Adam Smith

Adam Smith was educated in that school in Scotland which has produced so many scholars, historians, and philosophers, of the highest celebrity. He published his Wealth of Nations in 1776.

He demonstrated that:

• wealth was the exchangeable value of things
• its extent was proportional to the number of things in our possession having value
• wealth could be created and engrafted on things previously destitute of value just as value could be given or added to matter
• wealth could be preserved, accumulated, or destroyed. 21

Many principles strictly correct had often been advanced before Dr. Smith. 23 But he was the first to establish their truth.

He gave us the true method of detecting errors. He has applied to political economy the new mode of scientific investigation of not looking for principles abstractedly, but by ascending from facts the most constantly observed, to the general laws which govern them.

Every fact has a particular cause. The spirit of system looks at the cause. The spirit of analysis looks at why a cause has produced this effect in order to prove that it could not have been produced by any other cause.

His work is a succession of demonstrations, which has elevated many propositions to the rank of indisputable principles, and plunged a still greater number into that imaginary gulph, into which extravagant hypotheses and vague opinions for a certain period struggle, before being forever swallowed up.

He said that the origin of value is from the labour of man. He should have called it “industry” which is a more comprehensive and significant word than “labour”. He saw which causes stifle the productive powers of labour which are prejudicial to the growth of wealth.

I cannot perceive in what these obligations consist. In the conception of his subject, Dr. Smith displays the elevation and comprehensiveness of his views, whilst the researches of Stewart exhibit but a nar- row and insignificant scope.

He was opposed by Stewart who supported the mercantilist system maintained by Colbert, adopted afterwards by all the French writers on commerce, and steadily followed by most European governments.

It says that national wealth is not on the value of its productions, but on its sales to foreign countries.

One of the most important portions of Dr. Smith’s work is devoted to refuting this theory.

The phenomena of production being now better known than they were in the time of Dr. Smith, have enabled his succes- sors to distinguish, and to assign the difference found to exist, between a real and a relative rise in prices; 25 a difference which furnishes the solution of numerous problems, other- wise wholly inexplicable.

Such, for example, as the following= Does a tax, or any other impost, by enhancing the price of commodities, increase the amount of wealth? 26

The income of the producer arising from the cost of production, why is not this income impaired by a diminution in the cost of production?

Now it is the power of resolving these abstruse problems which, nevertheless, constitutes the science of political economy. 27

The economists have also pretended, that Dr. Smith was under= obligations to them. But to what do such pre tensions amount? A man of genius is indebted to everything around him; to the scattered lights which he has concentrated, to the errors which he has overthrown, and even to the enemies by whom he has been assailed; inasmuch as they all contribute to the formation of his opinions. But when out of these materials he afterwards embodies enlarged views, useful to his contemporaries and posterity, it rather behoves us to acknowledge the extent of our own obligations, than to reproach him with what he has been supplied by others.

Moreover, Dr. Smith has not been backward in acknowledging the advantages he had derived from his intercourse with the most enlightened men in France, and from his intimate correspondence with his friend and countryman Hume, whose essays on political economy, as well as on various other subjects, contain so many just views.

By the exclusive restriction of the term wealth to values fixed and realized in material substances, Dr. Smith has narrowed the boundary of this science. He should, also, have included under its values which, although immaterial, are not less real, such as natural or acquired talents.

Of two individuals equally destitute of fortune, the one in possession of a particular tal- ent is by no means so poor as the other. Whoever has acquired a particular talent at the expense of an annual sacri- fice, enjoys an accumulated capital; a description of wealth, notwithstanding its immateriality, so little imaginary, that, in the shape of professional services, it is daily exchanged for gold and silver.

Dr. Smith, who with so much sagacity unfolds the manner in which production takes place, and the peculiar circumstances accompanying it in agriculture and the arts, on the subject of commercial production presents us with only obscure and indistinct notions. He, accordingly, was unable to point out with precision, the reason why, and the extent to which, facilities of communication are conducive to production.

After having shown, as fully as so rapid a sketch will permit, the improvement which the science of political economy owes to Dr. Smith, it will not, perhaps, be useless to indicate, in as summary a manner, some of the points on which he has erred, and others which he has left to be elucidated.

He did not subject to a rigid analysis the different operations comprehended under the general name of industry, or as he calls it, of labour, and, therefore, could not appreciate the peculiar importance of each in the business of production. To the labour of man alone he ascribes the power of producing values.

This is an error.

A more exact analysis demonstrates, as will be seen in the course of this work, that all values are derived from the operation of labour, or rather from the industry of man, combined with the operation of those agents which nature and capital furnish him.

Adam Smith did not, therefore, obtain a thorough knowledge of the most important phenomenon in production; this has led him into some erroneous conclusions, such, for instance, as attributing a gigantic influence to the division of labour, or rather to the separation of employments.

This influence, however, is by no means inappreciable or even inconsiderable; but the greatest wonders of this description, are not so much owing to any peculiar property in human labour, as to the rise we make of the powers of nature. His ignorance of this principle precluded him from establishing the true theory of machinery in relation to the production of wealth.

His work does not furnish a satisfactory or well connected account of the manner in which wealth is distributed in society; a branch of political economy, it may be remarked, opening an almost new field for cultivation.

The too imperfect views of economical writers respecting the production of wealth precluded them from forming any accurate notions in relation to its distribution. 28

Finally, although the phenomena of the consumption of wealth are but the counterpart of its production, and although Dr. Smith’s doctrine leads to its correct examination, he did not himself develop it; which precluded him from establishing numerous important truths. Thus, by not characterizing the two different kinds of consumption, namely, unproductive and reproductive, he does not satisfactorily demonstrate, that the consumption of values saved and accumulated in order to form capital, is as perfect as the consumption of values which are dissipated.

The better we become acquainted with political economy, the more correctly shall we appreciate the importance of the improvements this science has received from him, as well as those he left to be accomplished. 29

Sometimes these dissertations have but a very remote connexion with his subject. In treating of public expenditures, he has gone into a very curious history of the various modes in which war was carried on by different nations at different epochs; in this manner accounting for military successes which have had so decided an influence on the civilization of many parts of the earth.

These long digressions at times, also, are devoid of interest to every other people but the English. Of this description is the long statement of the advantages Great Britain would derive from the admission of all of her colonies into the right of representation in parliament.

Such are the principal imperfections of Smith’s Wealth of Nations. Its organization is also wrong.

The excellence of a literary composition as much depends upon what it does not, as upon what it does contain. So many details, although in themselves useful, unnecessarily encumber a work designed to unfold the principles of political economy. Bacon made us sensible of the emptiness of the Aristotelian philosophy; Smith, in like manner, caused us to perceive the fallaciousness of all the previous systems of political economy; but the latter no more raised the superstruc- ture of this science, than the former created logic.

To both, however, our obligations are sufficiently great, for having deprived their successors of the deplorable possibility of proceeding, for any length of time, with success on an improper route. 30

In many places the author is deficient in perspicuity, and the work almost throughout is destitute of method. To understand him thoroughly, it is necessary to accustom one’s self to collect and digest his views; a labour, at least in respect to some passages, he has placed beyond the reach of most readers; indeed, so much so, that persons otherwise enlightened, pro- fessing both to comprehend and admire his doctrines, have written on subjects he has discussed, namely, on taxes and bank-notes as supplementary to money, without having understood any part of his theory on these points, which, never- theless, forms one of the most beautiful portions of his Inquiry.

There is still no textbook on political economy, so I am making one. My method is to read what had been previously written and afterwards to forget it. Instead, I freely consult the nature and course of things, as actually existing in society.

Smith’s fundamental principles are scattered in the Wealth of Nations Book 4 where he gave two excellent refutations of the exclusive or mercantile system and the economists’ system.

The principles on the real and nominal prices are introduced in the digression on the value of the precious metals during the course of the last four centuries. His opinions on money are in the chapter on commercial treaties.

Dr. Smith’s long digressions have been properly much censured because it leads to information overload.

His Book 3 is but a magnificent digression, the same as his highly ingenious disquisition on public education, replete as it is with erudition and the soundest philosophy, at the same time that it abounds with valuable instruction.

It was but reasonable to expect from the lights of the age, and from that method of philosophizing which has so powerfully contributed to the advancement of other sciences, that I might at all times be able to ascend to the nature of things, and

In this respect resembling a philosophical mechanician, who, from undoubted proofs drawn from the nature of the lever, would demonstrate the impossibility of the vaults daily executed by dancers on the stage. And how does this happen?

The reasoning proceeds in a straight line; but a vital force, often unperceived, and always inappreciable, makes the facts differ very far from our calculation.

From that instant nothing in the author’s work is represented as it really occurs in nature. It is not sufficient to set out from facts;

They must be brought together, steadily pursued, and the consequences drawn from them constantly compared with the effects observed.