Adam Smith: Designing Modernity

In their Communist Manifesto, Marx and his colleague, Friedrich Engels, insisted that “the history of all hitherto existing “society” is the history of class struggles”:

Freeman and slave, patrician and plebeian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large or in the common ruin of the contending classes.

The modern bourgeois society that has sprouted from the ruins of feudal society has not done away with class antagonisms. It has but established new classes, new conditions of oppression, new forms of struggle in place of the old ones.

The discovery of America, the rounding of the Cape, opened up fresh ground for the rising bourgeoisie. The East-Indian and Chinese markets, the colonisation of America, trade with the colonies, the increase in the means of exchange and in commodities generally, gave to commerce, to navigation, to industry, an impulse never before known and thereby, to the revolutionary element in the tottering feudal society, a rapid development.

The feudal system of industry, in which industrial production was monopolised by closed guilds, now no longer sufficed for the growing wants of the new markets. The manufacturing system took its place. The guild-masters were pushed on one side by the manufacturing middle class; division of labour between the different corporate guilds vanished in the face of division of labour in each single workshop.

Meantime, the markets kept ever growing, the demand ever rising. Even manufacturer no longer sufficed. Thereupon, steam and machinery revolutionised industrial production. The place of manufacture was taken by the giant, modern industry; the place of the industrial middle class by industrial millionaires, the leaders of the whole industrial armies, the modern bourgeois.

Modern industry has established the world market, for which the discovery of America paved the way. This market has given an immense development to commerce, to navigation, to communication by land. This development has, in its turn, reacted on the extension of industry; and in proportion as industry, commerce, navigation, railways extended, in the same proportion the bourgeoisie developed, increased its capital and pushed into the background every class handed down from the middle ages.

We see, therefore, how the modern bourgeoisie is itself the product of a long course of development, of a series of revolutions in the modes of production and of exchange.

Thus, what Adam Smith described as transformative – division of labor and specialization of function – Marx and Engels relegated to the “same old, same old” perpetual system of classism and class antagonisms and so set in motion two hundred years of disparagement, belittling the self-sustaining and auto-expanding creation of wealth for the nations of humanity. Marx seemingly was attempting to marginalize Adam Smith as the bete-noire for people captivated by Marx’s proposed “scientific” socialism as the basis for humanity’s best of all possible futures.

Pre-modern, pre-capitalist cultures did not and could not create much wealth.[1] They had no printing presses, no bicycles, no flush toilets, no antibiotics, no electricity, no airplanes and no cell phones. For millennia, stocks of human and social capital remained impoverished. Technology was primitive. What economic capital there was mostly took the form of land or money. Military, religious and social status and political power provided those so privileged with access to the ownership of both land and money.

Pre-modern economic systems were rent-seeking, using extraction modes of exchange and servitude to sustain elites. Markets were small and local. Elite command and control of labor delivered roads, dikes, irrigation, fortresses, castles and temples. Social power privileged the theocratic and the militaristic, who in turn privileged themselves extracting rents from subordinated populations.

So, it was not surprising that those regimes following Marx’s thinking, both its idealism and its cynicism, never created much wealth – the Soviet Union and its colonies in Eastern Europe, China under Mao, North Korea, Cuba, Venezuela, Arab militarism and Islamic feudalism. The peoples living under such regimes or their successors have never fully modernized as have those living in those regimes more aligned with the insights and policy recommendations of Adam Smith respecting empowerment of individual moral agency.

Ironically, contemporary systems of managerial capitalism, including one-party state capitalisms, have revived rent-seeking by managers and rent extraction for the financing of elite privileges. Putin’s Russia has revived Tsarist Russia with its centralized government, boyar landlords, all legitimized by the myth of the Third Rome embodied in Moscow’s Russian Orthodox Church. Xi Jinping has revived in contemporary – and not yet fully modernized – China, the mandarinate of former imperial dynasties as first proposed by Mozi in 400 BCE.

By drawing attention to the possibilities and advantages of capitalism, saving us from slavish authoritarian ways of being governed and serf-like, paying rents as demanded by our overlords, Smith deserves our thanks.

Why a Book about Adam Smith?To encourage appreciation for his work with the benefits of 250 years of hindsight and commentary and to honor his insights, for he was the first to describe the way of living, working and investing which would modernize humanity.

What Did Adam Smith Want to Accomplish in Writing Wealth of Nations?Smith wrote as an observer, a journalist of sorts, to describe what he was seeing in the society around him as new and important for the provision of economic goods. He did not write as an ideologue advocating an articulate theory of micro or macroeconomics seeking to shape public policy. His observations were more like those of an anthropologist reporting in detail how a social system functioned, while drawing some common sense conclusions as to its mechanics and their consequences. His work reminds me of what anthropologists call “thick description.” Ruth Benedict’s work on bringing us more in harmony with Japanese cultural and social realities in Chrysanthemum and the Sword and Richard Solomon’s success in allowing outsiders to vicariously be a part of Chinese political culture in Mao’s Revolution and Chinese Political Culture are contemporary analogies to what Smith was seeking to accomplish. Smith sought to educate us as to what was happening. He was serving only as a reporter and commentator, not as a prophetic theologian prescribing a catechism for social justice.

An insight into Smith’s methodology is provided by a student’s notes of his March 1763 lecture on jurisprudence. He sought to understand how a society functioned, in this instance how a society operationalized policy or politics.[2] He lectured that one of the goals of state policy was “the proper means of introducing plenty and abundance into the country, that is, the cheapness of goods of all sorts.”[3] He noted that cheapness was a necessary consequence of plenty. So, for the people to have low prices, there must be a large supply of whatever they want to buy. Plenty, he argued, came from production and the deployment of human capital to improve the process of production: “The butcher, the miller, the baker, the brewer, the cook, the confectioner, etc., all give their labor to prepare the various products of the earth for food to man… the shops of the upholsterer, the draper, the mercer, and cloth-seller,… the carpenter, the mason, the bricklayer, the artificers of brass and iron, copper… tend to the same end. … All the several arts and businesses in life tend to render the conveniences and necessities of life more attainable.”[4] Smith then noted that because of the industry and ingenuity of all those in these trades, “an ordinary day-laborer” in England” “has more of the conveniences and luxuries of life than an [American] Indian prince at the head of 100 naked savages.” Smith then explained that “the division of labor among different hands can alone account for” the plenty in one society and the dearth of goods in the other. He then examined the invention of machines, the production line of a factory making straight pins used in sewing, the need of workers to act in concert and how those in need of help from others go about securing that assistance.

All this was a study of how goods are made, not a theory of how best to allocate social roles or political power. Smith was reporting, not preaching.

From a theological standpoint, Smith was simply living out the optimistic vision of the Scottish enlightenment appreciating God’s creation as one made with care and concern for our use and benefit – an earthly realm of common grace. His approach in explaining in one book human moral sentiments and in a second book the constructive, worldly use of natural, human and social capitals seems well designed to help us make the most of God’s earthly kingdom, to make the most of God’s gift by learning how to use its possibilities, its energies and to bring out the best in our species.

In the eighteenth century, Adam Smith was the recipient of two hundred years of an exceptional intellectual tradition – the invention of the scientific method and the practical use of that method to understand the laws of nature and nature’s god. This method, new to human history, proceeded step by step, hypothesis by hypothesis, one factual investigation and experiment followed by another factual investigation and experiment. The scientific method integrated into a body of secular knowledge theory and reality, human imagination, thoughts and propositions expressed in words and the workings of the cosmic order from distant stars to tiny microbes not visible to the eye.

Smith’s work on the “science” of producing wealth was published in 1776, the same year as the British colonies in North America determined that they had an irrevocable “separate and equal station” to which the “Laws of Nature and of Nature’s God” had entitled them to enjoy in freedom and independence. So, with that justification for their actions, they declared themselves to be independent and no more subject to the dominion of the British Crown and Parliament.

While the scientific method had its center of progress in England, in 1543, Nicolaus Copernicus published De revolutionibus orbium coelestium (On the Revolutions of the Heavenly Spheres). Galileo, in Italy, had paved the way with use of the telescope. Leonardo DaVinci studied the human body.

In 1604, Johannes Kepler published Astronomiae Pars Optica (The Optical Part of Astronomy), proposing the inverse-square law governing the intensity of light.

In England, Francis Bacon wrote the Novum Organum in 1620 in Latin, which proposed that we humans could be “the minister and interpreter of nature,” “knowledge and human power are synonymous” and “nature can only be commanded by obeying her.” By seeking to know nature, we could have power over nature, bending it to our will. For Bacon, this would reestablish the “dominion of man over creation,” which had been lost by the fall of Adam and Eve in the Garden of Eden. Following science, then, would raise humankind above helplessness and poverty, while coming to enjoy plenty and well-being.

Blaise Pascal invented the mechanical calculator in 1642. The first scientific society to be established was when a royal charter was signed on July 15, 1662, creating the Royal Society of London.

Robert Boyle pioneered chemistry and is best known for Boyle’s law (1662) on the inversely proportional relationship between the absolute pressure and volume of a gas when the temperature is kept constant within a closed system. Isaac Newton’s 1687 publication Principia gave us the laws of motion and universal gravitation.

In 1673, Samuel Pufendorf wrote on morals as the product of natural law and therefore, discoverable through study of reality. His book, The Whole Duty of Man According to the Law of Nature, was translated into English in 1691. John Locke’s An Essay Concerning Human Understanding on natural laws of human cognition had appeared in 1689.

In England, learning about the immutable laws of nature was applied to increasing the productivity of land and domesticated animals to improve standards of living. Selective breeding for desired traits was established as a scientific practice by Robert Bakewell in the 1700s. Jethro Tull invented a rotating cylinder seed drill to improve the planting of crops. In 1731, he published The Horse-Hoeing Husbandry. Viscount Charles Townsend in the 1730s introduced turnip farming on a large scale, making possible a four-crop rotation (wheat, turnips, barley and clover), which allowed fertility to be maintained with much less fallow land.

The first steam engine was invented by Thomas Newcomen in 1712 and introduced commercially in 1776, with the first one sold to the Carron Company. In 1781, James Watt invented a gear to transform the linear motion of the engines into rotary motion. Watt’s partner, Matthew Boulton, introduced other machines making use of this rotary motion, leading to the first modern industrialized factory, the Soho Foundry.

Carl Linnaeus (1707–1778), a Swedish biologist and physician, invented a system for naming organisms – genus and species – which permitted more rigor in reporting on the natural world of plants and animals and so better describing similarities and differences among them.

Simultaneously in France, the scientific method was applied to the creation of economic value. Its advocates – François Quesnay (1694–1774), Marquis de Mirabeau (1715–1789) and Anne Robert Jacques Turgot (1727–1781) – were called “physiocrats,” from the Greek word for “governance of nature.”

Worthy of note is that the concept of “laissez-faire,” so often associated with Adam Smith, was actually coined by the physiocrat Francois Quesnay as a translation from the Chinese, from the Taoist concept of “non-action” or wu-wei. Quesnay was evidently moved by the Taoist concept of the dao or the “way” of nature into which we humans must fit our ambitions and actions.

Adam Smith, therefore, was very much a man of his time. He was a naturalist examining not natural, but social systems, seeking to discern the laws of nature at work in the human-verse and then report his findings. His first book on moral sentiments was a study of human nature, rather like the work of a modern anthropologist or psychologist, a Freud or an Erik Erikson. He described the natural orientation of human persons to sociability, given the possibilities inherent in their nature. In this work, Smith was a user of the scientific method to dissect the natural origins and assess the inherent powers of morals and ethics.

The creation of science opened the possibility for modernization of human experience. The laws of how things work needed to be understood before such things could be made to work better. Natural laws cause the future to happen. Knowing such laws made predictions highly accurate, expanding the human capacity for being prudent. Knowledge of causation, of possibilities, of necessary outcomes – not the gods above or the devils below – makes us masters of our fates.

What about Greed?Is capitalism, by its nature, repugnant to our best instincts and contrary to our best behaviors? Why did not Smith see this and protest if he was so concerned with the quality of our moral sentiments?

But in Wealth of Nations, he quite bluntly rejected what he called “the vile maxim of the masters of mankind ... All for ourselves and nothing for other people.”

Thus, a contemporary fixation – accusing Smith of divorcing capitalism from ethics – misunderstands the man and his engagement with the natural order of human purposing. Smith was acutely aware of systems, of interdependency, of multiple variables and sources of energies and outcomes. He could discuss reason without forgetting morals and the reverse – a focus on morals, while not ignoring the contributions of reason. Thus, on the dynamics of markets and the drive of capitalists or persons in general, Smith could accept self-interest as part of a natural order and also moral sentiments as a check on that crasser, materialist, self-centered search for mastery in a world without tears.

His advice on such intermediation within the natural world was the ideal of prudence – a virtue: “This superior prudence, when carried to the highest degree of perfection, necessarily supposes the art, the talent and the habit or disposition of acting with the most perfect propriety in every possible circumstance and situation. It necessarily supposes the utmost perfection of all the intellectual and of all the moral virtues. It is the best head joined to the best heart. It is the most perfect wisdom combined with the most perfect virtue.”

Wealth of Nations is not a prescription for rising above our natures. Like any other phenomenon taking part in the cosmic order of things, we are what we are and Smith knew this. But he also knew that humans have moral sentiments that guide their understanding of what is in their best interest. If Smith is an advocate of anything, he is for making the best use of nature, including our natures, as we would make the best use of soil, water, heat, sheep’s wool and cotton fibers.

Smith accepted self-interest – greed – as part of human nature and not as something that could be ignored or removed from human living. In this, he was not utopian. He did not expect the ideal of perfection ever to be a practical norm for human achievement. What you mostly see in people is what you mostly get. That is the scientist’s way of looking at the facts and at what is observable and measurable. That realism is how a naturalist describes the workings of nature or how an anthropologist describes a culture. To fall back on Smith’s Christian tradition, we can say that the human person rarely eradicates the urgings of superbia – pride – and of the libido dominandi – the psychic enjoyment of domination.

He did not limit his understanding of human nature to the dictates of a crass and unfeeling self-interest. The use of prudence puts restraints on self-interest. A prudent self-interest is an enlightened self-interest, a self-interest well considered upon the whole of possibilities and circumstances, a self-interest that restrains the urgings of superbia and libido dominandi.

“In the steadfastness of his industry and frugality, in his steadily sacrificing the ease and enjoyment of the present moment for the probable expectation of the still greater ease and enjoyment of a more distant, but more lasting period of time, the prudent man is always both supported and rewarded by the entire approbation of the impartial spectator and of the representative of [that] impartial spectator, the man within the breast.” Smith’s “impartial spectator” is what we would call our common sense or our conscience, that emotional/intellectual ability vested in our mind to see into the minds and hearts of others and the course of future events.