. I spent some time working on Wall Street and in the City of London, and then I ended up on the Treasury committee. I spent some time running arts organisations and being on the board of the Camden Roundhouse in London and the Hay Festival, and then I ended up running the culture, media and sport committee. I’ve been a devout cyclist all my life, and now I run decarbonisation and technology within the Department for Transport. So, all the different parts of your life become part of the same thing.

I went into politics the old-fashioned way: I turned 40, I was already very interested in and committed to public service, and thought that I should get on and do more of it, and at a higher level. The intellectual and character formation in my life had occurred long before the time I went into politics and I think it’s always a missed opportunity when people go into politics unformed by experience.

That lack of experience means that often they don’t have much to bring to the people who are their constituents. And they may therefore be quite short on the three things I think you need to be effective: you need IQ, a degree of academic or mental agility; emotional intelligence (EQ) or the ability to relate to people; and practical intelligence (PQ), the ability to get stuff done. People who arrive in politics early often don’t have that last part, the PQ part – they might have been preoccupied with climbing up the greasy pole and their advancement within the political world, rather than actually acquiring knowledge about the world, which is the bit that actually matters and might be of value in political life.

The other advantage of age and experience is that you are also able to come to a view about what matters in your own life and what matters in society. That makes you much more effective and a better advocate. For example, I am trying to build a university in Hereford at the moment, because I don’t think a human being can do anything better than build a university. It is hard work, and it's an entrepreneurial act, but it's absolutely worth the candle because if we get it right, then we revolutionise an area, we regenerate a whole part of the country, and we create a model that we can spread around the rest of the UK. It’s a big target.

It’s the same when I write books. That target is to try to change people’s minds: whether it’s Burke and political parties, the origins of representative government and the duties of an MP, or markets, political economy and society with Adam Smith, or in my new book – The Winding Stair – the rule of law and Edward Coke, or the origins of science and technology and Francis Bacon. Hopefully, by reading my work, it does cohere into a view of what matters in life and how we should understand the world.

RV: To return to Smith, he was an intellectual, but also very much engaged in society and worked in government. I wonder if you can reflect on his take on the interaction between ideas and action, between what academics do and what gets done in the real world?

JN:

Smith is one of the very first people who was able to make his life as an academic and also simultaneously in public life. The Scottish Enlightenment is an enlightenment of academics; it is not one of salon flâneurs or wits. Smith, as an academic, puts in the hard yards. He does the thinking, does the teaching, which he enjoys, and comes out of a very academic milieu. That gives an intellectual integrity and character to his work. But he was also much more engaged in public affairs than people sometimes reflect.

At the time of the stamp duty crisis in 1766-67, the British government is in uproar over the colonies. There’s just been a change of government and Charles Townshend becomes the chancellor. He calls in Smith to check some of his tax numbers and give him advice, so Smith is advising the Treasury in the 1760s. In the 1770s, Smith is advising the Duke of Buccleuch who is trying to rescue his fortune from the catastrophe of the Ayr Bank collapse, and the secondary banking crisis in Scotland. In the same decade, Smith publishes The Wealth of Nations, which leads to an enormous interest in political economy and demand for his services.

He was promised a position after he leaves the Duke’s service, and he picks that up as a commissioner of customs in Scotland. And customs were a very big deal, because they generated a very large chunk of government revenue, particularly since Scotland was a place where smuggling had been endemic and was still pretty widespread.

So the job of enforcing against smuggling and setting a sensible, tolerable tax regime and maximising the yield was a very hands-on thing. When the revenue and the customs were being merged by Gordon Brown in the noughties, it’s sometimes forgotten that revenue was the junior partner: they were a bunch of suits sitting behind desks calculating your tax, while the customs and excise were the guys who kicked down the doors and said ‘show me the swag’. The customs and excise had all these extra legal powers because they had to be able to take rapid action and arrest people.

One of the joys of being in charge of the tax system, which I was for a couple of years in 2019-21 as Financial Secretary, when I ran the pandemic furlough scheme, was the occasional moment when I had the chance to listen in on some of the eavesdropping that the customs do on modern day smugglers. That's very real, and real-time activity – and Smith would have completely understood it.

The idea that Smith is just an ivory tower intellectual is quite wrong. I’ve written an article about him as an adviser, Adam Smith was not a very practical man, but the idea that he was just an ivory tower intellectual is quite wrong. I’ve written an article about him as an adviser, which goes through all the different ways in which he was involved in advising on political, economic and tax matters. It’s a very substantial list—and his advice was clearly taken very seriously, as you might expect, given the respect in which he was held.

Picture by Aivita for iStock