E.K.Hunt on Adam Smith, part 1

Lisa Rogers eqwq.lrogers at state.ut.us
Fri Feb 2 19:24:50 MST 1996


E.K.Hunt 1992 _History of Economic Thought: a critical perspective_, HarperCollins

Chapter 3 Adam Smith

summary by Lisa Rogers

[begin part 1 of 2]

Adam Smith (1723-1790) was born in Scotland, became a professor as Glasgow U. 1751-1764 and published _The Theory of the Moral Sentiments_ (on moral and social philosophy) in 1759.  Later, he spent two years in France where he interacted with Quesnay, and he published _The Wealth of Nations_ in 1776.  He was the first economist "to develop a complete and relatively consistent abstract model of the nature, structure, and workings of the capitalist system."  He saw interconnections between social classes, sectors of production, distribution of income, commerce, circulation of money, prices and economic growth.  His model does contain some contradictions, and many later economists who contradict each other all can trace many of their ideas back to Smith.

	Historical Context of Smith's Ideas
After overcoming the fetters of feudalism and expanding during the transitional period of mercantilism, capitalism clearly displayed its features in the industrial revolution, beginning around 1770 in Britain and spreading throughout West Europe in the early 19th c.  From 1700-1770, foreign markets for English export grew very rapidly, as did production for export.  Profit-seeking motivated an explosion of technological innovation.

The English state banned the import of cotton fabric from India in 1700, and the woolen textile industry profits soared both at home and in export.  Inventions in weaving and spinning increased productivity, water power was harnessed to run these machines and later steam.

The use of charcoal in iron smelting had caused deforestation, and England had begun to import iron from colonies, until a new process (1709) allowed a switch from charcoal to the plentiful coal.  Increased military demand for iron later in the 18th c. fueled a series of inventions and a huge increase in production.  The expansion in the coal and iron industries allowed the widespread use of iron machinery in other areas.  Technical innovations continued, aimed at lowering costs of production and increasing output.  The new feasibility (1769) of the widespread use of steam engines multiplied further the development of industry and freed it from the geographical limitations of water power.

By mid-18th c. a lot of production was done in "manufactories".  Owned by capitalists who hired wage-workers, the methods of production still resembled older handicraft techniques.  Here, the industrial capitalist could be clearly seen as distinct from merchant capitalists and workers, as well as increasing division of labor and productivity.

Smith was the first important economist to see profits on industrial capital distinct from wages, rents and profits on merchant capital, and that profits, rents and wages as income corresponded to the social classes of capitalists, landlords and workers.


	Smith's Theories of History and Sociology
He analyzed the origins and development of class conflict and the way in which power was used in the class struggle.  At the same time, a persistent theme was that the actions of self-interested individuals result in a benevolent harmony for society at large, "as if by an invisible hand".  This social harmony was an unintended, natural effect of capitalism.  This view of simultaneous class war and societal benefit is a major contradiction, shared also by the work of Ricardo.

His theory of history began with the idea that the manner of production and distribution of the material necessities of life (economic base) was the most important determinant of every society's social institutions, and personal and class relations (superstructure).  Property relations determined the form of government.  The four stages of societal development were hunting, herding, farming and commerce, but there was no presumption of necessary change; appropriate circumstances were required for progress. 

Foragers did not have the economic basis necessary for privilege and power.  Herders own cattle which can be accumulated, hence the necessity for government to protect property rights, which means that some have power over others.
	"Civil government, so far as it is instituted for the security of property, is in reality instituted for the defense of the rich against the poor, or of those who have some property against those who have none at all."  (_Wealth of Nations_ New York: Modern Library 1937 edition, p.674)

Farming made ownership of land the most important property relation in the separation of classes.  Ownership of large estates conferred wealth and power, and primogeniture protected that power by preventing the division of estates (i.e. feudalism developed.)  There were two problems: First, the wealthy had little to do with their money, other than to entertain each other and support dependent/ obedient soldiers and retainers.  Second, since the nobility had all power, there were no rights or freedoms for most people.  (Therefore, advance to capitalism was progressive.)

According to Smith, the rise of cities, production for foreign trade and expanding rights to ownership of land or means of production allowed producers to aspire to create wealth for themselves, rather than some lord.  This unleashed a powerful human motive, the desire to accumulate material wealth.  "[A] person who can acquire no property, can have no other interest but to eat as much and to labour as little as possible." (Quoted in Skinner's introduction to _Wealth of Nations_, p.23.)

Smith believed that 'nature' had created an illusion in all people that personal happiness came mainly from material wealth.  Although an illusion, the desire for personal gain had economic and social effects, i.e. it keeps everybody working and inventing new things.  He thought that lords wanted manufactured goods and had therefore, for purely selfish motives, made agriculture more efficient/profitable by abolishing serfdom and booting all the excess workers off the land.  Increased ag-production and trade with the cities was the economic base for the further development of capitalism, the most progressive form of society.  Again, this was the unintended effect of pure vanity and greed. 
All wealth was produced by labor, and the division of the surplus between profits and wages was determined by struggle between workers and capitalists.  Capitalists he recognized as much more powerful than workers, as they could afford to hold out through labor disputes, they controlled public opinion and had the government on their side, including the illegality of workers' unions.

[end of part 1 of 2]



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