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Master Thinker

Adam Smith shaped how we think about markets and society. January 11, 2019
Arts and Culture
Economy, finance, and budgets

Adam Smith: Father of Economics, by Jesse Norman (Basic Books, 432 pp., $32)

Jesse Norman’s important book about Adam Smith, the father of modern economics, is packed with insight, analysis, and perspective—as well as considerable color and drama. The complex nature of much of this material can make this book dense reading, but those who stick with it will find the effort rewarding. Norman, a conservative Member of Parliament in the U.K. and author of a praised biography of Edmund Burke, delivers a thoughtful and provocative account of Smith’s life and ideas—and why those ideas still matter.

Norman traces Smith’s life and intellectual development with literary flourish. Though Smith led a sedate life in academia, Norman enlivens these pages by placing him within his historical context. Smith would become an essential figure in the Scottish Enlightenment, which gave birth to Anglo-American positivism and formed the intellectual basis of our democratic institutions and traditions. We learn about his associations with Hume and Burke and the influence they had on him. Norman also discusses the political upheavals in Scotland and England, especially the Jacobite rebellions in favor of the deposed Stuart monarchs, and how they led Smith to appreciate the importance of political stability for economic productivity.

Woven into Norman’s narrative is a thoughtful analysis of Smith’s major work, The Wealth of Nations, and his earlier efforts, The Theory of Moral Sentiments and Lectures on Jurisprudence. Those with an economics background will find much of this material familiar: Smith’s identification of wealth with the capacity to produce, rather than with gold, which ran counter to eighteenth-century conventional wisdom; his insight into how the division of labor enhances income by increasing productivity; his emphasis on investment as a way to build wealth; and his demonstration of how markets effectively allocate resources and economic effort. Though these ideas were not entirely original, Smith’s integration of the concepts was revolutionary.

Many familiar with Smith’s works have described them as contradictory. The Theory of Moral Sentiments, a work of philosophy, makes a case for altruism, sympathy, and cooperation; The Wealth of Nations, an economic treatise, praises selfishness in a cutthroat world where individuals serve their own interests, regardless of the needs of others. Norman shows that the contradiction is more perception than reality. In both works, Smith finds public benefit in natural, human, but fundamentally self-regarding urges. In The Theory of Moral Sentiments, he roots his argument in a human desire for the respect and affection of others—the need to be “loved” and “lovely,” in Smith’s words. This need impels people to see themselves as others see them, and to engage in behavior that will win approval. This effort, Smith contends, enforces habits that evolve into social norms. These, he argues further, cultivate a general level of trust between people, and allow for the development of institutions and legal structures that establish legitimacy by upholding those customs.

The Wealth of Nations, Norman explains, does not contradict the sympathetic reasoning laid out in Smith’s earlier work. Rather, Smith discovers in markets a system that similarly creates public good from each person’s desire for gain. “By pursuing his own interest,” Smith writes, the economic actor “frequently promotes that of society more effectively than when he really intends to promote it.” Indeed, as Norman shows, the markets described in Smith’s economics are hardly cutthroat or amoral, as some critics contend. In fact, markets can function only because of the trust that results from the interactions described in The Theory of Moral Sentiments. Smith does not advocate self-regard, except to show that it forms the basis for balanced interactions and a peaceful society. Anything contrary—greed, abuse, violence, monopoly, special favors, arbitrary uses of power, and the like—Smith decries not only on moral grounds but also because it undermines the social benefits that self-regard and self-interest would otherwise produce in a market system.

Norman’s treatment of Smith’s belief in the labor theory of value could have benefited from more skepticism. The author overstates the extent to which Smith anticipated much of modern economic thought, and how Smith’s ideas can explain away its inadequacies. His whirlwind tour of economic intellectual history takes readers from John Stuart Mill and Keynes to game theory and the Efficient Markets Hypothesis, but fails to provide much depth. 

Norman regains his strength in the book’s final third, where he summarizes many contemporary political-economic challenges, including hyper-regulation that stifles markets and plays favorites, crony capitalism, a widening income and wealth gap, and globalization. Most gratifying is his emphasis on the fundamental principle underpinning Smith’s work: that society’s cohesiveness depends on the norms and values that evolve organically from bottom-up human interactions. In this, most of all, Norman delivers on his promise to show why Adam Smith’s thought remains essential.

Photo by Jeff J Mitchell/Getty Images

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